-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5+iGY4pG8UGFLaSwHpozVEsO0HqMak1wtPspv+9BTOsCxLuDltpaVNKDFT2WSza ZmzNYNkJDjMzhs0Dx2cwBg== 0000950123-04-009635.txt : 20040812 0000950123-04-009635.hdr.sgml : 20040812 20040812125523 ACCESSION NUMBER: 0000950123-04-009635 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20040812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRATOSPHERE GAMING CORP CENTRAL INDEX KEY: 0000926591 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880320164 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-07 FILM NUMBER: 04969470 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 7023857727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRATOSPHERE CORP CENTRAL INDEX KEY: 0000897743 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 880292318 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-08 FILM NUMBER: 04969471 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 7023824446 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: American Casino & Entertainment Properties LLC CENTRAL INDEX KEY: 0001297735 IRS NUMBER: 200573058 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149 FILM NUMBER: 04969463 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: American Casino & Entertainment Properties Finance Corp. CENTRAL INDEX KEY: 0001297738 IRS NUMBER: 200572981 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-09 FILM NUMBER: 04969472 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Arizona Charlies, LLC CENTRAL INDEX KEY: 0001297743 IRS NUMBER: 900160341 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-10 FILM NUMBER: 04969473 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Fresca, LLC CENTRAL INDEX KEY: 0001297744 IRS NUMBER: 880452576 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-05 FILM NUMBER: 04969468 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Charlies Holding LLC CENTRAL INDEX KEY: 0001297747 IRS NUMBER: 113716851 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-04 FILM NUMBER: 04969467 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Stratosphere Advertising Agency CENTRAL INDEX KEY: 0001297750 IRS NUMBER: 880357430 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-03 FILM NUMBER: 04969466 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Stratosphere Land CORP CENTRAL INDEX KEY: 0001297752 IRS NUMBER: 880357732 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-02 FILM NUMBER: 04969465 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Stratosphere Development LLC CENTRAL INDEX KEY: 0001297754 IRS NUMBER: 880466636 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-01 FILM NUMBER: 04969464 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Stratosphere Leasing, LLC CENTRAL INDEX KEY: 0001297757 IRS NUMBER: 880473554 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-118149-06 FILM NUMBER: 04969469 BUSINESS ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 702-383-5242 MAIL ADDRESS: STREET 1: 2000 LAS VEGAS BOULEVARD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89104 S-4 1 y99320sv4.txt FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 2004 Registration No. 333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7990 20-0573058 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7990 20-0572981 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
---------------------- 2000 LAS VEGAS BOULEVARD SOUTH LAS VEGAS, NV 89104 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) ---------------------- SEE TABLE OF ADDITIONAL REGISTRANTS ---------------------- DENISE BARTON CHIEF FINANCIAL OFFICER 2000 LAS VEGAS BOULEVARD SOUTH LAS VEGAS, NV 89104 TELEPHONE: (702) 383-5242 FACSIMILE: (702) 380-4738 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: STEVEN L. WASSERMAN, ESQ. JAMES T. SEERY, ESQ. PIPER RUDNICK LLP 1251 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 TELEPHONE: (212) 835-6000 FACSIMILE: (212) 835-6001 ---------------------- APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ---------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED (1) UNIT (1) PRICE (1) REGISTRATION FEE(2) - ------------------------------------------------------------------------------------------------------------ 7.85% Senior Secured Notes due 2012 $215,000,000 100% $215,000,000 $27,240.50 - ------------------------------------------------------------------------------------------------------- Guarantees (3) - - - - =======================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. (2) Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the registration fee has been estimated based on the book value of the securities to be received by the registrant in exchange for the securities to be issued hereunder in the exchange offer described herein. (3) Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable with respect to the guarantees. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. TABLE OF ADDITIONAL REGISTRANTS
State or other jurisdiction Principal Standard I.R.S. Employer of incorporation or Industrial Classification Identification Name of Additional Registrant formation Code Number Number - ----------------------------- --------------------------- ------------------------- --------------- Stratosphere Corporation Delaware 7999 88-0292318 Stratosphere Gaming Corp. Nevada 7999 88-0320164 Arizona Charlie's, LLC Nevada 7999 90-0160341 Fresca, LLC Nevada 7999 88-0452576 Charlie's Holding LLC Delaware 7999 11-3716851 Stratosphere Advertising Agency Nevada 7311 88-0357430 Stratosphere Land Corporation Nevada 6519 88-0357732 Stratosphere Development LLC Delaware 1541 88-0466636 Stratosphere Leasing, LLC Delaware 6519 88-0473554
The information in this Preliminary Prospectus is not complete and may be changed. We may not exchange these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Preliminary Prospectus is not an offer to exchange these securities and is not soliciting offers to exchange these securities in any State where the exchange is not permitted. PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST 12, 2004 ---------------------------------------- $215,000,000 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. OFFER TO EXCHANGE OUR 7.85% SENIOR SECURED NOTES DUE 2012, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL OF OUR OUTSTANDING 7.85% SENIOR SECURED NOTES DUE 2012 ---------------------------------------- MATERIAL TERMS OF THE EXCHANGE OFFER - The terms of the new notes are substantially identical to the outstanding notes, except that the transfer restrictions and registration rights relating to the outstanding notes will not apply to the new notes and the new notes will not provide for the payment of liquidated damages under circumstances related to the timing and completion of the exchange offer. - Expires 5:00 p.m., New York City time, on __________________, 2004, unless extended. - We will exchange your validly tendered unregistered notes for an equal principal amount of a new series of notes which have been registered under the Securities Act of 1933. - The exchange offer is not subject to any condition other than that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission and other customary conditions. - You may withdraw your tender of notes at any time before the exchange offer expires. - The exchange of notes should not be a taxable exchange for U.S. federal income tax purposes. - We will not receive any proceeds from the exchange offer. - The new notes will not be traded on any national securities exchange and, therefore, we do not anticipate that an active public market in the new notes will develop. ---------------------------------------- PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS DOCUMENT FOR CERTAIN IMPORTANT INFORMATION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE ISSUED IN THE EXCHANGE OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS -, 2004 TABLE OF CONTENTS
Page ---- PROSPECTUS SUMMARY.......................................................................... 1 RISK FACTORS................................................................................ 14 FORWARD-LOOKING STATEMENTS.................................................................. 33 INDUSTRY DATA............................................................................... 34 USE OF PROCEEDS............................................................................. 35 THE EXCHANGE OFFER.......................................................................... 36 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................. 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION....... 49 BUSINESS.................................................................................... 64 REGULATION.................................................................................. 77 MANAGEMENT.................................................................................. 84 OUR SOLE STOCKHOLDER........................................................................ 87 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS........................................ 88 DESCRIPTION OF SENIOR SECURED REVOLVING CREDIT FACILITY..................................... 91 DESCRIPTION OF INTERCREDITOR AGREEMENT...................................................... 92 DESCRIPTION OF NOTES........................................................................ 95 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES................................................ 157 PLAN OF DISTRIBUTION........................................................................ 162 LEGAL MATTERS............................................................................... 163 EXPERTS..................................................................................... 163 WHERE YOU CAN FIND MORE INFORMATION......................................................... 163 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................................. F-1
-i- We have not authorized any dealer, salesperson or other person to give any information or to make any representations to you other than the information contained in this prospectus. You must not rely on any information or representations not contained in this prospectus as if we had authorized it. This prospectus does not offer to sell or solicit any offer to buy any securities other than the registered notes to which it relates, nor does it offer to buy any of these notes in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The information contained in this prospectus is current only as of the date on the cover page of this prospectus, and may change after that date. We do not imply that there has been no change in the information contained in this prospectus or in our affairs since that date by delivering this prospectus. -ii- PROSPECTUS SUMMARY You should read the entire prospectus, including "Risk Factors" and the financial statements and related notes, before making an investment decision. Unless the context indicates otherwise, all references to "American Casino & Entertainment Properties LLC," "we," "our," "ours" and "us" refer to American Casino & Entertainment Properties LLC and include our subsidiaries. American Real Estate Partners, L.P., our indirect parent company, is referred to in this prospectus as "AREP." OUR COMPANY We own and operate three gaming and entertainment properties in the Las Vegas metropolitan area. The three properties are the Stratosphere Casino Hotel & Tower, or the Stratosphere, which is located on the Las Vegas Strip and caters to visitors to Las Vegas, and two off-Strip casinos, Arizona Charlie's Decatur and Arizona Charlie's Boulder, which cater primarily to residents of Las Vegas and the surrounding communities. The Stratosphere is one of the most recognized landmarks in Las Vegas and our two Arizona Charlie's branded properties are well-recognized casinos in their respective marketplaces. Each of our properties offers customers a value-oriented experience by providing competitive odds in our casinos, high-quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere, an offering of entertainment attractions found nowhere else in Las Vegas. We believe the value we offer our patrons, together with a strong focus on customer service, will enable us to continue to attract customer traffic to our properties. OUR PROPERTIES The following table sets forth certain information for each of our properties:
AT JUNE 30, 2004 CASINO ---------------- YEAR CUSTOMER SQUARE SLOT TABLE HOTEL PROPERTY OPENED ORIENTATION FEET MACHINES GAMES ROOMS -------- ------ ----------- ------- -------- ----- ----- Stratosphere.................. 1996 Tourist 80,000 1,366 47 2,444 Arizona Charlie's Decatur..... 1988 Local 52,000 1,504 15 258 Arizona Charlie's Boulder..... 2000(1) Local 41,000 844 14 303 ------- ----- -- ----- 173,000 3,714 76 3,005 ======= ===== == =====
- ---------- (1) Prior to 2000, Arizona Charlie's Boulder operated as a stand-alone hotel and recreational vehicle, or RV, park. STRATOSPHERE The Stratosphere, which offers the tallest free-standing observation tower in the United States, is situated on approximately 31 acres of land located at the northern end of the Las Vegas Strip. The facility is a tourist- oriented gaming and entertainment destination property, which has approximately 80,000 square feet of gaming space, 2,444 hotel rooms, eight restaurants and approximately 110,000 square feet of developed retail space. The Stratosphere features three of the most visited amusement rides in Las Vegas: - the Big Shot, a 16-seat ride that catapults passengers up a 160-foot mast in approximately 2.5 seconds with the force of approximately four G's; 1 - the High Roller, a 28-seat roller coaster that takes passengers on a 34-mile-per-hour ride around the Stratosphere at a height of more than 900 feet; and - the X Scream, an eight-seat thrill ride which launches passengers approximately 30 feet over the side of the Stratosphere, giving riders the sensation that they are about to fall off the top of the building. In 2001, we completed an approximate $86 million expansion of the Stratosphere, which included the addition of a 1,000-room hotel tower and a 67,000 square foot pool and recreation deck. The property also includes approximately eight acres of undeveloped land, providing us with the flexibility for additional expansion, if warranted. Within the existing property, we have approximately 112,000 square feet of undeveloped interior space. We are currently in discussions to design and develop additional entertainment amenities within this space. ARIZONA CHARLIE'S DECATUR Arizona Charlie's Decatur is located on approximately 17 acres of land, four miles west of the Las Vegas Strip in the heavily-populated west Las Vegas area. The property is easily accessible from Route 95, a major highway in Las Vegas. The property is located on Decatur Boulevard, and an estimated 500,000 people live within a five-mile radius of the property. Arizona Charlie's Decatur contains approximately 52,000 square feet of gaming space, 258 hotel rooms, four restaurants and three bars. The property targets repeat customers from the surrounding communities. At June 30, 2004, we had approximately 117,000 members registered with our Ultimate Rewards Club at Arizona Charlie's Decatur, and approximately 38,000 of them are active members who visited the property at least once during the previous 90 days. Approximately 43% of our active Ultimate Rewards Club members frequented Arizona Charlie's Decatur, on average, more than four times per month during that 90 day period. Since one of our affiliates purchased Arizona Charlie's Decatur in 1998, there has been a number of improvements to the property: in 2001, the slot floor was expanded; in 2002, the interior design of the casino was upgraded; and, in October 2003, the new Frisco Market Buffet, a 260-seat San Francisco- themed eatery was opened. The Frisco Market Buffet and Sourdough Cafe, our two primary restaurants at Arizona Charlie's Decatur, currently serve a combined average of more than 3,000 customers per day. ARIZONA CHARLIE'S BOULDER Arizona Charlie's Boulder is located on approximately 24 acres of land, seven miles east of the Las Vegas Strip, near an I-515 interchange. I-515 is the most heavily traveled east/west highway in Las Vegas. The property is located on Boulder Highway, and an estimated 423,000 people live within a five-mile radius of the property. Arizona Charlie's Boulder contains approximately 41,000 square feet of gaming space, 303 hotel rooms, four restaurants and a 202-space RV park. As with our Arizona Charlie's Decatur property, the property targets repeat customers from the surrounding communities. At June 30, 2004, we had approximately 125,000 members registered with our Ultimate Rewards Club at Arizona Charlie's Boulder, and approximately 27,000 of them are active members who visited the property at least once during the previous 90 days. Approximately 38% of our active Ultimate Rewards Club members frequented Arizona Charlie's Boulder, on average, more than four times per month during that 90 day period. Since one of our affiliates purchased Arizona Charlie's Boulder in 2000, there has been a number of improvements to the property. In 2002, there was completed a $5.1 million expansion project, which provided for an additional, approximate 18,000 square feet of slot floor space, a 500-seat bingo hall and a 2 43-seat race and sports book. We recently completed renovating the interiors of the hotel rooms. BUSINESS STRATEGY AND COMPETITIVE STRENGTHS We intend to grow the revenues and profitability of our business through the continued execution of a number of key operating strategies: VALUE-ORIENTED EXPERIENCE We target primarily middle-market customers who focus on obtaining value in their gaming, lodging, dining and entertainment experiences. We strive to deliver value to our gaming customers at our Arizona Charlie's locations by offering payout ratios on our slot and video poker machines that we believe are among the highest payout ratios in Las Vegas. Similarly, at the Stratosphere, we offer attractive table games, including Single Zero Roulette and Ten Times Odds Craps, that provide patrons with odds that are better than the standard odds for these games at other Las Vegas Strip casinos. We also provide our customers with attractive offerings in the areas of lodging and food and beverage service. Our product offerings in each of these categories are reasonably priced and of consistently high quality. In addition, we believe our Ultimate Rewards Club, which enables customers to receive and redeem rewards at all three of our properties, offers our customers some of the most generous complimentary policies in Las Vegas, rewarding and further encouraging frequent visits by our customers. CUSTOMER SERVICE We are committed to providing our patrons a high level of customer service. Our employees participate in regular and intensive customer service training programs and are rewarded and incentivized, in part, based upon the quality of service they provide to customers. We routinely conduct comprehensive customer surveys at all of our properties, and we pursue a process of continuous improvement at our properties based on the information gathered from our surveys. THE STRATOSPHERE AS A DESTINATION PROPERTY FOR VISITORS TO LAS VEGAS We believe the Stratosphere is one of the most recognized landmarks in Las Vegas. The Stratosphere offers the tallest free-standing observation tower in the United States and, at 1,149 feet, it is the tallest building west of the Mississippi River. The Stratosphere Tower boasts some of the most unique amenities in Las Vegas, including an award-winning, 380-seat revolving restaurant with unparalleled views of Las Vegas, known as the Top of the World, the highest indoor/outdoor observation deck in Las Vegas, and the three highest amusement rides in the world: the Big Shot, the High Roller and the recently launched X Scream. The Stratosphere Tower also has a 175-seat cocktail lounge, a wedding chapel and 6,200 square feet of event space. We believe that the distinctive amenities of the Stratosphere, together with our dedication to providing a high-quality, value-oriented experience, have significantly contributed to the over 1.4 million visits to the Stratosphere Tower in the twelve months ended June 30, 2004. We believe our attractions, as well as the introduction of additional entertainment-driven amenities, will enable us to continue to market the Stratosphere as a "must see" destination property in Las Vegas. RECENT SUCCESSFUL INITIATIVES Our management team has improved operating performance by repositioning each of our 3 properties to better target their respective markets, expanding and improving our existing facilities, focusing on customer service and implementing a targeted cost reduction program. We believe there are a number of additional initiatives which should contribute to a further improvement in our operating performance, including the conversion of 100% of the slot floor space at each of our properties from coin-operated to Ticket-In/Ticket-Out, the introduction of new entertainment attractions and other amenities into our casinos, further refinements to our Ultimate Rewards Club and the continued execution of our integration strategy and cost savings initiatives. EMPHASIS ON SLOT PLAY We have focused our marketing efforts on attracting customers with an affinity for playing slot and video poker machines. Similarly, we have intentionally avoided competing for the attention of high-stakes table game customers. We believe slot machine players are a more consistently profitable customer type, and our properties are specifically oriented to this type of customer. We have invested in outfitting our casinos with the latest in slot and video poker machine technology and game brands. We regularly modify our mix of slot machine product to maximize the profitability of our casinos, while also providing our customers with the most current product offerings. We completed the conversion to the 100% Ticket-In/Ticket-Out format at the end of the second quarter of 2004. We anticipate this format will yield meaningful operating efficiencies for us, while also increasing the rate of customer play, as patrons will be able to enjoy a gaming experience uninterrupted by the machine servicing requirements typically necessary for coin-operated slot machines. STRONG OWNERSHIP AND EXPERIENCED MANAGEMENT TEAM We are a subsidiary of AREP, a New York Stock Exchange-listed limited partnership which had over $2.0 billion in assets at March 31, 2004 and after giving effect to an offering by it of 8-1/8% of Senior Notes due 2012, which was completed on May 12, 2004, and the acquisitions of Arizona Charlie's Decatur and Arizona Charlie's Boulder and related transactions. Carl C. Icahn, through affiliates, owns 100% of AREP's general partner and over 86% of AREP's outstanding depositary units and preferred units. Our senior management team, which collectively has over 100 years of operating experience in the gaming industry, has successfully managed a significant improvement in the operating performance of our properties. Our executive and property-level management teams have an established record of developing, integrating and operating gaming and entertainment properties. Our management team is focused on controlling costs in an effort to increase operating cash flow. 4 SUMMARY OF THE EXCHANGE OFFER The Offering of the Private Notes..... On January 29, 2004, we issued $215 million aggregate principal amount of our private notes in an offering not registered under the Securities Act of 1933. At the time we issued the private notes, we entered into a registration rights agreement in which we agreed to offer to exchange the private notes for new notes which have been registered under the Securities Act of 1933. This exchange offer is intended to satisfy that obligation. The Exchange Offer.................... We are offering to exchange the new notes which have been registered under the Securities Act of 1933 for the private notes. As of this date, there is $215 million aggregate principal amount of private notes outstanding. Required Representations.............. In order to participate in this exchange offer, you will be required to make certain representations to us in a letter of transmittal, including that: - any new notes will be acquired by you in the ordinary course of your business; - you have not engaged in, do not intend to engage in, and do not have an arrangement or understanding with any person to participate in a distribution of the new notes; and - you are not an affiliate of our company. Resale of New Notes................... We believe that, subject to limited exceptions, the new notes may be freely traded by you without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, provided that: - you are acquiring new notes in the ordinary course of your business; - you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate in the distribution of the new notes; and - you are not an affiliate of our company. If our belief is inaccurate and you transfer any new note issued to you in the exchange offer without delivering a prospectus meeting the requirements of the Securities Act of 1933 or without an exemption from registration of your new notes from such requirements, you may incur liability under the Securities Act of 1933. We do not assume, or indemnify you against, such liability. 5 Each broker-dealer that is issued new notes for its own account in exchange for private notes which were acquired by such broker-dealer as a result of market-making or other trading activities also must acknowledge that it has not entered into any arrangement or understanding with us or any of our affiliates to distribute the new notes and will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of the new notes issued in the exchange offer. We have agreed in the registration rights agreement that a broker-dealer may use this prospectus for an offer to resell, resale or other retransfer of the new notes issued to it in the exchange offer. Expiration Date....................... The exchange offer will expire at 5:00 p.m., New York City time, on __________, 2004, unless extended, in which case the term "expiration date" shall mean the latest date and time to which we extend the exchange offer. Conditions to the Exchange Offer...... The exchange offer is subject to certain customary conditions, which may be waived by us. The exchange offer is not conditioned upon any minimum principal amount of private notes being tendered. Procedures for Tendering Private Notes......................... If you wish to tender your private notes for exchange, you must transmit to Wilmington Trust Company, as exchange agent, at the address set forth in this prospectus under the heading "The Exchange Offer - Exchange Agent," and on the front cover of the letter of transmittal, on or before the expiration date, a properly completed and duly executed letter of transmittal, which accompanies this prospectus, or a facsimile of the letter of transmittal and either: - the private notes and any other required documentation, to the exchange agent; or - a computer generated message transmitted by means of The Depository Trust Company's Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal. If either of these procedures cannot be satisfied on a timely basis, then you should comply with the guaranteed delivery procedures described below. By executing the letter of transmittal, each holder of private notes will make certain representations to us described under "The Exchange Offer - Procedures for Tendering." 6 Special Procedures for Beneficial Owners................................ If you are a beneficial owner whose private notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your private notes in the exchange offer, you should contact such registered holder promptly and instruct such registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your private notes, either make appropriate arrangements to register ownership of the private notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date. Guaranteed Delivery Procedures........ If you wish to tender private notes and time will not permit the documents required by the letter of transmittal to reach the exchange agent prior to the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you must tender your private notes according to the guaranteed delivery procedures described under "The Exchange Offer - Guaranteed Delivery Procedures." Acceptance of Private Notes and Delivery of New Notes................. Subject to the conditions described under "The Exchange Offer - Conditions," we will accept for exchange any and all private notes which are validly tendered in the exchange offer and not withdrawn, prior to 5:00 p.m., New York City time, on the expiration date. Withdrawal Rights..................... You may withdraw your tender of private notes at any time prior to 5:00 p.m., New York City time, on the expiration date, subject to compliance with the procedures for withdrawal described in this prospectus under heading "The Exchange Offer - Withdrawal of Tenders." Federal Income Tax Considerations..... For a discussion of the material federal income tax considerations relating to the exchange of private notes for the new notes, see "Certain U.S. Federal Income Tax Consequences." Exchange Agent........................ Wilmington Trust Company is serving as the exchange agent. The address, telephone number and facsimile number of the exchange agent are set forth in this prospectus under the heading "The Exchange Offer -- Exchange Agent." 7 Consequences of Failure to Exchange Private Notes......................... If you do not exchange private notes for new notes, you will continue to be subject to the restrictions on transfer provided in the private notes and in the indenture governing the private notes. In general, the unregistered private notes may not be offered or sold, unless they are registered under the Securities Act of 1933, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act of 1933 and applicable state securities laws. 8 THE NEW NOTES The terms of the new notes we are issuing in this exchange offer and the private notes that are outstanding are identical in all material respects, except: - the new notes will be registered under the Securities Act of 1933; and - the new notes will not contain transfer restrictions and registration rights that relate to the private notes. The new notes will evidence the same debt as the old notes and will be governed by the same indenture. References to notes include both private notes and new notes. Issuer............................... American Casino & Entertainment Properties LLC is a holding company. Operations are conducted through its subsidiaries, and the assets of the holding company consist of the capital stock and limited liability company interests of the subsidiaries. Other than the guarantees of the notes and of indebtedness under a senior secured revolving credit facility and certain capital leases, the subsidiaries will not have any indebtedness and the ability of American Casino & Entertainment Properties LLC and the subsidiaries to incur indebtedness is restricted. Co-Issuer............................ American Casino & Entertainment Properties Finance Corp. is a wholly-owned subsidiary of American Casino & Entertainment Properties LLC. American Casino & Entertainment Properties Finance Corp. was formed solely for the purpose of serving as a co-issuer of debt securities of American Casino & Entertainment Properties LLC in order to facilitate the offering of the debt securities. Other than as a co-issuer of the notes, American Casino & Entertainment Properties Finance Corp. does not and will not have any operations or assets and will not have any revenues. As a result, holders of the notes should not expect American Casino & Entertainment Properties Finance Corp. to participate in servicing the interest and principal obligations on the new notes. Notes Offered........................ $215.0 million in aggregate principal amount of 7.85% Senior Secured Notes due 2012. Maturity............................. February 1, 2012. Interest Payment Dates............... February 1 and August 1 of each year, commencing August 1, 2004. Security............................. The new notes and the guarantees will be secured by a second- priority security interest, subject to certain customary exceptions, in substantially all of our and the guarantors' assets, including the capital stock or other 9 equity interests of the subsidiaries that own the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. Guarantees........................... The new notes will be jointly, severally and unconditionally guaranteed by certain of our restricted subsidiaries and will be guaranteed by certain future restricted subsidiaries. Stratosphere Corporation, which owns and operates the Stratosphere, Stratosphere Gaming Corporation, which holds the Stratosphere's gaming license, Arizona Charlie's, LLC, which owns and operates Arizona Charlie's Decatur, Fresca, LLC, which owns and operates Arizona Charlie's Boulder, and Charlie's Holding LLC, which owns the membership interests of each of Arizona Charlie's, LLC and Fresca, LLC, among other subsidiaries, each is a guarantor. Ranking.............................. The new notes and the guarantees will be our and the guarantors' senior secured debt and will rank equally with all of our and the guarantors' existing and future senior secured debt, except that the new notes and the guarantees will be effectively subordinated to all of our and the guarantors' first-priority lien debt, including borrowings under our senior secured revolving credit facility, which is secured by a first-priority security interest in substantially all of our and the guarantors' assets. The new notes and the guarantees will be effectively senior to any of our and the guarantors' future unsecured senior debt. The new notes and the guarantees will be senior in right of payment to any of our and the guarantors' future subordinated debt. The new notes and the guarantees will be effectively subordinated to any liabilities of any non-guarantor subsidiaries. Intercreditor Agreement.............. Under an intercreditor agreement, the liens securing the new notes and the guarantees of our subsidiaries will be second-priority liens to the first-priority liens that secure (1) obligations under our senior secured revolving credit facility, (2) future first-priority lien secured indebtedness permitted to be incurred under the indenture governing the notes and (3) our hedging obligations. The parties to the intercreditor agreement, including the trustee under the indenture, have agreed to certain standstill periods prior to the exercise of any remedies. Any release of the first-priority liens on the note collateral will also release the second-priority liens securing the new notes on the same collateral; provided, that after giving effect to that release, the aggregate book value of all of the assets released does not exceed 10% of our total combined assets as of the date of issuance of the notes. In addition, the holders of the first-priority liens will receive all proceeds from any realization 10 on the note collateral until the obligations secured by the first-priority liens are paid in full and the commitments with respect thereto are terminated. Optional Redemption.................. We may, at our option, redeem some or all of the new notes at any time on or after February 1, 2008, at the redemption prices listed under "Description of Notes -- Optional Redemption." In addition, prior to February 1, 2007, we may, at our option, redeem up to 35% of the new notes with the proceeds of certain sales of our equity, equity contributions or the issuance of permitted affiliate subordinated debt at the redemption price listed under "Description of Notes -- Optional Redemption." We may make the redemption only if, after the redemption, at least 65% of the aggregate principal amount of the new notes issued remains outstanding. Redemption Based on Gaming Laws...... The new notes are subject to mandatory disposition and redemption requirements following certain determinations by applicable gaming authorities. Mandatory Repurchase Offer........... If we sell certain assets or experience specific kinds of changes in control, we must offer to repurchase the new notes at the prices listed under "Description of Notes -- Repurchase at the Option of Holders." Certain Covenants.................... We will issue the new notes under an indenture with the guarantors and Wilmington Trust Company, as trustee acting on your behalf. The indenture, among other things, restricts our ability and the ability of our restricted subsidiaries to: - incur additional debt; - pay dividends and make distributions; - make certain investments; - repurchase stock; - create liens; - enter into transactions with affiliates; - enter into sale and leaseback transactions; - merge or consolidate; and 11 - transfer, lease or sell assets. Absence of Established Market for Notes............................ The new notes will be new securities for which there is currently no market. A liquid market for new notes may not develop or be maintained. 12 CORPORATE INFORMATION American Casino & Entertainment Properties LLC was formed under the laws of the State of Delaware on December 29, 2003. Our executive offices are located at 2000 Las Vegas Boulevard South, Las Vegas, Nevada 89104 and our telephone number is (702) 380-7777. We are a holding company that was formed for the purpose of acquiring the entities that own and operate the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder in Las Vegas, Nevada. Stratosphere has been owned by a subsidiary of parent, American Real Estate Holdings Limited Partnership or AREH. Arizona Charlie's Decatur and Arizona Charlie's Boulder have been owned by Mr. Icahn and one of his affiliated entities. Our management team has been responsible for the management of all three properties since 2002. On January 5, 2004, we entered into a membership interest purchase agreement with Mr. Icahn and one of his affiliated entities in which we agreed to purchase all of the membership interests in Charlie's Holding LLC, a newly-formed entity that owns indirectly Arizona Charlie's Decatur and Arizona Charlie's Boulder, for $125.9 million, subject to reduction based on a post-closing working capital adjustment. On January 5, 2004, we also entered into a contribution agreement with our direct parent, American Entertainment Properties Corp., and our indirect parent or AREH, in which AREH agreed to contribute to us 100% of the outstanding capital stock of Stratosphere Corporation. We received approvals for these transactions by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board on May 20, 2004 and closed these transactions on May 26, 2004. We refer to the transactions described in the membership interest purchase agreement and contribution agreement as the "acquisitions." American Casino & Entertainment Properties Finance Corp., a Delaware corporation, is a wholly-owned subsidiary of American Casino & Entertainment Properties LLC. American Casino & Entertainment Properties Finance Corp. was formed solely for the purpose of serving as a co-issuer of debt securities of American Casino & Entertainment Properties LLC in order to facilitate offerings of such debt securities. Other than as a co-issuer of the notes, American Casino & Entertainment Properties Finance Corp. will not have any operations or assets and will not have any revenues. As a result, holders of the notes should not expect American Casino & Entertainment Properties Finance Corp. to participate in servicing the interest and principal obligations on the notes. Action Cash, Arizona Charlie's Boulder, Arizona Charlie's Decatur, Arizona Charlie's, Inc., Arizona Charlie's Hotel Casino, Big Shot, Crazy Armadillo, Frisco Market Buffet, High Roller, Lucky's Cafe, Nobody Offers You More!, Roxy's Diner, Stratosphere, Stratosphere Casino Hotel & Tower, Stratosphere Gaming Corporation, Stratosphere Tower, Top of the World, Ultimate Action Cash, Ultimate Rewards, X Scream and Yukon Grille are certain of our material trademarks, trade names and service marks. Certain other trademarks, trade names and service marks used in this prospectus are the property of third parties. 13 RISK FACTORS You should consider carefully each of the following risks and all other information contained in this prospectus before deciding to invest in the notes. RISKS RELATING TO OUR INDEBTEDNESS OUR SUBSTANTIAL INDEBTEDNESS COULD REDUCE OUR CASH FLOW AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES. We are highly leveraged and have substantial debt service obligations. As of June 30, 2004, we had approximately $219.0 million in aggregate principal amount of indebtedness, including the private notes. We will also be able to incur additional indebtedness in the future, subject to compliance with the terms of the agreements governing our indebtedness at the time, including the indenture governing the notes. If we incur additional indebtedness following the date of this prospectus, it could increase the risks that we face. Our substantial indebtedness could have important consequences for you. For example, it could: - make it difficult for us to satisfy our obligations under the notes; - limit our ability to obtain additional financing in the future for working capital, capital expenditures, general corporate or other purposes; - limit our ability to use operating cash flow in other areas of our business because we must dedicate a significant portion of these funds to make mandatory payments on our indebtedness; - make us vulnerable to economic downturns and reduce our flexibility in responding to changing business, regulatory and economic conditions; and - limit our ability to compete with others who are not as highly leveraged, including our ability to explore business opportunities. DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE. We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture do not prohibit us or our subsidiaries from doing so. Our senior secured revolving credit facility permits additional borrowing of up to $20.0 million and all of those borrowings would rank senior to the notes and the guarantees. Furthermore, under the indenture governing the notes, we are permitted to incur up to $60.0 million of indebtedness that is secured by first- priority liens on the note collateral. We may incur additional indebtedness that ranks equally with the notes if we comply with certain financial tests. We may also issue additional equally ranked notes in an aggregate principal amount not to exceed two times the net cash proceeds received by us from certain equity offerings, equity contributions or permitted affiliate subordinated debt, so long as the proceeds from the additional notes and equity offerings are used for property improvements to our gaming and entertainment properties. The intercreditor agreement also permits the lenders under the senior secured revolving credit facility and any other first-priority lien secured indebtedness to make certain "protective advances" in order to protect, preserve, repair and maintain their collateral. Any amounts so advanced will be included in the amounts secured by the first-priority liens in favor of the first-priority lenders. These advances therefore could 14 increase the aggregate first-priority senior secured claims on the collateral, even beyond the maximum commitments of these lenders, thereby potentially disadvantaging the holders of the notes. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a change of control under the indenture. THE TERMS OF THE SENIOR SECURED REVOLVING CREDIT FACILITY AND OTHER AGREEMENTS WE MAY ENTER INTO MAY RESTRICT OUR CURRENT AND FUTURE OPERATIONS, PARTICULARLY OUR ABILITY TO RESPOND TO CHANGES OR TO TAKE SOME ACTIONS. The senior secured revolving credit facility contains, and any future refinancing of this facility likely would contain, a number of restrictive covenants that impose significant operating and financial restrictions on us. The senior secured revolving credit facility includes covenants restricting, among other things, our ability to: - incur additional debt, including guarantees; - incur liens; - dispose of assets; - make certain acquisitions; - make certain capital expenditures; - pay dividends and make other restricted payments; - enter into sale and leaseback transactions; - engage in any new businesses; - issue preferred stock; and - enter into transactions with our stockholders and our affiliates. Our senior secured revolving credit facility also includes financial covenants which will require that we meet certain financial tests. In addition, our other debt and future debt or other contracts could contain financial or other covenants more restrictive than those applicable to the notes. OUR FAILURE TO COMPLY WITH THE COVENANTS CONTAINED IN THE SENIOR SECURED REVOLVING CREDIT FACILITY, THE INDENTURE GOVERNING THE NOTES OR ANY OTHER AGREEMENT GOVERNING OUR FIRST-PRIORITY LIEN DEBT, INCLUDING OUR FAILURE AS A RESULT OF EVENTS BEYOND OUR CONTROL, COULD RESULT IN AN EVENT OF DEFAULT, WHICH WOULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL CONDITION. If there were an event of default under one of our debt instruments, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. In addition, any event of default or declaration of acceleration under one debt instrument could result in an event of default under one or more of our other debt instruments, including the notes. It is likely that, if the defaulted debt is accelerated, our assets and cash flow will not be sufficient to fully repay borrowings under our outstanding debt instruments and we cannot assure you that we would be able to refinance or restructure the payments on those debt securities. Further, if we are unable to repay, refinance or 15 restructure our indebtedness under our first-priority lien debt, including the senior secured revolving credit facility, the lenders under those facilities could proceed against the collateral securing that indebtedness. In that event, any proceeds received upon a realization of the collateral would be applied first to amounts due under our first-priority lien debt, including the senior secured revolving credit facility, before any proceeds would be available to make payments on the notes. TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures and the expansion of our operations will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. Our business may not be able to generate sufficient cash flow from operations or future borrowings may not be available to us under the senior secured revolving credit facility or otherwise in an amount sufficient to enable us to service our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We may not be able to refinance any of our indebtedness, including the senior secured revolving credit facility and the notes, on commercially reasonable terms or at all. WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE. Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase. Mr. Icahn, through certain related entities, currently owns 100% of the general partner of AREP and over 86% of AREP's outstanding depositary units and preferred units, and if he were to sell or otherwise transfer some or all of his interests in AREP to unrelated parties, a change of control could be deemed to have occurred under the terms of the indenture governing the notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our senior secured revolving credit facility or in our other first-priority lien indebtedness will not allow such repurchases. RISKS RELATING TO THE NOTES THE COLLATERAL SECURING THE NOTES WILL BE SUBJECT TO CONTROL BY CREDITORS WITH FIRST-PRIORITY LIENS THAT RANK AHEAD OF THE LIENS SECURING THE NOTES. IF THERE IS A DEFAULT, THE VALUE OF THE COLLATERAL MAY NOT BE SUFFICIENT TO REPAY BOTH THE FIRST-PRIORITY CREDITORS AND THE HOLDERS OF THE NOTES AND ANY PARI PASSU NOTES. The notes and the guarantees of the notes are secured on a second-priority basis, subject to permitted liens, by a lien on substantially all assets now owned or hereafter acquired by us and our subsidiaries that guarantee the notes. The first-priority liens on the collateral secure our obligations under the senior secured revolving credit facility, certain other future indebtedness permitted by the senior secured revolving credit facility and the indenture to be incurred by us or certain of our subsidiaries that guarantee the notes and that is designated by us, at the time of such incurrence, as first-priority lien secured indebtedness. Although the holders of obligations secured by first-priority liens on the collateral and the holders of the notes and any issued in the future that are equally ranked notes will share in the proceeds of this collateral, the holders of obligations secured by the first-priority liens on the collateral 16 will be effectively entitled to receive proceeds from any realization of the collateral to repay their obligations in full before the holders of the notes and the other obligations secured by second-priority liens receive any portion of those proceeds. The value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers of our assets and other factors beyond our control. The proceeds from the sale or sales of all of such collateral may not be sufficient to satisfy the amounts outstanding under the notes and other obligations secured by the second-priority liens, if any, after payment in full of all obligations secured by the first-priority liens on the collateral. If these proceeds were not sufficient to repay amounts outstanding under the notes, then holders of the notes, to the extent not repaid from the proceeds of the sale of the collateral, would only have an unsecured claim against our remaining assets. As of June 30, 2004, on a pro forma basis after giving effect to the acquisitions, $20.0 million would have been available for borrowing under our senior secured revolving credit facility. Under the indenture governing the notes, we are permitted to incur up to $60.0 million of indebtedness that is secured by first-priority liens on the note collateral. In addition, we are permitted to issue additional notes under the indenture that are secured on a equal basis with the notes if we meet certain financial tests or if we raise cash through equity offerings, equity contributions or permitted affiliate subordinated debt, so long as the proceeds are used for property improvements to our gaming and entertainment properties. The intercreditor agreement also permits the lenders under the senior secured revolving credit facility and any other first-priority lien secured indebtedness to make certain "protective advances" in order to protect, preserve, repair and maintain their collateral. Any amounts so advanced will be included in the amounts secured by the first-priority liens in favor of the first-priority lenders. Such advances therefore could increase the aggregate first-priority senior secured claims on the collateral, even beyond the maximum commitments of such lender, thereby potentially disadvantaging the holders of the notes. The rights of the holders of the notes with respect to the collateral securing the notes and the note guarantees are limited pursuant to the terms of the intercreditor agreement. Under the intercreditor agreement, subject to certain standstill periods, the holders of the notes may foreclose on the collateral prior to the lenders under the senior secured revolving credit facility and any other first-priority lien secured indebtedness, provided that the purchaser at the foreclosure sale, including the holders of the notes, if applicable, is required to concurrently pay all obligations under the senior secured revolving credit facility and any other first-priority lien secured indebtedness in full. Funds may not be available to the holders of the notes at that time to pay the amounts due under the senior secured revolving credit facility and any other first-priority lien secured indebtedness. In addition, any release of the first-priority liens upon any collateral approved by the holders of the first-priority liens also will release the second-priority liens securing the notes on the same collateral; provided, that after giving effect to such release, the aggregate book value of all of the assets released does not exceed 10% of our total combined assets as of the date of issuance of the private notes. Additional releases of collateral from the second-priority lien securing the notes are permitted under some circumstances. THE NOTES ARE EFFECTIVELY SUBORDINATED TO THE INDEBTEDNESS OF OUR SUBSIDIARIES THAT DO NOT GUARANTEE THE NOTES. The notes will also be effectively subordinated to any of our indebtedness secured by assets other than the collateral securing the notes or the note guarantees, to the extent of these assets, and to indebtedness of any of our subsidiaries that are not guarantors of the notes. In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, holders of their indebtedness and their trade creditors generally will be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. All of our subsidiaries are guarantors other than Jetset Tours, LLC. In addition, the indenture allows us to form new subsidiaries and those subsidiaries will be permitted to incur debt and may not be required to become guarantors. 17 WE ARE A HOLDING COMPANY AND WILL DEPEND ON THE BUSINESS OF OUR SUBSIDIARIES TO SATISFY OUR OBLIGATIONS UNDER THE NOTES. We are a holding company and our assets consist solely of investments in our subsidiaries. We conduct substantially all our operations and own substantially all our assets through our subsidiaries. Consequently, our cash flow and our ability to meet our debt service obligations depend on the cash flow of our subsidiaries and the payment of funds to us by our subsidiaries in the form of loans, dividends or otherwise. The operating results of our subsidiaries may not be sufficient to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us for payment on the notes or otherwise, and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in debt agreements and other agreements to which these subsidiaries may be subject or enter into in the future. To the degree any such distributions and transfers are impaired or prohibited, our ability to make payments on the notes will be harmed. YOUR INTEREST IN THE COLLATERAL MAY BE ADVERSELY AFFECTED BY THE FAILURE TO RECORD OR PERFECT SECURITY INTERESTS IN CERTAIN COLLATERAL. The collateral securing the notes and the note guarantees consists of certain assets and properties of ours and our subsidiaries which guarantee the notes whether now owned or acquired or owned or acquired in the future. Under applicable law, a security interest in certain property and rights acquired after the initial grant of a general security interest can only be perfected at the time that property and rights are acquired and identified. Although the indenture and the collateral documents contain customary covenants requiring us and our subsidiaries which will guarantee the notes to grant security interests in the future, the trustee will not monitor the future acquisition of property and rights that constitute collateral, or independently take any action to perfect the security interest in that acquired collateral. Our failure to comply with these covenants regarding future security interests may result in a default under the indenture and neither the notes nor the note guarantees would be secured by such future assets. THERE ARE CERTAIN LIENS, RESTRICTIONS AND EXCEPTIONS TO THE TITLE OF OUR REAL PROPERTY THAT WILL HAVE PRIORITY OVER THE LIENS THAT WILL BE GRANTED UNDER THE DEEDS OF TRUST IN FAVOR OF THE TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF THE NOTES, WHICH MAY NOT BE BENEFICIAL FOR THE HOLDERS OF THE NOTES. The Stratosphere Corporation and certain of our affiliates are currently involved in a lawsuit with two contractors who have filed mechanics' liens and commenced a foreclosure action against real property held by the Stratosphere Corporation. The lawsuit arises out of certain improvements of the Stratosphere Corporation and commenced in December 2001. Nevada law provides contractors, subcontractors and materials suppliers with a lien on the real property being improved by their services or supplies in order to secure their right to be paid. Such parties may foreclose on their liens if they are not paid in full. In connection with the lawsuit, certain mechanics' liens have been recorded by the two contractors against the title to the Stratosphere Corporation's real property and a foreclosure on the liens has been commenced. Accordingly, these mechanics' liens will have priority over the lien of the deed of trust that has been granted by the Stratosphere Corporation in favor of the trustee for the benefit of the holders of the notes. The title insurance that we obtained for the trustee for the benefit of the holders of the notes will not provide coverage for the mechanics' liens that are the subject of the lawsuit. Although the Stratosphere Corporation and our other affiliates that are defendants in the lawsuit intend to vigorously defend the action and have segregated approximately $450,000 in a separate interest bearing account to pay amounts that may be owing to the contractors, they may not prevail with respect to the claims brought by the contractors. 18 In addition, the title insurance that we obtained for the trustee for the benefit of the holders of the notes for the real property owned by the guarantors contains exceptions to title relating to certain documents currently in the public record that may limit our ability to construct improvements on certain real property and may require us in the future to construct certain off-site improvements, such as a bridge, drainage, curbs, sidewalks and gutters. The title insurance that we obtained for the trustee for the benefit of the holders of the notes does not provide coverage for these exceptions to title. We have also not yet received a completed survey for the land owned by the Stratosphere Corporation and the land owned by the Stratosphere Land Corporation, which land secures the obligations of those guarantors under their guarantees of the notes. This survey might show defects to the title to such properties of which we are not yet aware. The trustee accepted title policies for the real property of the Stratosphere Corporation and the Stratosphere Land Corporation that contain the same exceptions that the agent on behalf of the lenders under our senior secured revolving credit facility accepted for its title policies for such real property with respect to any issues that may arise out of the completed survey. The interests of the lenders under our senior secured revolving credit facility may not be aligned with yours. However, any determination or final approval of such exceptions by the agent on behalf of lenders will be binding on you. ANY ADDITIONAL GUARANTEES OR LIENS ON THE NOTE COLLATERAL PROVIDED AFTER THE NOTES ARE ISSUED COULD BE AVOIDED AS PREFERENTIAL TRANSFERS. We and the subsidiaries which guarantee the notes did not grant the liens on certain of the note collateral concurrently with the issuance of the notes. Instead, such liens were granted at a later time upon the closing of the acquisitions. In addition, the indenture for the notes provides that certain future restricted subsidiaries will guarantee the notes and secure their guarantees with liens on their assets. The indenture also requires us to grant liens on certain assets that we acquire after the notes are issued. If at the time we or any guarantor of the notes grant any liens or provide any guarantee, we are, or such guarantor is, insolvent or anticipates insolvency, the guarantee or lien, as applicable, could be avoided as a preferential transfer. THERE MAY NOT BE SUFFICIENT COLLATERAL TO PAY ALL OR ANY PORTION OF THE NOTES OR ANY EQUALLY RANKED NOTES. No appraisals of any collateral have been prepared. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. The value of the assets pledged as collateral for the notes and the guarantees of the notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition or other future trends or uncertainties. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, no assurance can be given that the proceeds from any sale or liquidation of the collateral will be sufficient to pay all or any of our obligations under the notes. THE TRUSTEE'S ABILITY TO BRING AN ACTION FOR A MONETARY JUDGMENT AS A RESULT OF A DEFAULT UNDER THE NOTES MAY BE LIMITED BY THE APPLICATION OF NEVADA'S "ONE ACTION RULE." Under Nevada law, certain remedies available to the trustee that may be provided for under the collateral documents may be limited by the application of Nevada's "One Action Rule," codified in Nevada Revised Statutes. Generally, the One Action Rule requires a creditor whose debt is secured by a deed of trust encumbering the debtor's real property to first foreclose upon the deed of trust before seeking a money judgment against the debtor. Pursuant to the Nevada Revised Statutes, a guarantor, other 19 than a debtor under a deed of trust, may waive the provisions of the One Action Rule but will still be entitled to assert any legal or equitable defenses provided pursuant to the provisions of the statutes relating to foreclosure sales and deficiency judgments, including the limiting of any deficiency judgment to the difference between the amount owed and the fair market value of the property should a foreclosure sale occur. Additionally, the Nevada Revised Statutes provides that a guarantor's rights of subrogation against a debtor under a deed of trust upon payment of the indebtedness may be waived by the guarantor only after default. Accordingly, upon the occurrence of a default under the indenture governing the notes, the trustee's remedies will be limited in various respects, may require additional time to complete and may yield less proceeds from the note collateral than would otherwise be the case. THE TRUSTEE'S ABILITY TO REALIZE ON THE NOTE COLLATERAL THAT CONSISTS OF OUR GAMING BUSINESS IS LIMITED BY NEVADA GAMING LAWS. The trustee's ability to foreclose on the pledged equity and other collateral comprising our gaming businesses is limited by applicable gaming laws. Regulations of the gaming authorities in Nevada provide that no person may acquire an interest in a gaming licensee or enforce a security interest in the equity of an entity that is the holder of a gaming license or that owns stock in such a corporation without the prior approval of the gaming authorities. As such, neither the trustee nor any holder is permitted to operate or manage any gaming business or assets unless that person has been licensed under applicable law for that purpose. Nevada gaming laws require that any person who proposes to own shares of licensed corporations or of registered holding corporations must be found suitable as a stockholder of such corporations by the applicable gaming authority before acquiring ownership of those interests. Consequently, it would be necessary for the trustee to file an application with the gaming authorities requesting approval to enforce the security interest in any pledged equity and obtain that approval before it may take any steps to enforce the security interest. Additionally, the trustee must file applications with the gaming authorities requesting approval to enforce a security interest in our gaming assets before it may take steps to enforce the security interest. Moreover, it would be necessary for a prospective purchaser of the pledged equity or of the gaming assets to file the necessary applications, be investigated, and be found suitable by the gaming authorities before acquiring the gaming assets or the pledged equity through the foreclosure sale. These requirements may therefore limit the number of potential bidders who would participate in any foreclosure sale and may materially delay the sale of any pledged equity or other gaming assets, either of which could have an adverse effect on the proceeds received from those sales. In addition, the trustee's ability to foreclose on and sell the collateral will be subject to, among other things, the procedural restrictions of state real estate law, including the One Action Rule discussed above, and the Uniform Commercial Code. THE INTERCREDITOR AGREEMENT WILL LIMIT THE NOTEHOLDERS' ABILITY TO CONTROL DECISIONS REGARDING THE COLLATERAL AND TO TAKE ENFORCEMENT ACTION AND WILL LIMIT OUR ABILITY TO PAY INTEREST AND PRINCIPAL ON THE NOTES. The intercreditor agreement provides the holders of the notes certain rights with respect to, among other things, the note collateral. However, the intercreditor agreement limits certain rights of the noteholders and grants certain other rights to other parties and thus could subject the noteholders to certain risks. For example, the intercreditor agreement provides for a standstill period before the trustee can exercise its remedies. And even then, the trustee cannot complete the exercise of any of its remedies until it provides the agent for the first-lien lenders reasonable assurances that the exercise of remedies will result in all first-lien obligations being paid in full. We cannot assure you that such limitations will align with the interests of the holders of the notes. 20 UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THE LENDERS UNDER THE SENIOR SECURED REVOLVING CREDIT FACILITY OR UNDER OTHER FIRST-PRIORITY LIEN SECURED INDEBTEDNESS MAY PETITION THE COURT TO ENFORCE THEIR SECURITY INTERESTS AND MAY INITIATE THE EXERCISE OF OTHER REMEDIES AGAINST THE NOTE COLLATERAL. The intercreditor agreement provides that upon the occurrence of an event of default under the senior secured revolving credit facility, under other first-priority lien secured indebtedness or under the indenture governing the notes, subject to certain limitations, either the lenders under such first-priority lien debt or the noteholders can instruct the agent for such lenders or the trustee, as applicable, to petition the court to enforce their security interests or may initiate the exercise of other remedies against the note collateral. Given that the amount of loans advanced by the lenders under the senior secured revolving credit facility or the amount advanced by lenders under other first-priority lien secured indebtedness may be substantially smaller than the outstanding amount of the notes, such lenders' interests may not be aligned with yours and may have different motives or strategies to protect their investment. As such, the lenders under the senior secured revolving credit facility or under other first-priority lien secured indebtedness may choose to petition the court to enforce their security interests or may initiate the exercise of other remedies against the note collateral at a given time even though, from your perspective, allowing us additional time to resolve any issues or taking any other path would increase the likelihood that your investment will be fully repaid. WE ARE PERMITTED TO CREATE UNRESTRICTED SUBSIDIARIES, WHICH GENERALLY WILL NOT BE SUBJECT TO ANY OF THE COVENANTS IN THE INDENTURE FOR THE NOTES AND WILL NOT GUARANTEE THE NOTES, AND WE MAY NOT BE ABLE TO RELY ON THE CASH FLOW OR ASSETS OF THOSE UNRESTRICTED SUBSIDIARIES TO PAY OUR INDEBTEDNESS. We may form additional subsidiaries which may be unrestricted under the indenture for the notes. Unrestricted subsidiaries will generally not be subject to the covenants under the indenture for the notes, will not guarantee the notes and their assets will not be available as security for the notes. Unrestricted subsidiaries may enter into financing arrangements that limit their ability to make loans or other payments to fund payments in respect of the notes. Accordingly, we may not be able to rely on the cash flow or assets of unrestricted subsidiaries to pay any of our indebtedness, including the notes. NOTEHOLDERS' RIGHTS IN THE COLLATERAL MAY BE ADVERSELY AFFECTED BY BANKRUPTCY PROCEEDINGS. The right of the trustee to repossess and dispose of the collateral securing the notes upon acceleration is likely to be significantly impaired by federal bankruptcy law if bankruptcy proceedings are commenced by or against us or our guarantors prior to or possibly even after the trustee has repossessed and disposed of the collateral. Under the U.S. Bankruptcy Code, a secured creditor, such as the trustee, is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the trustee would repossess or dispose of the collateral, or whether or to what extent holders of the notes would be compensated for any delay in payment of loss of value of the collateral through the 21 requirements of "adequate protection." Furthermore, in the event a bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due on the notes, the holders of the notes would have "undersecured claims" as to the difference. Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys' fees for "undersecured claims" during the debtor's bankruptcy case. Finally, the perfection of any security interest securing either the first-priority lien obligations, the notes or any additional notes after the closing of the acquisitions could result in that security interest being avoided as a preference under the U.S. Bankruptcy Code. AS A NOTEHOLDER YOU MAY BE REQUIRED TO COMPLY WITH LICENSING, QUALIFICATION OR OTHER REQUIREMENTS UNDER GAMING LAWS AND COULD BE REQUIRED TO DISPOSE OF THE NOTES. We may be required to disclose the identities of the holders of the notes to the Nevada gaming authorities upon request. The Nevada Gaming Commission, in its discretion, may require a holder of the notes to file an application, be investigated and be found suitable to hold the notes. In addition, the Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a company registered by the Nevada Gaming Commission as a publicly-traded corporation to file an application, be investigated and be found suitable to own such debt security. If a record or beneficial holder of a note is required by the Nevada Gaming Commission to be found suitable, such owner will be required to apply for a finding of suitability within 30 days after request of such gaming authority or within such earlier time prescribed by such gaming authority. The applicant for a finding of suitability must pay all costs of the application and investigation for such finding of suitability. If the Nevada Gaming Commission determines that a person is unsuitable to own such security, then, pursuant to the Nevada Gaming Control Act, we can be sanctioned, including the loss of our approvals, if, without the prior approval of the Nevada Gaming Commission, we: - pay to the unsuitable person any dividend, interest, or any distribution whatsoever; - recognize any voting right of the unsuitable person with respect to such securities; - pay the unsuitable person remuneration in any form; or - make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. Each holder of the notes will be deemed to have agreed, to the extent permitted by law, that if the Nevada gaming authorities determines that a holder or beneficial owner of the notes must be found suitable (whether as a result of a foreclosure of the casino or for any other reason), and if that holder or beneficial owner either refuses to file an application or is found unsuitable, that holder shall, upon our request, dispose of its notes within 30 days after receipt of our request, or earlier as may be ordered by the Nevada gaming authorities. We will also have the right to call for the redemption of notes of any holder at any time to prevent the loss or material impairment of a gaming license or an application for a gaming license at a redemption price equal to: - the lesser of (1) the cost paid by the holder or (2) the fair market value of the notes, in each case, plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption, or earlier as may be required by the Nevada gaming authorities or the date of finding of unsuitability by the Nevada gaming authorities; or - such other lesser amount as may be ordered by the Nevada gaming authorities. 22 We will notify the trustee under the indenture in writing of any redemption as soon as practicable. We will not be responsible for any costs or expenses any holder may incur in connection with its application for a license, qualification or a finding of suitability, or its compliance with any other requirement of a gaming authority. The indenture also provides that as soon as a gaming authority requires a holder to sell its notes, it will, to the extent required by applicable gaming laws, have no further right: - to exercise, directly or indirectly, any right conferred by the notes or the indenture; or - to receive from us any interest, dividends or any other distributions or payments, or any remuneration in any form, relating to the notes, except the redemption price we refer to above. THE OWNERSHIP OF OUR PROPERTIES MAY BE IMPAIRED BY BANKRUPTCY PROCEEDINGS OF OUR AFFILIATES. In the event of a bankruptcy filing by one of our affiliated entities which owned, prior to the acquisitions, either directly or indirectly, the Stratosphere, Arizona Charlie's Boulder or Arizona Charlie's Decatur, the transfer of any of those properties to us by our affiliates would be subject to review under relevant federal and state fraudulent conveyance statutes. In connection with that review, a bankruptcy court may examine our transfer of any of the proceeds of the offering of the notes used (1) in connection with the acquisitions, (2) to repay intercompany indebtedness of the entities we acquired, and/or (3) to pay any cash dividend to our affiliated entities. Such examination may be done to determine whether any such transfers constituted reasonably equivalent value in exchange for the transfer of the respective property. If a bankruptcy court finds that reasonably equivalent value or fair consideration was not exchanged and that the bankrupt entity was insolvent at the time of transfer or was rendered insolvent by the transfer, it is possible that the court may unwind the transaction pursuant to which the transfer of the respective property was made. If all or any of the acquisitions were undone, we may be deprived of the ownership of some or all of the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. BECAUSE A PORTION OF THE NET PROCEEDS FROM THE NOTES WAS DISTRIBUTED TO OUR EQUITYHOLDER, A COURT COULD DEEM THE OBLIGATIONS EVIDENCED BY THE NOTES TO BE A FRAUDULENT CONVEYANCE. A portion of the net proceeds from the notes was distributed to our equityholder. The incurrence of the indebtedness evidenced by the notes and the making of the distribution are subject to review under relevant federal and state fraudulent conveyance statutes in a bankruptcy or reorganization case or a lawsuit by or on behalf of our creditors. Under these statutes, if a court were to find that at the time the notes were issued: - we issued the notes with the intent to hinder, delay or defraud any present or future creditor; or - we did not receive fair consideration or reasonably equivalent value for issuing the notes and, at the time we issued the notes, we: - were insolvent or became insolvent as a result of issuing the notes; - were engaged or about to engage in a business or transaction for which our remaining assets constituted unreasonably small capital; or - intended to incur, or believed that we would incur, debts beyond our ability to pay those debts as they matured or became due 23 (as all of the foregoing terms are defined or interpreted under the relevant fraudulent transfer or conveyance statutes), the court could void or subordinate the obligations evidenced by the notes in favor of our other obligations. The measure of insolvency for purposes of a fraudulent conveyance claim will vary depending upon the law of the applicable jurisdiction. Generally, however, a company will be considered insolvent at a particular time if the sum of its debts at that time is greater than the then fair value of its assets or if the fair saleable value of its assets at that time is less than the amount that would be required to pay its probable liability on its existing debts as they mature. We believe that, after giving effect to the notes offering and the distribution to our equityholder of a portion of the net proceeds from the notes offering, we were not insolvent or rendered insolvent as a result of issuing the notes; that we were and will be in possession of sufficient capital to run our business effectively; and we have incurred debts within our ability to pay as the same mature or become due. There can be no assurance, however, as to what standard a court would apply to evaluate our intent or to determine whether we were insolvent at the time of, or rendered insolvent upon, the consummation of the notes offering and the making of the distribution or that, regardless of the standard, a court would not determine that we were insolvent at the time of, or rendered insolvent upon, the consummation of the notes offering and the making of the distribution. FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee: - received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and - was insolvent or rendered insolvent by reason of such incurrence; or - was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small capital; or - intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if: - the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; - if the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or 24 - it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, we believe that each guarantor, after giving effect to its guarantee of the notes, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. RISKS RELATING TO THE EXCHANGE OFFER HOLDERS WHO FAIL TO EXCHANGE THEIR PRIVATE NOTES WILL CONTINUE TO BE SUBJECT TO RESTRICTIONS ON TRANSFER. If you do not exchange your private notes for new notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your private notes described in the legend on your private notes. The restrictions on transfer of your private notes arise because we issued the private notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act of 1933 and applicable state securities laws. In general, you may only offer or sell the private notes if they are registered under the Securities Act and applicable state securities laws, or are offered and sold under an exemption from these requirements. We do not plan to register the private notes under the Securities Act. BROKER-DEALERS OR HOLDERS OF NOTES MAY BE COME SUBJECT TO THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT. Any broker-dealer that: - exchanges its private notes in the exchange offer for the purpose of participating in a distribution of the new notes, or - resells new notes that were received by it for its own account in the exchange offer, may be deemed to have received restricted securities and may be required to comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with any resale transaction by that broker-dealer. Any profit on the resale of the new notes and any commission or concessions received by a broker-dealer may be deemed to be underwriting compensation under the Securities Act. In addition to broker-dealers, any holder of notes that exchanges its private notes in the exchange offer for the purpose of participating in a distribution of the new notes may be deemed to have received restricted securities and may be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction by that holder. WE CANNOT GUARANTEE THAT THERE WILL BE A TRADING MARKET FOR THE NEW NOTES. The new notes are a new issue of securities and currently there is no market for them. We do not intend to apply to have the new notes listed or quoted on any exchange or quotation system. Accordingly, we cannot assure you that a liquid market will develop for the new notes. The liquidity of any market for the new notes will depend on a variety of factors, including: - the number of holders of the new notes; 25 - our performance; and - the market for similar securities and the interest of securities dealers in making a market in the new notes. A liquid trading market may not develop for the new notes. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the new notes. The market, if any, for the new notes may experience similar disruptions may adversely affect the prices at which you may sell your new notes. If our active trading market does not develop or is not maintained, the market price and liquidity of the new notes may be adversely affected. To the extent private notes are tendered and accepted in the exchange offer, the trading market, if any, for the private notes that are not so tendered would be adversely affected. RISKS RELATING TO OUR BUSINESS AND THE GAMING INDUSTRY WE FACE SUBSTANTIAL COMPETITION IN THE HOTEL AND CASINO INDUSTRY. The hotel and casino industry in general, and the markets in which we compete in particular, are highly competitive. The Las Vegas market includes many world class destination resorts, with numerous tourist attractions. Numerous Las Vegas hotel-casino resorts are themselves tourist attractions. The Stratosphere is located on the northern end of the Las Vegas Strip. However, most of the established and newer destination hotel-casino resorts are located in the central or southern portions of the Las Vegas Strip. Arizona Charlie's Decatur and Arizona Charlie's Boulder compete primarily with other Las Vegas hotels and casinos located outside of the Las Vegas Strip. The Arizona Charlie's properties compete for local customers with other hotels and casinos targeting this group and that are located nearby. The Arizona Charlie's properties compete with local casinos based on a mix of casino games, personal service, payout ratios, location, price of hotel rooms, restaurant value and promotions. Future visits to our properties may be negatively affected as customers who have previously visited our properties may choose to experience other Las Vegas casinos and hotels with greater name recognition, different attractions, amenities and entertainment options. Our ability to expand our target market may be limited due to the lack of meeting, convention and spa facilities at our properties. If other hotels or casinos operate more successfully, if existing hotels and casinos are enhanced or expanded, or if additional hotels and casinos are established in and around the locations in which our hotels and casinos conduct business, competition will further increase and our operating results may suffer. Many of our competitors have greater financial, selling and marketing, technical and other resources than we do. We must continually attract customers to our properties, which requires us to maintain a high level of investment in marketing and customer service. We may not be able to compete effectively with our competitors. We also face competition from all other types of entertainment, recreational activities and other attractions in and near Las Vegas. WE COMPETE WITH THE CONTINUED GROWTH OF GAMING ON NATIVE AMERICAN TRIBAL LANDS, PARTICULARLY IN CALIFORNIA. Many Native American tribes conduct casino gaming operations throughout the United States. 26 Other Native American tribes are either in the process of establishing, or are considering establishing, gaming operations at additional locations, including sites in California and Arizona. The competitive impact on Nevada gaming establishments, including our properties, from the continued growth of gaming in jurisdictions outside Nevada cannot be determined at this time but, depending on the nature, location and extent of the growth of those operations, the impact could be material. In some instances, Native American gaming facilities operate under regulatory requirements and tax environments that are less stringent than those imposed on state-licensed casinos, which could provide them with a competitive advantage. Our operations could adversely be affected by the growth of Native American gaming in California and other states. The continued growth of Native American gaming establishments in California and other states could reduce the number of our visitors and also our revenue. THE EXISTENCE OF LEGALIZED GAMBLING IN OTHER JURISDICTIONS MAY REDUCE THE NUMBER OF VISITORS TO LAS VEGAS. Certain states have legalized, and others may legalize, casino gaming in specific venues, including race tracks and/or in specific areas, including metropolitan areas from which we traditionally attract customers, including Los Angeles and San Francisco. The proliferation of gaming venues, by luring customers close to home and away from Las Vegas, could significantly and adversely affect our financial condition, results of operations or cash flows. Our properties also compete and will in the future compete with all forms of legalized gambling. These ventures could divert customers from our properties and reduce our revenue and cash flow. THE GAMING INDUSTRY IS HIGHLY REGULATED AND THE NEVADA GAMING AUTHORITIES AND STATE AND MUNICIPAL LICENSING AUTHORITIES HAVE SIGNIFICANT CONTROL OVER OUR OPERATIONS. Our properties currently conduct licensed gaming operations in Nevada, and various regulatory authorities, including the Nevada State Gaming Control Board and the Nevada Gaming Commission, require our properties to hold various licenses and registrations, findings of suitability, permits and approvals to engage in gaming operations and to meet requirements of suitability. These gaming authorities also control approval of ownership interests in gaming operations. These gaming authorities may deny, limit, condition, suspend or revoke our gaming licenses, registrations, findings of suitability or the approval of any of our ownership interests in any of the licensed gaming operations conducted in Nevada, any of which could have a significant adverse effect on our business, financial condition and results of operations, for any cause they may deem reasonable. If we violate gaming laws or regulations that are applicable to us, we may have to pay substantial fines or forfeit assets. If, in the future, we operate or have an ownership interest in casino gaming facilities located outside of Nevada, we may also be subject to the gaming laws and regulations of those other jurisdictions. The sale of alcoholic beverages at our properties is subject to licensing and regulation by the City of Las Vegas and Clark County, Nevada. The City of Las Vegas and Clark County have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action may (and revocation would) reduce the number of visitors to our casinos to the extent the availability of alcoholic beverages is important to them. If our alcohol licenses become in any way impaired, it would reduce the number of visitors. Any reduction in our number of visitors will reduce our revenue and cash flow. POTENTIAL CHANGES IN THE TAX OR REGULATORY ENVIRONMENT COULD INCREASE OUR EXPENSES AND REDUCE OUR CASH FLOW. If additional regulations are adopted or existing ones are modified, those regulations could impose significant restrictions or costs that could have a significant adverse effect on us. From time to 27 time, various proposals are introduced in the federal and Nevada state and local legislatures that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and our business. Legislation of this type may be enacted in the future. For example, pursuant to legislation signed into law by the Governor of Nevada on July 23, 2003, the license fees on the number of gaming devices operated and on gross revenues were increased and the range of events covered by the former casino entertainment tax was expanded. This expansion has been continued in a new live entertainment tax. In October 2003, we also became subject to a state payroll tax based on the wages we pay employees. If there is a material increase in federal, state or local taxes and fees, our cash flow would be reduced. We are subject to a variety of other rules and regulations, including environmental, zoning, health and public safety, construction and land-use laws. Any changes to these laws, rules and regulations or adoption of additional laws, rules and regulations applicable to us could also increase our costs and reduce our cash position. ECONOMIC DOWNTURNS, TERRORISM AND THE UNCERTAINTY OF WAR, AS WELL AS OTHER FACTORS AFFECTING DISCRETIONARY CONSUMER SPENDING, COULD REDUCE THE NUMBER OF OUR VISITORS OR THE AMOUNT OF MONEY VISITORS SPEND AT OUR CASINOS. The strength and profitability of our business depends on consumer demand for hotel-casino resorts and gaming in general and for the type of amenities we offer. Changes in consumer preferences or discretionary consumer spending could harm our business. During periods of economic contraction, our revenues may decrease while some of our costs remain fixed, resulting in decreased earnings. This is because the gaming and other leisure activities we offer at our properties are discretionary expenditures, and participation in these activities may decline during economic downturns because consumers have less disposable income. Even an uncertain economic outlook may adversely affect consumer spending in our gaming operations and related facilities, as consumers spend less in anticipation of a potential economic downturn. The terrorist attacks which occurred on September 11, 2001, the potential for future terrorist attacks and wars in Afghanistan and Iraq have had a negative impact on travel and leisure expenditures, including lodging, gaming and tourism. Leisure and business travel, especially travel by air, remain particularly susceptible to global geopolitical events. Many of the customers of our properties travel by air, and the cost and availability of air service can affect our business. Furthermore, insurance coverage against loss or business interruption resulting from war and some forms of terrorism may be unavailable or not available on terms that we consider reasonable. We cannot predict the extent to which war, future security alerts or additional terrorist attacks may interfere with our operations. OUR PROPERTIES RELY EXCLUSIVELY ON THE LAS VEGAS ECONOMIC MARKET, AND CHANGES ADVERSELY IMPACTING THAT MARKET COULD REDUCE OUR REVENUE AND CASH FLOW. Our properties are all located in Las Vegas, Nevada and, as a result, our business will be subject to greater risks than a more diversified gaming company. These risks include, but are not limited to, risks related to local economic and competitive conditions, changes in local and state governmental laws and regulations (including changes in laws and regulations affecting gaming operations and taxes) and natural and other disasters. Any economic downturn in Nevada or any terrorist activities or disasters in or around Nevada could reduce the number of visitors to our properties and the amounts spent by our visitors. In addition, gaming industry revenues in, or leisure travel to and throughout, Nevada or the surrounding local markets may not continue to grow at their historical growth rates or may decline. Our properties, particularly the Stratosphere, draw a substantial number of customers from 28 Southern California, Arizona and the Midwest. A recession or downturn in any region constituting a significant source of customers for our properties could result in fewer customers visiting, or customers spending less at, our properties, which would adversely affect our results of operations. Additionally, the one principal interstate highway between Las Vegas and Southern California, where a large number of customers of our properties reside, has experienced significant traffic delays during peak periods. Capacity restraints of that highway or any other traffic disruptions may affect the number of customers who visit our properties. OUR PROPERTIES USE SIGNIFICANT AMOUNTS OF ELECTRICITY, NATURAL GAS AND OTHER FORMS OF ENERGY, AND ENERGY PRICE INCREASES MAY REDUCE OUR WORKING CAPITAL. Our properties use significant amounts of electricity, natural gas and other forms of energy. While no shortages of energy have been experienced, any substantial increases in the cost of electricity and natural gas in the United States, such as those increases recently experienced in Nevada, may increase our cost of operations, which would negatively affect our cash flow from operations. The extent of the impact is subject to the magnitude and duration of the energy price increases, but this impact could be material. In addition, higher energy and gasoline prices affecting our customers may increase their cost of travel and result in reduced visits to our properties and a reduction in our revenues. OUR PROPERTIES USE SIGNIFICANT AMOUNTS OF WATER AND A WATER SHORTAGE MAY ADVERSELY AFFECT OUR OPERATIONS. The rapid population growth and continued expansion of housing and casino development in Nevada over the last century have placed tremendous pressure on the water supply. Nevada, which shares water rights to the Colorado River with six other states, was apportioned its share in the early 1900s, before major expansion and growth were anticipated. In order to meet projected demand, alternate sources of supply will need to be located and/or captured and treated in order to be usable. The costs associated with obtaining such alternative sources of supply could increase our costs, which would negatively affect our cash flow from operations. THE LOSS OF MANAGEMENT AND OTHER KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS, AND THE QUALITY OF INDIVIDUALS HIRED FOR POSITIONS IN THE HOTEL AND GAMING OPERATIONS WILL BE CRITICAL TO THE SUCCESS OF OUR BUSINESS. Our ability to maintain our competitive position depends to a large degree on the efforts and skills of our senior management team. It may also be difficult to attract, retain and train qualified employees due to the competition for employees with other gaming companies and their facilities in Nevada. We may not be successful in retaining our current personnel or in hiring or retaining qualified personnel in the future. If we lose the services of any members of our management team, or fail to attract or retain qualified management and personnel at all levels, our business may be significantly disrupted and impaired. Our officers, directors and key employees also are required to file applications with the gaming authorities in the State of Nevada, Clark County and the City of Las Vegas, and are required to be licensed or found suitable by these gaming authorities. If any of these gaming authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the gaming authorities may require us to terminate the employment of any person who refuses to file the appropriate applications. Either result could significantly impair our gaming operations. 29 Our management team may devote a portion of their time to the management of other gaming and entertainment properties owned by AREP or others and not owned by us, which would divert their focus from our properties. Specifically, Richard P. Brown serves as our President and Chief Executive Officer and Denise Barton serves as our Chief Financial Officer. These individuals also serve as the Chief Executive Officer and, subject to the approval of the New Jersey Casino Control Commission, interim Chief Financial Officer, respectively, of the parent company of the Sands in Atlantic City, New Jersey. Additionally, we are in the process of seeking approval from the New Jersey Casino Control Commission to provide certain additional services to the Sands, including information technology and accounting services. THE OPENING OF THE LAS VEGAS MONORAIL MAY DIVERT CUSTOMERS FROM OUR PROPERTIES TO OTHER COMPETITORS WHOSE PROPERTIES ARE MORE CONVENIENTLY ACCESSED BY THE MONORAIL SYSTEM. The Robert N. Broadbent Las Vegas Monorail, a driverless, state-of-the-art urban public transportation system, operates on a route approximately four miles long along the east side of the Las Vegas Strip. It directly connects to eight major resorts, with more than 24,000 hotel rooms, and nine convention facilities, including the world's largest convention center. The monorail has station stops joining the Sahara at the monorail's northern endpoint to the MGM Grand at the monorail's southern endpoint. The Sahara station stop on the monorail is the closest station to the Stratosphere and will be located on the opposite side of the Las Vegas Strip approximately a quarter mile from the Stratosphere. Visitors to the Stratosphere depending upon the monorail to access our property are required to exit through the Sahara hotel and casino then cross over both Las Vegas Boulevard and Sahara Avenue, each a multi-lane boulevard, to access our facility. If visitors to Las Vegas select the monorail as their preferred mode of transportation, the inaccessibility of the Stratosphere from the monorail station may adversely affect the number of visitors to our property. AN INCREASE IN THE COST OF HEALTH CARE BENEFITS COULD HAVE A NEGATIVE IMPACT ON OUR PROFITABILITY. We provide health insurance to our employees, retirees and their dependents through health maintenance organizations and preferred provider organizations. These benefits comprise a significant portion of our operating expenses. It is possible that healthcare costs could continue to increase, either forcing us to make changes to our benefits program or negatively impacting our future profitability. WE MAY INCUR HIGHER COSTS OR WORK SLOW-DOWNS OR STOPPAGES DUE TO UNION ACTIVITIES IN LAS VEGAS. Our employees at the Stratosphere are currently covered by collective bargaining agreements with unions including the Local 226 (Culinary Workers Union), the Local 165 (Bartenders Union), the Local 501 (Operating Engineers) and the Local 995 (Teamsters). A major work stoppage or strike affecting the Stratosphere's employees could reduce our revenue and increase our expenses. In addition, a strike by unions representing employees of other casinos could adversely affect Las Vegas business and visitation levels generally by generating negative publicity. As a result, our business may be adversely affected if such a strike were to occur. Our employees at Arizona Charlie's Decatur and Arizona Charlie's Boulder are not covered by collective bargaining agreements. Most major casino resorts in Las Vegas have collective bargaining agreements with unions. In the event that our employees at Arizona Charlie's Decatur and Arizona Charlie's Boulder decide to organize themselves in a similar arrangement to the Stratosphere employees, we may incur higher costs and/or related work stoppages or slow-downs. 30 OUR STOCKHOLDER AND ITS CONTROL PERSON COULD EXERCISE ITS INFLUENCE OVER US TO YOUR DETRIMENT. Mr. Icahn, including certain entities related to him, is actively involved in the gaming industry and, through certain affiliates, currently owns 100% of the general partner of AREP and AREH and over 86% of AREP's outstanding depositary units and preferred units. As a result, he has the ability to appoint the board of directors of API which in turn will have the power to appoint our parent's board of directors, which will control many aspects of our operations and affairs. Mr. Icahn is the beneficial owner, through AREP and other affiliates, of 77.5% of the stock of GB Holdings, Inc., the sole shareholder of Atlantic Coast Entertainment Holdings, Inc., or Atlantic Holdings, which owns the Sands Hotel and Casino in Atlantic City, New Jersey, a gaming and entertainment property which may directly or indirectly compete with us. Mr. Icahn and affiliates, including AREP, own approximately 96.5% of new debt of Atlantic Holdings. In addition, AREP or Mr. Icahn may pursue other business opportunities in the gaming and entertainment industry and there is no requirement that any additional business opportunities be presented to us. The interests of AREP and of Mr. Icahn may differ from your interests as a noteholder and, as such, they may take actions that may not be in your interest. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our stockholder might conflict with your interests as a noteholder. In addition, our stockholder may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investment, even though those transactions might involve risks to you as a noteholder. Affiliates of AREP are also engaged in real estate, including gaming and entertainment properties, and other business activities that may compete directly with us. Furthermore, three of our parent's directors, Messrs. Leidesdorf, Nelson and Wasserman, are also directors of API, the general partner of AREP, and one of our parent's directors, Keith A. Meister, is the president and chief executive officer of API. Conflicts of interest may arise in the future as such affiliates and we may compete for the same assets, purchasers and sellers of assets, lessees or financings. In addition, if Mr. Icahn were to sell, or otherwise transfer, some or all of his interests in AREP to an unrelated party or group, a change of control could be deemed to have occurred under the terms of the indenture governing the notes which would require us to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase. WE ARE HEAVILY DEPENDENT ON THE STRATOSPHERE FOR A LARGE PERCENTAGE OF OUR OPERATING CASH FLOW AND ARIZONA CHARLIE'S BOULDER HAS A HISTORY OF NEGATIVE OPERATING CASH FLOW. We derive a substantial portion of our cash flow from operations from the Stratosphere. For the years ended December 31, 2002 and 2003, the Stratosphere's cash flow from operations accounted for 71.4% and 65.2% of our combined cash flow from operations. We will rely heavily on the Stratosphere's cash flow to meet our debt service obligations. Arizona Charlie's Boulder is a relatively new company and its operations have generated negative cash flow from operations since inception through December 31, 2003. For the years ended December 31, 2002 and 2003, it had negative cash flow from operations of $3.6 million and $3.5 million. The property may not improve its results in the future. OUR RELIANCE ON SLOT MACHINE REVENUES AND THE CONCENTRATION OF MANUFACTURING OF SLOT MACHINES IN CERTAIN COMPANIES COULD IMPOSE ADDITIONAL COSTS ON US. A majority of our revenues are attributable to slot machines operated by us at our casinos. It is important, for competitive reasons, that we offer the most popular and up-to-date slot machine games 31 with the latest technology to our customers. We believe that a substantial majority of the slot machines sold in the United States in 2003 were manufactured by a few companies. In addition, we believe that one company provided a majority of all slot machines sold in the United States in 2003. In recent years, the prices of new slot machines have escalated faster than the rate of inflation. Furthermore, in recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participating lease arrangements in order to acquire the machines. Generally, a participating lease requires a payment of a percentage of the revenues generated and is substantially more expensive over the long-term than the cost to purchase a new machine. For competitive reasons, we may be forced to purchase new slot machines or enter into participating lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participating lease costs, it could hurt our profitability. WE MAY BE SUBJECT TO THE PENSION LIABILITIES OF OUR AFFILIATES. Mr. Icahn, through certain affiliates, currently owns 100% of AREP's general partner and over 86% of AREP's outstanding depositary units and preferred units. AREP owns a 99% limited partner interest in AREH, which indirectly owns 100% of American Casino & Entertainment Properties LLC. Applicable pension and tax laws make each member of a "controlled group" of entities, generally defined as entities in which there is at least an 80% common ownership interest, jointly and severally liable for certain pension plan obligations of any member of the controlled group. These pension obligations include ongoing contributions to fund the plan, as well as liability for any unfunded liabilities that may exist at the time the plan is terminated. In addition, the failure to pay these pension obligations when due may result in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty Corporation, or the PBGC, against the assets of each member of the controlled group. As a result of the more than 80% ownership interest in AREP by Mr. Icahn's affiliates, AREP and its subsidiaries, including AREH and us, are subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such entity, ACF Industries LLC, or ACF, is the sponsor of several pension plans that are underfunded by a total of approximately $28 million on an ongoing actuarial basis and $131 million if those plans were terminated, as most recently reported for the 2003 plan year by the plans' actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in promised benefits, investment returns, and the assumptions used to calculate the liability. As members of the ACF controlled group, AREP, AREH and we would be liable for any failure of ACF to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of the ACF pension plans. In addition, other entities now or in the future within the controlled group that includes us may have pension plan obligations that are, or may become, underfunded and we would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of such plans. The current underfunded status of the ACF pension plans requires ACF to notify the PBGC of certain "reportable events," such as if AREP, AREH or we cease to be a member of the ACF controlled group, or if AREP, AREH or we make certain extraordinary dividends or stock redemptions. The obligation to report could cause us to seek to delay or reconsider the occurrence of such reportable events. 32 Starfire, which is 100% owned by Mr. Icahn, has undertaken to indemnify us and our subsidiaries from losses resulting from any imposition of pension funding or termination liabilities that may be imposed on us and our subsidiaries or our assets as result of being a member of the Ichan controlled group. The Starfire indemnity provides, among other things, that so long as such contingent liabilities exist and could be imposed on us, Starfire will not make any distributions to is stockholders that would reduce its net worth to below $250 million. Nonetheless, Starfire may not be able to fund its indemnification obligations to us. OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO COVER ALL POSSIBLE LOSSES THAT THE STRATOSPHERE, ARIZONA CHARLIE'S DECATUR AND ARIZONA CHARLIE'S BOULDER COULD SUFFER. IN ADDITION, OUR INSURANCE COSTS MAY INCREASE AND WE MAY NOT BE ABLE TO OBTAIN THE SAME INSURANCE COVERAGE IN THE FUTURE. Our insurance coverage may not be adequate to cover a catastrophic loss at our three locations, the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. In addition, our insurance costs may increase and we may not be able to obtain the same insurance coverage in the future. The September 11, 2001 terrorist attacks have substantially affected the availability of insurance coverage for certain types of damages or occurrences. In addition, insurance premiums have increased on available coverage. We last renewed our property and casualty insurance policies on April 25, 2004. We were able to renew insurance coverage with a decrease in premium. Our current insurance policies include coverage with respect to occurrences of terrorist acts and any losses that could result from these acts in all levels of our coverages. If there is a catastrophic act of terrorism that affects the Stratosphere, Arizona Charlie's Decatur and/or Arizona Charlie's Boulder, there may not be sufficient insurance proceeds to cover the costs of restoring the note collateral. Therefore, we could be exposed to heavy losses in the event that any damages occur, directly or indirectly, as a result of terrorist acts that do not qualify by definition of the Terrorism Risk Insurance Act of 2002. In addition to the damage caused to our property by a casualty loss, including fire, natural disasters, acts of war or terrorism, we may suffer disruption of our business in such event or be subject to claims by third parties injured or harmed. While we carry business interruption insurance and general liability insurance, such insurance may not be adequate to cover all losses. Our current insurance policies terminate in April 2005. The cost of coverage is expected to increase significantly for substantially similar coverage for the upcoming policy year. Premiums can be adjusted as a function of change in limits or definition of assets to be covered. FORWARD-LOOKING STATEMENTS Some statements in this prospectus are known as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, future performance generally, business development activities, future capital expenditures, financing sources and availability and the effects of regulation and competition. When we use the words "believe," "intend," "expect," "may," "will," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. 33 We warn you that forward-looking statements are only predictions. Actual events or results may differ as a result of risks that we face, including those set forth in the section of this prospectus called "Risk Factors." Those risks are representative of factors that could affect the outcome of the forward-looking statements. These and the other factors discussed elsewhere in this prospectus are not necessarily all of the important factors that could cause our results to differ materially from those expressed in our forward-looking statements. Forward-looking statements speak only as of the date they were made and we undertake no obligation to update them. INDUSTRY DATA We refer to market and industry data throughout this prospectus that we have obtained from publicly available information and industry publications and other data that is based on the good faith estimates of our management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information. Although we believe that these sources are reliable, we have not verified the accuracy or completeness of this information. We are not aware of any misstatements regarding the market and industry data presented in this prospectus, however, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors." 34 USE OF PROCEEDS We will not receive any proceeds from the exchange of the new notes for the private notes pursuant to the exchange offer. On January 29, 2004, we issued and sold the old notes in a private placement, receiving net proceeds of approximately $205.6 million, after deducting selling and offering expenses. The net proceeds of the offering of the private notes were used to finance the purchase price for the acquisitions, to repay intercompany indebtedness, to fund distributions to our parent, American Entertainment Properties Corp., and to pay fees and expenses of the notes offering. 35 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the sale of the private notes, we and the initial purchaser of the private notes entered into a registration rights agreement in which we and the note guarantors agreed to: - file a registration statement with the Securities and Exchange Commission with respect to the exchange of the private notes for new notes, or the exchange offer registration statement, no later than 90 days after the date of our acquisition, or the acquisition date, of Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder, which occurred on May 26, 2004; - use all commercially reasonable efforts to have the exchange offer registration statement declared effective by the SEC on or prior to 180 days after the acquisition date; and - commence the offer to exchange new notes for the private notes and use all commercially reasonable efforts to issue on or prior to 30 business days, or longer if required by the federal securities laws, after the date on which the exchange offer registration statement was declared effective by the SEC, new notes in exchange for all private notes tendered prior to that date in the exchange offer. We are making the exchange offer to satisfy certain of our obligations under the registration rights agreement. We filed a copy of the registration rights agreement as an exhibit to the exchange offer registration statement. RESALE OF NEW NOTES Under existing interpretations of the Securities Act of 1933 by the staff of the SEC contained in several no-action letters to third parties, we believe that the new notes will generally be freely transferable by holders who have validly participated in the exchange offer without further registration under the Securities Act of 1933 (assuming the truth of certain representations required to be made by each holder of notes, as set forth below). For additional information on the staff's position, we refer you to the following no-action letters: Exxon Capital Holdings Corporation, available April 13, 1988; Morgan Stanley & Co. Incorporated, available June 5, 1991; and Shearman & Sterling, available July 2, 1993. However, any purchaser of private notes who is one of our "affiliates" or who intends to participate in the exchange offer for the purpose of distributing the new notes or who is a broker-dealer who purchased private notes from us to resell pursuant to Rule 144A or any other available exemption under the Securities Act of 1933: - will not be able to tender its private notes in the exchange offer; - will not be able to rely on the interpretations of the staff of the SEC; and - must comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with any sale or transfer of the private notes unless such sale or transfer is made pursuant to an exemption from these requirements. If you wish to exchange private notes for new notes in the exchange offer, you will be required to make representations in a letter of transmittal which accompanies this prospectus, including that: 36 - you are not our "affiliate" (as defined in Rule 405 under the Securities Act of 1933); - any new notes to be received by you will be acquired in the ordinary course of your business; - you have no arrangement or understanding with any person to participate in the distribution of the new notes in violation of the provisions of the Securities Act of 1933; - if you are not a broker-dealer, you are not engaged in, and do not intend to engage in, a distribution of new notes; and - if you are a broker-dealer, you acquired the private notes for your own account as a result of market-making or other trading activities (and as such, you are a "participating broker-dealer"), you have not entered into any arrangement or understanding with American Casino & Entertainment Properties LLC or an affiliate of American Casino & Entertainment Properties LLC to distribute the new notes and you will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of the new notes. Rule 405 under the Securities Act of 1933 provides that an "affiliate" of, or person "affiliated" with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the person specified. The SEC has taken the position that participating broker-dealers may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, and accordingly may fulfill their prospectus delivery requirements with respect to the new notes, other than a resale of an unsold allotment from the original sale of the notes, with the prospectus contained in the exchange offer registration statement. Under the registration rights agreement, we have agreed to use commercially reasonable efforts to allow participating broker-dealers and other persons, if any, subject to similar prospectus delivery requirements, to use the prospectus contained in the exchange offer registration statement in connection with the resale of the new notes for a period of 270 days from the issuance of the new notes. TERMS OF THE EXCHANGE OFFER This prospectus and the accompanying letter of transmittal contain the terms and conditions of the exchange offer. Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept for exchange all private notes which are properly tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the expiration date. After authentication of the new notes by the trustee or an authentication agent, we will issue and deliver $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding private notes accepted in the exchange offer. Holders may tender some or all of their private notes in the exchange offer in denominations of $1,000 and integral multiples thereof. The form and terms of the new notes are identical in all material respects to the form and terms of the private notes, except that: (1) the offering of the new notes has been registered under the Securities Act of 1933; (2) the new notes generally will not be subject to transfer restrictions or have registration rights; and (3) certain provisions relating to liquidated damages on the private notes provided for under certain circumstances will be eliminated. 37 The new notes will evidence the same debt as the private notes. The new notes will be issued under and entitled to the benefits of the indenture. As of the date of this prospectus, $215 million aggregate principal amount of the private notes is outstanding. In connection with the issuance of the private notes, we made arrangements for the private notes to be issued and transferable in book-entry form through the facilities of the Depository Trust Company acting as a depositary. The new notes will also be issuable and transferable in book-entry form through the Depository Trust Company. The exchange offer is not conditioned upon any minimum aggregate principal amount of private notes being tendered. However, our obligation to accept private notes for exchange pursuant to the exchange offer is subject to certain customary conditions that we describe under "-- Conditions" below. Holders who tender private notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of private notes pursuant to the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, in connection with the exchange offer. See "-- Solicitation of Tenders; Fees and Expenses" for more detailed information regarding the expenses of the exchange offer. By executing or otherwise becoming bound by the letter of transmittal, you will be making the representations described under "--Procedures for Tendering" below. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "expiration date" will mean 5:00 p.m., New York City time, on ________, 2004, unless we, in our sole discretion, extend the exchange offer, in which case the term "expiration date" will mean the latest date and time to which we extend the exchange offer. To extend the exchange offer, we will: - notify the exchange agent of any extension orally or in writing; and - notify the registered holders of the private notes by means of a press release or other public announcement, each before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We reserve the right, in our reasonable discretion: - to delay accepting any private notes; - to extend the exchange offer; or - if any conditions listed below under "--Conditions" are not satisfied, to terminate the exchange offer by giving oral or written notice of the delay, extension or termination to the exchange agent. We will follow any delay in acceptance, extension or termination as promptly as practicable by oral or written notice to the registered holders. If we amend the exchange offer in a manner we determine constitutes a material change, we will promptly disclose the amendment in a prospectus supplement that we will distribute to the registered holders. 38 INTEREST ON THE NEW NOTES Interest on the new notes will accrue from the last interest payment date on which interest was paid on the private notes surrendered in exchange for new notes or, if no interest has been paid on the private notes, from the issue date of the private notes, January 29, 2004. Interest on the new notes will be payable semi-annually on February 1 and August 1 of each year, commencing on the first such date following the completion of the exchange offer. PROCEDURES FOR TENDERING You may tender your private notes in the exchange offer only if you are a registered holder of private notes. To tender in the exchange offer, you must: - complete, sign and date the letter of transmittal or a facsimile the letter of transmittal; - have the signatures thereof guaranteed if required by the letter of transmittal; and - mail or otherwise deliver the letter of transmittal or such facsimile to the exchange agent, at the address listed below under " -- Exchange Agent" for receipt prior to the expiration date. In addition, either: - the exchange agent must receive certificates for the private notes along with the letter of transmittal into its account at the Depository Trust Company pursuant to the procedure described under " -- Book-Entry Transfer" before the expiration date; - the exchange agent must receive a timely confirmation of a book-entry transfer, if the procedure is available, into its account at the Depository Trust Company pursuant to the procedure described under " -- Book-Entry Transfer" before the expiration date; or - you must comply with the procedures described under "Guaranteed Delivery Procedures." Your tender, if not withdrawn before the expiration date, will constitute an agreement between you and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal. The method of delivery of private notes and the letter of transmittal and all other required documents to the exchange agent is at your election and risk. We recommend that, instead of delivery by mail, you use an overnight or hand delivery service. In all cases, you should allow sufficient time to ensure delivery to the exchange agent prior to the expiration date. You should not send letters of transmittal or private notes to us. You may request that your respective brokers, dealers, commercial banks, trust companies or nominees effect the transactions described above for you. If you are a beneficial owner whose private notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your private notes, you should contact such registered holder promptly and instruct such registered holder to tender on your behalf. If you wish to tender on your own behalf, prior to completing and executing the letter of transmittal and delivering your private notes, you must either: - make appropriate arrangements to register ownership of your private notes in your name; or 39 - obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time unless private notes are tendered - by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instruction" on the letter of transmittal; or - for the account of an "Eligible Institution" which is either: - a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc.; - a commercial bank or trust company located or having an office or correspondent in the United States; or - otherwise an "eligible guarantor institution" within meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, an Eligible Institution must guarantee the signatures on a letter of transmittal or a notice of withdrawal described below under " -- Withdrawal of Tenders." If the letter of transmittal is signed by a person other than the registered holder, such private notes must be endorsed or accompanied by appropriate bond powers which authorize such person to tender the private notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the private notes. If the letter of transmittal or any private notes or bond powers are signed or endorsed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by us, they must submit evidence satisfactory to us of their authority to so act with the letter of transmittal. The letter of transmittal will include representations to us as set forth under "Resale of Exchange Notes." You should note that: - All questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of the tendered private notes will be determined by us in our sole discretion, which determination will be final and binding; - We reserve the absolute right to reject any and all private notes not properly tendered or any private notes the acceptance of which would, in our judgment or the judgment of our counsel, be unlawful; - We also reserve the absolute right to waive any irregularities or conditions of tender as to particular private notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of private notes must be cured within such time as we shall determine; - Although we intend to notify holders of defects or irregularities with respect to any tender of 40 private notes, neither we, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to tenders of private notes, nor shall any of them incur any liability for failure to give such notification; and - Tenders of private notes will not be deemed to have been made until such irregularities have been cured or waived. Any private notes received by the exchange agent that we determine are not properly tendered or the tender of which is otherwise rejected by us and as to which the defects or irregularities have not been cured or waived by us will be returned by the exchange agent to the tendering holder unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. BOOK-ENTRY TRANSFER The exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the private notes at the Depository Trust Company for the purpose of facilitating the exchange offer. Any financial institution that is a participant in the Depository Trust Company's system may make book-entry delivery of private notes by causing the Depository Trust Company to transfer such private notes into the exchange agent's account with respect to the private notes in accordance with the Depository Trust Company's Automated Tender Offer Program procedures for such transfer. However, the exchange for the private notes so tendered will only be made after timely confirmation of such book-entry transfer of private notes into the exchange agent's account, and timely receipt by the exchange agent of an agent's message and any other documents required by the letter of transmittal. The term "agent's message" means a message, transmitted by the Depository Trust Company and received by the exchange agent and forming a part of the confirmation of a book-entry transfer, which states that the Depository Trust Company has received an express acknowledgment from a participant that is tendering private notes that such participant has received the letter of transmittal and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against the participant. Although delivery of private notes may be effected through book-entry transfer into the exchange agent's account at the Depository Trust Company, you must transmit and the exchange agent must receive, the letter of transmittal (or facsimile thereof) properly completed and duly executed with any required signature guarantee and all other required documents prior to the expiration date, or you must comply with the guaranteed delivery procedures described below. Delivery of documents to the Depository Trust Company does not constitute delivery to the exchange agent. GUARANTEED DELIVERY PROCEDURES If you wish to tender your private notes but your private notes are not immediately available, or time will not permit your private notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you may effect a tender if: (1) the tender is made through an Eligible Institution; (2) prior to the expiration date, the exchange agent receives from such Eligible Institution a properly completed and duly executed notice of guaranteed delivery, by facsimile transmittal, mail or hand delivery - stating the name and address of the holder, the certificate number or numbers of such holder's private notes and the principal amount of such private notes tendered; 41 - stating that the tender is being made thereby; and - guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal, or a facsimile thereof, together with the certificate(s) representing the private notes to be tendered in proper form for transfer, or confirmation of a book-entry transfer into the exchange agent's account at the Depository Trust Company of private notes delivered electronically, and any other documents required by the letter of transmittal, will be deposited by the Eligible Institution with the exchange agent; and (3) such properly completed and executed letter of transmittal, or a facsimile thereof, together with the certificate(s) representing all tendered private notes in proper form for transfer, or confirmation of a book-entry transfer into the exchange agent's account at the Depository Trust Company of private notes delivered electronically and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date. Upon request, the exchange agent will send to you a notice of guaranteed delivery if you wish to tender your private notes according to the guaranteed delivery procedures described above. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, you may withdraw tenders of private notes at any time prior to the expiration date. For a withdrawal to be effective, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address set forth this prospectus prior to the expiration date. Any such notice of withdrawal must: - specify the name of the person who deposited the private notes to be withdrawn; - identify the private notes to be withdrawn, including the certificate number or number and principal amount of such private notes or, in the case of private notes transferred by book-entry transfer, the name and number of the account at the Depository Trust Company to be credited; and - be signed in the same manner as the original signature on the letter of transmittal by which such private notes were tendered, including any required signature guarantee. We will determine in our sole discretion all questions as to the validity, form and eligibility, including time of receipt, of such withdrawal notices, and our determination shall be final and binding on all parties. We will not deem any properly withdrawn private notes to have been validly tendered for purposes of the exchange offer, and we will not issue new notes with respect those private notes unless you validly retender the withdrawn private notes. You may retender properly withdrawn private notes following one of the procedures described above under "--Procedures for Tendering" at any time prior to the expiration date. 42 CONDITIONS Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange the new notes for, any private notes, and may terminate the exchange offer as provided in this prospectus before the acceptance of the private notes, if: * the exchange offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the SEC; * an action or proceeding has been instituted or threatened in any court or by any governmental agency which might materially impair our or any guarantor's ability to proceed with the exchange offer; * there has been proposed, adopted or enacted any law, rule or regulation that, in our reasonable judgment, would impair materially our ability to consummate the exchange offer; or * all governmental approvals which we deem necessary for the completion of the exchange offer have not been obtained. If we determine in our reasonable discretion that any of these conditions are not satisfied, we may: - refuse to accept any private notes and return all tendered private notes to you; - extend the exchange offer and retain all private notes tendered before the exchange offer expires, subject, however, to your rights to withdraw the private notes; or - waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered private notes that have not been withdrawn. If the waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that we will distribute to the registered holders of the private notes. EXCHANGE AGENT We have appointed Wilmington Trust Company, as exchange agent for the exchange offer. You should send all executed letters of transmittal to the exchange agent at one of the addresses set forth below. In such capacity, the exchange agent has no fiduciary duties and will be acting solely on the basis of directions of our company. You should direct questions, requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal and requests for a notice of guaranteed delivery to the exchange agent addressed as follows: BY CERTIFIED OR REGISTERED MAIL: Wilmington Trust Company DC-1626 Processing Unit P.O. Box 8861 Wilmington, DE 19899-8861 43 BY OVERNIGHT COURIER OR HAND DELIVERY: Wilmington Trust Company Corporate Capital Markets 1100 North Market Street Wilmington, DE 19890-1626 BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY): (302) 636-4145 CONFIRM BY TELEPHONE: (302) 636-6470 Delivery to an address or facsimile number other than those listed above will not constitute a valid delivery. The trustee does not assume any responsibility for and makes no representation as to the validity or adequacy of this prospectus or the notes. SOLICITATION OF TENDERS; FEES AND EXPENSES We will pay all expenses of soliciting tenders pursuant to the exchange offer. We are making the principal solicitation by mail. Our officers and regular employees may make additional solicitations in person or by telephone or telecopier. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket costs and expenses in connection therewith. We also may pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the private notes and in handling or forwarding tenders for exchange. We will pay the expenses to be incurred in connection with the exchange offer, including fees and expenses of the exchange agent and trustee and accounting and legal fees and printing costs. We will pay all transfer taxes, if any, applicable to the exchange of private notes for new notes pursuant to the exchange offer. If, however, certificates representing new notes or private notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the private notes tendered, or if tendered private notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of private notes pursuant to the exchange offer, then the amount of any such transfer taxes, whether imposed on the registered holder or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed by us directly to such tendering holder. CONSEQUENCES OF FAILURE TO EXCHANGE Participation in the exchange offer is voluntary. We urge you to consult your financial and tax 44 advisors in making your decisions on what action to take. Private notes that are not exchanged for new notes pursuant to the exchange offer will remain restricted securities. Accordingly, those private notes may be resold only: - to a person whom the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A under the Securities Act of 1933; - in a transaction meeting the requirements of Rule 144 under the Securities Act of 1933; - outside the United States to a foreign person in a transaction meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act of 1933; - in accordance with another exemption from the registration requirements of the Securities Act of 1933 and based upon an opinion of counsel if we so request; - to us; or - pursuant to an effective registration statement. In each case, the private notes may be resold only in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. 45 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following table summarizes certain selected historical consolidated financial data of American Casino & Entertainment Properties (see note 1 to the consolidated financial statements), which you should read in conjunction with the financial statements and the related notes contained in this prospectus and "Management's Discussion and Analysis of Results of Operations and Financial Condition." On May 26, 2004, we completed the purchase of Charlie's Holding LLC, a newly formed entity that acquired Arizona Charlie's Decatur and Arizona Charlie's Boulder from Mr. Icahn and Starfire Holding Corporation, which is wholly-owned by Mr. Icahn. Additionally, on that date, AREH contributed to us 100% of the capital stock of Stratosphere Corporation. These transactions represent a merger of entities under the common control of Carl C. Icahn. Accordingly, the historical cost basis of the underlying net assets was retained in the combination for all dates prior to May 26, 2004. Our financial statements for periods preceding the acquisitions were presented on a combined basis. As a result of obtaining the formal approval from the Nevada gaming authorities, the legal presentation now requires consolidation. Accordingly, our financial statements for all periods (including for periods preceding the acquisitions) are referred to as consolidated. The selected historical consolidated financial data as of December 31, 2001, 2002 and 2003, and for the years ended December 31, 2000, 2001, 2002 and 2003, have each been derived from our audited consolidated financial statements at those dates and for those periods, contained elsewhere in this prospectus. The selected historical consolidated financial data (1) as of December 31, 1999, (2) for the year ended December 31, 1999, and (3) as of June 30, 2004 and for the six months ended June 30, 2003 and 2004 are unaudited. For the six month periods ended June 30, 2003 and 2004, all adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of the interim consolidated financial statements, have been included. Results for the six months ended June 30, 2004 are not necessarily indicative of the results for the full year.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- ------------------- 1999 2000 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Revenues: Casino............................... $ 90,679 $ 122,755 $ 142,919 $ 143,057 $ 147,888 $ 73,998 $ 82,391 Hotel................................ 27,041 31,801 38,326 44,263 47,259 23,572 27,723 Food and beverage.................... 43,762 53,477 55,453 56,349 59,583 29,847 33,420 Tower, retail and other income....... 28,144 31,622 29,512 28,247 30,336 14,540 16,580 ---------- ---------- ---------- ---------- --------- --------- ---------- Gross revenues...................... 189,626 239,655 266,210 271,916 285,066 141,957 160,114 Less promotional allowances.......... 15,328 19,587 23,737 21,893 22,255 11,404 11,745 ---------- ---------- ---------- ---------- --------- --------- ---------- Net revenues........................ 174,298 220,068 242,473 250,023 262,811 130,553 148,369 ---------- ---------- ---------- ---------- --------- --------- ---------- Costs and expenses: Casino............................... 41,914 60,400 60,026 59,879 61,284 30,620 31,182 Hotel................................ 15,016 14,013 17,190 20,142 22,074 10,565 11,536 Food and beverage.................... 36,451 42,571 42,806 43,393 44,990 22,133 23,664 Tower, retail and other operations... 11,964 14,977 15,640 14,934 14,008 7,291 6,566 Selling, general and administrative.. 47,851 63,890 78,692 80,019 74,985 37,787 37,327 Depreciation and amortization........ 10,545 13,106 17,209 20,209 20,222 10,272 12,314 ---------- ---------- ---------- ---------- --------- --------- ---------- Total costs and expenses............ 163,741 208,957 231,563 238,576 237,563 118,668 122,589 ---------- ---------- ---------- ---------- --------- --------- ---------- Income from operations................. 10,557 11,111 10,910 11,447 25,248 11,885 25,780 ---------- ---------- ---------- ---------- --------- --------- ---------- Other income (expense): Interest income...................... 790 1,968 1,640 667 426 270 955 Interest expense..................... (2,339) (3,294) (5,971) (5,990) (5,389) (2,755) (9,747) Gain (loss) on disposal of assets.... (12) (4) 23 (354) (1,401) 85 144 ---------- ---------- ---------- ----------- --------- --------- ---------- Total other income (expense)........ (1,561) (1,330) (4,308) (5,677) (6,364) (2,400) (8,648) ---------- ---------- ---------- ---------- --------- ---------- ---------- Income before income taxes............. 8,996 9,781 6,602 5,770 18,884 9,485 17,132 Provision for income taxes............. 2,789 5,445 4,908 4,907 (1,798) 4,394 5,944 ---------- ---------- ---------- ---------- --------- --------- ----------
46 Net income............................. $ 6,207 $ 4,336 $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188 ========== ========== ========== ========== ========= ========= ==========
47
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ----------------------------------------------- --------------- 1999 2000 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT RATIOS) OTHER FINANCIAL DATA: EBITDA(1) ................................ $21,102 $24,217 $28,119 $31,656 $45,470 $22,157 $38,094 EBITDA margin(2) ......................... 12.1% 11.0% 11.6% 12.7% 17.3% 17.0% 25.7% Capital expenditures ..................... $ 7,459 $99,462 $56,019 $23,223 $33,465 $ 3,837 $ 9,925 Ratio of earnings to fixed charges(3) .... 4.4x 3.4x 1.6x 2.0x 4.4x 4.3x 2.8x
AS OF AS OF DECEMBER 31, JUNE 30, ------------------------------------------------ -------- 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- BALANCE SHEET DATA: Cash and cash equivalents ......... $ 28,030 $ 48,357 $ 48,587 $ 59,343 $ 77,258 $ 49,231 Total assets ...................... 231,887 353,342 386,346 397,835 480,738 461,972 Total debt(4) ..................... 28,937 67,045 96,975 101,655 105,243 218,966 Stockholders' equity .............. 179,075 248,375 255,847 259,953 330,345 201,543
- --------------- (1) EBITDA consists of net income (loss) plus (a) other income (expense) which includes interest expense, interest income and gain (loss) on disposal of property and equipment, (b) income tax provision (or less income tax benefit) and (c) depreciation and amortization. EBITDA is presented as a measure of operating and performance because we believe analysts, investors and others frequently use it in the evaluation of companies in our industry, in particular for the ability of a company to meet its debt service requirements. Other companies in our industry may calculate EBITDA, differently, particularly as it relates to non-recurring, unusual items. EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity, or as an alternative to net income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. The following table provides a reconciliation of net income (computed in accordance with GAAP) to EBITDA:
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------- ---------------- 1999 2000 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS) RECONCILIATION OF NET INCOME: Net income.......................... $ 6,207 $ 4,336 $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188 Other (income) expense.............. 1,561 1,330 4,308 5,677 6,364 2,400 8,648 Provision for income tax............ 2,789 5,445 4,908 4,907 (1,798) 4,394 5,944 Depreciation and amortization....... 10,545 13,106 17,209 20,209 20,222 10,272 12,314 --------- --------- --------- --------- -------- -------- -------- EBITDA........................... $ 21,102 $ 24,217 $ 28,119 $ 31,656 $ 45,470 $ 22,157 $ 38,094 ========= ========= ========= ========= ======== ======== ========
(2) EBITDA margin equals EBITDA divided by net revenues. (3) For purposes of calculating this ratio, earnings consists of the sum of (a) pretax income, (b) fixed charges and (c) amortization of capitalized interest, less the sum of interest capitalized. Fixed charges consists of (a) interest expensed and capitalized, (b) amortized premiums, discounts and capitalized expenses related to indebtedness, and (c) our estimate of the interest within rental expense. (4) Total debt, including current portions, consists of the current and long-term portions of capital lease obligations and notes payable, including notes payable to related parties. 48 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion contains management's discussion and analysis of our results of operations and financial condition. On May 26, 2004, we completed the purchase of Charlie's Holding LLC, a newly formed entity that acquired Arizona Charlie's Decatur and Arizona Charlie's Boulder from Starfire Holding Corporation, which is wholly-owned by Mr. Icahn, and Mr. Icahn. Additionally, on that date, AREH contributed to us 100% of the capital stock of Stratosphere Corporation. These transactions represent a merger of entities under the common control of Carl C. Icahn. Accordingly, the historical cost basis of the underlying net assets was retained in the combination for all dates prior to May 26, 2004. Our financial statements for periods preceding the acquisitions were presented on a combined basis. As a result of obtaining the formal approval from the Nevada gaming authorities, the legal presentation now requires consolidation. Accordingly, our financial statements for all periods (including for periods preceding the acquisitions) are referred to as consolidated. Management's discussion and analysis should be read in conjunction with, and is qualified in its entirety by reference to, our audited financial statements and related notes. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in "Risk Factors" and elsewhere in this prospectus. OVERVIEW We own and operate three gaming and entertainment properties in the Las Vegas metropolitan area. The three properties are the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. Each of our properties offers customers a value-oriented experience by providing competitive odds in our casinos, high-quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere, an offering of entertainment attractions found nowhere else in Las Vegas. A majority of our revenues are generated by our casino operations. Two of our key drivers of gaming revenues are average win per slot machine per day and average win per table game per day. In order to increase these amounts and, therefore, our casino revenues, we seek to increase customer traffic to our properties. RESULTS OF OPERATIONS The following table sets forth information derived from our consolidated statements of income expressed as a percentage of net revenues for the periods indicated. CONSOLIDATED STATEMENTS OF INCOME -- PERCENTAGE OF NET REVENUES
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------ ---------------- 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- Revenues: Casino .............................................. 58.9% 57.2% 56.3% 56.7% 55.5% Hotel ............................................... 15.8 17.7 18.0 18.0 18.7 Food and beverage ................................... 22.9 22.5 22.7 22.9 22.5 Tower, retail and other income ...................... 12.2 11.3 11.5 11.1 11.2 ----- ----- ----- ----- ----- Gross revenues ................................... 109.8 108.7 108.5 108.7 107.9 Less promotional allowances ......................... 9.8 8.7 8.5 8.7 7.9 ----- ----- ----- ----- ----- Net revenues ..................................... 100.0% 100.0% 100.0% 100.0% 100.0% Costs and expenses: Casino .............................................. 24.7 23.9 23.3% 23.5% 21.0% Hotel ............................................... 7.1 8.0 8.4 8.1 7.8 Food and beverage ................................... 17.7 17.4 17.1 16.9 15.9 Tower, retail and other operations .................. 6.5 6.0 5.3 5.6 4.4 Selling, general and administrative ................. 32.4 32.0 28.6 28.9 25.2 Depreciation and amortization ....................... 7.1 8.1 7.7 7.9 8.6 ----- ----- ----- ----- ----- Total costs and expenses ......................... 95.5 95.4 90.4 90.9 82.9 ----- ----- ----- ----- -----
49
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------ -------------- 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- Income from operations ........................... 4.5 4.6 9.6 9.1 17.1 Other income (expense): Interest income ..................................... 0.7 0.2 0.2 0.2 0.6 Interest expense .................................... (2.5) (2.4) (2.1) (2.1) (6.3) Gain (loss) on disposal of assets ................... 0.0 (0.1) (0.5) 0.1 0.1 ----- ----- ----- ----- ----- Total other income (expense) ..................... (1.8) (2.3) (2.4) (1.8) (5.6) ----- ----- ----- ----- ----- Income before income taxes ....................... 2.7 2.3 7.2 7.3 11.5 Provision for income taxes .......................... 2.0 2.0 (0.7) 3.4 4.0 ----- ----- ----- ----- ----- Net income ....................................... 0.7% 0.3% 7.9% 3.9% 7.5% ===== ===== ===== ===== =====
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ---------------------------------- ------------------- 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- PROPERTY DATA: Stratosphere Average number of slot machines ........... 1,476 1,505 1,459 1,478 1,411 Average win per slot machine per day ...... $ 85.37 $ 90.74 $ 91.73 $ 89.17 $ 102.32 Average number of table games ............. 46 48 50 50 48 Average win per table game per day ........ $ 984.58 $1,022.50 $1,016.50 $1,013.83 $1,157.95 Average number of hotel rooms ............. 1,994 2,444 2,444 2,444 2,444 Average daily room rate ................... $ 48.54 $ 48.28 $ 51.17 $ 51.78 $ 57.03 Average occupancy rate .................... 93.2% 89.6% 89.8% 88.1% 92.4% Arizona Charlie's Decatur Average number of slot machines ........... 1,620 1,590 1,539 1,562 1,511 Average win per slot machine per day ...... $ 97.85 $ 92.93 $ 105.61 $ 104.52 $ 123.76 Average number of table games ............. 19 18 14 15 15 Average win per table game per day ........ $ 595.32 $ 486.30 $ 547.78 $ 549.75 $ 605.23 Average number of hotel rooms ............. 258 258 258 258 258 Average daily room rate ................... $ 45.29 $ 43.91 $ 43.17 $ 42.99 $ 49.55 Average occupancy rate .................... 77.3% 74.4% 85.3% 85.0% 90.8% Arizona Charlie's Boulder Average number of slot machines ........... 797 812 838 839 844 Average win per slot machine per day ...... $ 61.96 $ 65.53 $ 79.16 $ 76.95 $ 106.22 Average number of table games ............. 13 12 13 13 14 Average win per table game per day ........ $ 472.21 $ 468.20 $ 441.77 $ 463.22 $ 452.71 Average number of hotel rooms ............. 303 303 303 303 303 Average daily room rate ................... $ 39.51 $ 42.97 $ 43.32 $ 42.25 $ 48.44 Average occupancy rate .................... 59.3% 55.2% 55.7% 51.8% 62.8%
50 SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003 Gross revenues for the six months ended June 30, 2004 were $160.1 million, an increase of $18.2 million, or 12.8% over the six months ended June 30, 2003. Gross revenues at the Stratosphere Casino Hotel & Tower for the six months ended June 30, 2004 were $97.7 million, or 61.0% of gross revenues, an increase of $9.5 million, or 10.7% over the six months ended June 30, 2003. Promotional allowances at the Stratosphere decreased 8.5% resulting in an increase in net revenues of $10.0 million or 12.3%. Gross revenues at Arizona Charlie's Decatur for the six months ended June 30, 2004 were $40.9 million, or 25.5% of gross revenues, an increase of $4.0 million, or 10.9%, as compared to the prior year. This increase was primarily due to an increase in casino revenues for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. Gross revenues at Arizona Charlie's Boulder for the six months ended June 30, 2004 were $21.6 million, or 13.5% of gross revenues, an increase of $4.6 million, or 27.5% over the prior period. This increase was primarily due to an increase in slot revenues. CASINO REVENUES Casino revenues during the six months ended June 30, 2004 totaled $82.4 million, or 51.5% of total revenues. This is an increase of $8.4 million, or 11.3%, as compared to the six months ended June 30, 2003. Slot machine revenues were $66.3 million, or 80.5% of total casino revenues, and tables game revenues were $12.8 million, or 15.5% of casino revenues for the six months ended June 30, 2004 as compared to slot machine revenues of $59.9 million and table games revenues of $11.8 million for the six months ended June 30, 2003. Casino revenues at the Stratosphere for the six months ended June 30, 2004 were $36.0 million, an increase of $2.3 million, or 6.9%, over the six months ended June 30, 2003, of which slot machine revenues were $24.9 million, or 69.2% of its casino revenues, and table game revenues were $10.1 million, or 27.9% of its casino revenues. For the six months ended June 30, 2003, Stratosphere had slot machine revenues of $23.7 million and table games revenues of $9.3 million. Average win per slot machine per day at Stratosphere for the six months ended June 30, 2004 was $102.32 as compared to $89.17 for the six months ended June 30, 2003. This was due to a 4.5% decrease in the number of units compared to the prior period combined with an increase in floor traffic. Casino revenues at Arizona Charlie's Decatur were $31.5 million for the six months ended June 30, 2004 as compared to $29.0 million for the six months ended June 30, 2003. For the six months ended June 30, 2004, slot machine revenue was $28.2 million, or 89.6% of its casino revenues, and table game revenues were $1.6 million, or 5.1% of casino revenues. For the six months ended June 30, 2003, at Arizona Charlie's Decatur slot machine revenue was 90.7% of casino revenues and table game revenues were 5.0% of casino revenues. Average win per slot machine per day at Arizona Charlie's Decatur increased from $104.52 for the six months ended June 30, 2003 to $123.76 for the six months ended June 30, 2004 due to a 3.3% decrease in the number of units compared to the prior period combined with an increase in floor traffic. Casino revenues at Arizona Charlie's Boulder for the six months ended June 30, 2004 were $14.8 million, an increase of $3.6 million as compared to $11.3 million for the six months ended June 30, 2003. Slot revenues were $13.2 million, or 88.6% of its casino revenues and table game revenues were $1.1 million or 7.5% of its casino revenues for the six months ended June 30, 2004 as compared to $10.0 million and $1.1 million, respectively, for the six months ended June 30, 2003. Average win per slot machine per day for the six months ended June 30, 2004 was $106.22, as compared to $76.95 for the prior period due to an increase in floor traffic. 51 NON-CASINO REVENUES Hotel revenues for the six months ended June 30, 2004 were $27.7 million or 17.3% of total revenues. This represented an increase of $4.2 million, or 17.6% from hotel revenues for the six months ended June 30, 2003. Hotel revenues at the Stratosphere totaled $23.4 million for the six months ended June 30, 2004 as compared to $20.2 million for the six months ended June 30, 2003, an increase of 16.1%. Stratosphere hotel occupancy during the period was 92.4%, as compared to 88.1% for the six months ended June 30, 2003. Average daily room rate, or ADR, for the Stratosphere increased from $51.78 for the six months ended June 30, 2003 to $57.03 for the six months ended June 30, 2004 due to an increase in room demand. Hotel revenues at Arizona Charlie's Decatur totaled $2.1 million for the six months ended June 30, 2004, an increase of $0.4 million, or 23.6%,from hotel revenues for the six months ended June 30, 2003. Occupancy increased from 85.0% for the six months ended June 30, 2003 to 90.8% for the six months ended June 30, 2004. Average daily rate for Arizona Charlie's Decatur increased for the six months ended June 30, 2004 by 15.2% to $49.55. Hotel revenues at Arizona Charlie's Boulder increased $0.5 million, or 29.2%, to $2.2 million for the six months ended June 30, 2004. Occupancy increased from 51.8% for the six months ended June 30, 2003 to 62.8% for the six months ended June 30, 2004. Average daily rate at Arizona Charlie's Boulder increased for the six months ended June 30, 2004 by 14.7% to $48.44. Food and beverage revenues for the six months ended June 30, 2004 totaled $33.4 million, or 20.9% of total revenues, as compared to $29.8 million and 21.0% of total revenues for the six months ended June 30, 2003 . Food and beverage revenues at the Stratosphere increased 10.4% from $21.1 million for the six months ended June 30, 2003 to $23.3 million for the six months ended June 30, 2004. This was due to a 4.7% increase in food covers and price increases at several venues at the Stratosphere. Food and beverage revenues at Arizona Charlie's Decatur increased 18.0% to $6.1 million for the six months ended June 30, 2004. This increase was due to a 7.7% increase in covers and increased prices. Food and beverage revenues at Arizona Charlie's Boulder increased $0.4 million, or 12.5% to $4.0 million for the six months ended June 30, 2004. Tower, retail and other revenues increased $2.0 million, or 14.0% for the six months ended June 30, 2004. Tower, retail and other revenues at Stratosphere increased 13.0%, from $13.2 million in the six months ended June 30, 2003 to $14.9 million for the six months ended June 30, 2004. Tower revenue increased $1.8 million, primarily due to the opening of our new thrill ride. Other operations decreased by $0.1 million due to less entertainment revenue. Retail and other revenues at Arizona Charlie's Decatur increased $0.2 million to $1.2 million and retail and other revenues at Arizona Charlie's Boulder increased $0.1 million to $0.5 million for the six months ended June 30, 2004. PROMOTIONAL ALLOWANCES Promotional allowances represent the retail value of rooms, food and beverage, and other items that are provided to customers on a complimentary basis. Promotional allowances for the six months ended June 30, 2004 totaled $11.7 million, or 7.3% of gross revenues as compared to $11.4 million, or 8.0% of gross revenues for the six months ended June 30, 2003. Promotional allowances at the Stratosphere were $6.0 million, or 6.2% of its gross revenues, for the six months ended June 30, 2004, a decrease of 8.5% from $6.6 million, or 7.5% of its gross revenues for the six months ended June 30, 2003. This decrease was due primarily to less aggressive promotional policies. Promotional policies at Arizona Charlie's Decatur were more aggressive for the six months ended June 30, 2004 with an increase of $0.5 million to $3.6 million in allowances, or 8.8% of its gross revenues as compared to 8.3% of its gross revenues for the six months ended June 30, 2003. Promotional allowances for the six months ended June 30, 2004 at Arizona Charlie's Boulder were $2.1 million, or 9.9% of gross revenues, as compared to 10.4% for the six months ended June 30, 2003. 52 OPERATING EXPENSES Casino expense for the six months ended June 30, 2004 totaled $31.2 million, or 37.8% of total casino revenues as compared to $30.6 million, or 41.4% of total casino revenues, for the six months ended June 30, 2003. Combined casino operating expenses were primarily comprised of salaries, wages and benefits, and operating expenses of the casinos. Casino operating expenses at the Stratosphere were $15.0 million, or 41.5% of its casino revenues, for the six months ended June 30, 2004 as compared to $14.8 million, or 43.7% of its casino revenues, for the six months ended June 30, 2003. This increase of $0.2 million, or 1.4%, in casino operating expenses is due primarily to increased revenue taxes relating to higher gaming revenues. Casino expenses at Arizona Charlie's Decatur decreased $0.1 million, or 1.7% of its casino revenues for the six months ended June 30, 2004. Casino expenses at Arizona Charlie's Boulder increased $0.5 million, or 7.9%, but were only 42.0% of its casino revenues for the six months ended June 30, 2004 as compared to 51.3% of casino revenues for the six months ended June 30, 2003. This is primarily due to a reduction in the cost of employee benefits. Selling, general and administrative expenses decreased $0.5 million or 1.2% for the six months ended June 30, 2004. Selling, general and administrative expenses at the Stratosphere were $22.7 million, or 23.3% of its gross revenues, for the six months ended June 30, 2004 as compared to $22.3 million, or 25.3% of its gross revenues, for the six months ended June 30, 2003. This decrease of $0.4 million or 1.8% in selling, general and administrative expenses was due primarily to a decrease in complimentaries. Selling, general and administrative expenses at Arizona Charlie's Decatur were $9.1 million, or 22.3% of its gross revenues for the six months ended June 30, 2004 as compared to $9.4 million, or 25.4% of its gross revenues for the six months ended June 30, 2003. Selling, general and administrative expenses at Arizona Charlie's Boulder totaled $5.5 million, or 25.4% of gross revenues for the six months ended June 30, 2004 as compared to $6.1 million or 35.9% of gross revenues, for the six months ended June 30, 2003. INCOME FROM OPERATIONS Income from operations for the six months ended June 30, 2004 was $25.8 million, an increase of $13.9 million, or 116.9%, from the six months ended June 30, 2003. Income from operations at the Stratosphere for the six months ended June 30, 2004 was $15.6 million as compared to $8.0 million for the six months ended June 30, 2003. This increase of $7.6 million, or 94.4%, was due to increased revenues and cost containment programs. Income from operations at Arizona Charlie's Decatur for the six months ended June 30, 2004 was $8.5 million as compared to $6.8 million for the six months ended June 30, 2003. This increase of $1.7 million, or 24.8%, was due to increased slot revenues. Income from operations at Arizona Charlie's Boulder for the six months ended June 30, 2004 was $1.7 million as compared to a loss of $2.9 million for the six months ended June 30, 2003. This increase was primarily due to increased slot revenues and reduced selling, general, and administrative expenses. 53 YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 Gross revenues for the year ended December 31, 2003 amounted to $285.1 million, an increase of $13.1 million, or 4.8%, over the year ended December 31, 2002. Gross revenues at the Stratosphere for the year ended December 31, 2003 were $176.4 million, or 61.9% of gross revenues, an increase of $5.7 million as compared to revenues for the year ended December 31, 2002. Gross revenues at Arizona Charlie's Decatur for the year ended December 31, 2003 were $73.9 million, or 25.9% of combined gross revenues, an increase of $2.7 million as compared to the year ended December 31, 2002. This increase of 3.7% in gross revenues at Arizona Charlie's Decatur was primarily attributable to an increase in casino revenues. Gross revenues at Arizona Charlie's Boulder for the year ended December 31, 2003 were $34.8 million, or 12.2% of gross revenues, an increase of $4.7 million as compared to the year ended December 31, 2002. This increase of 15.8% as primarily due to the increased slot coin in and increased hold percentage compared to the year ended December 31, 2002. CASINO REVENUES Casino revenues during the year ended December 31, 2003 totaled $147.9 million, an increase of $4.8 million over the year ended December 31, 2002. Slot machine revenues were $119.6 million, or 80.9% of casino revenues, and table game revenues were $23.6 million, or 16.0% of casino revenues, for the year ended December 31, 2003 as compared to $115.6 million and $23.3 million, respectively, for the year ended December 21, 2002. Casino revenues at the Stratosphere for the year ended December 31,2003 were $66.5 million, a decrease of $.7 million, or 1.1%, over the year ended December 31, 2002, of which slot machine revenues were $46.6 million, or 70.0% of its casino revenues, and table game revenues were $18.6 million, or 27.9% of its casino revenues as compared to $48.7 million and $18.0 million, respectively, for the year ended December 31, 2002. Average win per slot machine per day at Stratosphere for the year ended December 31, 2003 was $91.73 which was an increase over the prior year of $90.74 due to a 3% decrease in the number of units compared to the prior year. Casino revenues at Arizona Charlie's Decatur for the year ended December 31, 2003 were $57.7 million, an increase of $1.6 million as compared to the year ended December 31, 2002, of which slot machine revenues were $52.4 million, or 90.7% of its casino revenues, and table game revenues were $2.9 million, or 5.0% of its casino revenues as compared to $49.6 million and $3.2 million, respectively, for the year ended December 31, 2002. Average win per slot machine per day at Arizona Charlie's Decatur for the year ended December 31, 2003 as $105.61, as compared to the average win per slot machine per day of $92.93 for 2002. Casino revenues at Arizona Charlie's Boulder for the year ended December 31, 2003 were $23.7 million, an increase of $4.0 million as compared to the year ended December 31, 2002. For the year ended December 31, 2003, slot machine revenues were $20.6 million, or 87.2% of its casino revenues, and table game revenues were $2.2 million, or 9.2% of its casino revenues as compared to $17.4 million and $2.1 million, respectively, for the year ended December 31, 2002. Average win per slot machine per day at Arizona Charlie's Boulder for the year ended December 31, 2003 was $79.16, as compared to the average win per slot machine per day of $65.53 for 2002. 54 NON-CASINO REVENUES Hotel revenues totaled $47.3 million, or 16.6% of gross revenues, for the year ended December 31, 2003 as compared to $44.3 million, or 16.3% of gross revenues for the year ended December 31, 2002. Hotel revenues at the Stratosphere totaled $40.6 million for the year ended December 31, 2003 as compared to $38.1 million for the year ended December 31, 2002. Stratosphere hotel occupancy during the period was 89.8%, as compared to 89.6% for the year ended December 31, 2002. As a result of the increased room capacity, average daily room rate increased from $48.28 for the year ended December 31, 2002 to $51.17 for the year ended December 31, 2003. Hotel revenues at Arizona Charlie's Decatur were $3.4 million for the year ended December 31, 2003, an increase of 15.6% from the previous year. This is a result of an increase in average occupancy rate from 74.4% to 85.3%. Hotel revenues at Arizona Charlie's Boulder were $3.3 million for the year ended December 31, 2003 as compared to $3.3 million for the year ended December 31, 2002. The occupancy rate for Arizona Charlie's Boulder increased from 55.2% for the year ended December 31, 2002 to 55.7% for the year ended December 31, 2003 and resulted in an increase in the ADR from $42.97 to $43.32. Food and beverage for the year ended December 31, 2003 totaled $59.6 million, or 20.9% of combined gross revenues, as compared to $56.3 million, or 20.7% of gross revenues, for the year ended December 31, 2002. Food and beverage revenues at the Stratosphere increased 6.5% from $39.7 million for the year ended December 31, 2002 to $42.3 million for the year ended December 31, 2003, due to an increase in food covers of 0.6%, while the average revenue per cover increased 5.9%. At Arizona Charlie's Decatur, food and beverage revenues were $10.4 million for both years ended December 31, 2003 and 2002. At Arizona Charlie's Boulder, food and beverage revenues were $7.0 million for the year ended December 31, 2003, an increase of $.7 million, or 10.7%, from the year ended December 31, 2002. Tower, retail and other revenues increased $2.1 million to $30.3 million for the year ended December 31, 2003. Tower, retail and other revenues at Stratosphere increased 5.4%, from $25.7 million in the year ended December 31, 2002 to $27.1 million for the year ended December 31, 2003. The combined retail and other revenues increased at Arizona Charlie's Decatur to $2.4 million, or 34.2% and Arizona Charlie's Boulder increased $.1 million, or 10.1% of revenues. PROMOTIONAL ALLOWANCES Promotional allowances provided to gaming patrons for the year ended December 31, 2003 and 2002 totaled $22.3 million and $21.9 million, respectively, and are recorded in our financial statements as a reduction of gross revenues. Promotional allowances represent the retail value of rooms, food and beverage, and other items that are provided to customers on a complimentary basis. Promotional allowances at the Stratosphere were $12.7 million, or 7.2% of its gross revenues, for the year ended December 31, 2003, a decrease of 11.2% from $14.3 million, or 8.4% of its gross revenues for the year ended December 31, 2002. This decrease was due primarily to less aggressive promotional policies. Promotional allowances at Arizona Charlie's Decatur were $6.0 million for the year ended December 31, 2003, or 8.2% of its gross revenues, compared to $5.0 million, or 7.0% of its gross revenues for the year ended December 31, 2002. This increase is primarily due to an increase in play due to our "Action Cash" program implemented in July 2003. 55 Promotional allowances at Arizona Charlie's Boulder were $3.5 million for the year ended December 31, 2003, or 10.1% of its gross revenues, compared to $2.6 million, or 8.7% of its gross revenues for the year ended December 31, 2002. This increase is primarily due to an increase in play due to our "Action Cash" program implemented in July, 2003. OPERATING EXPENSES Casino operating expense for the year ended December 31, 2003 totaled $61.3 million, or 41.4% of combined casino revenues, as compared to $59.9 million, or 41.9% of casino revenues, for the year ended December 31, 2002. Casino operating expenses were primarily comprised of salaries, wages and benefits, and operating expenses of the casinos. Casino operating expenses at the Stratosphere were $29.6 million, or 44.6% of its casino revenues, for the year ended December 31, 2003 as compared to $29.0 million, or 43.1% of its casino revenues, for the year ended December 31, 2002. This increase of $.6 million, or 2.2% in casino expenses is due primarily to increases in complimentaries. Casino operating expenses at Arizona Charlie's Decatur were $20.0 million, or 34.6% of its casino revenues, for the year ended December 31, 2003 as compared to $21.3 million, or 37.9% of its casino revenues, for the year ended December 31, 2002. This decrease was due primarily to cost reductions. Casino operating expenses at Arizona Charlie's Boulder were $11.7 million, or 49.3% of its casino revenues, for the year ended December 31, 2003 as compared to $9.6 million, or 48.9% of its casino revenues, for the year ended December 31, 2002. Selling, general and administrative expenses for the year ended December 31, 2003 were $75.0 million, or 26.3% of combined gross revenues, as compared to $80.0 million, or 29.4% of gross revenues, for the year ended December 31, 2002. Selling, general and administrative expenses at the Stratosphere were $44.9 million, or 25.4% of its gross revenues, for the year ended December 31, 2003 as compared to $45.9 million, or 26.9% of its gross revenues, for the year ended December 31, 2002. Selling, general and administrative expenses at Arizona Charlie's Decatur were $18.4 million, or 24.9% of its gross revenues, for the year ended December 31,2003, as compared to $19.5 million, or 27.3% of its gross revenues, for the year ended December 31, 2002. General and administrative expenses at Arizona Charlie's Boulder were $11.7 million, or 33.6% of its gross revenues, as compared to $14.6 million, or 48.7% of its gross revenues, for the prior year. INCOME FROM OPERATIONS Operating income for the year ended December 31, 2003 was $25.2 million as compared to operating income of $11.4 million for the year ended December 31, 2002. Operating income at the Stratosphere for the year ended December 31, 2003 was $15.5 million as compared to $11.3 million for the year ended December 31, 2002. This increase was primarily due to an increase in hotel revenues, increased building rents, lower promotions and lower depreciation. Operating income at Arizona Charlie's Decatur for the year ended December 31, 2003 was $14.0 million as compared to $8.8 million for the year ended December 31, 2002. This increase was due to an increase in casino revenues and reduced food and beverage expenses. For the years ended December 31, 2003 and December 31, 2002, Arizona Charlie's Boulder incurred operating losses of $4.3 million and $8.6 million, respectively. The reduced loss was due to increased casino revenues and reduced selling, general, and administrative expenses. 56 YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 The Las Vegas market experienced a significant drop in visitor volume over the four months following the September 11, 2001 terrorist attacks as compared to the same period in 2000, with smaller decreases through the remaining months of 2002. Gross revenues for the year ended December 31, 2002 were $271.9 million, an increase of $5.7 million, or 2.1%, as compared to the year ended December 31, 2001. Gross revenues at the Stratosphere for the year ended December 31, 2002 were $170.7 million, or 62.8% of gross revenues, an increase of $14.5 million as compared to the year ended December 31, 2001. This increase was primarily due to an increase in hotel revenues as a result of the hotel expansion of 1,000 rooms which opened in June 2001. Gross revenues at Arizona Charlie's Decatur for the year ended December 31, 2002 were $71.2 million, or 26.2% of gross revenues, a decrease of $8.8 million as compared to the year ended December 31, 2001. This decrease was primarily due to a decrease in casino revenues for the year ended December 31, 2002 as compared to the year ended December 31, 2001. Gross revenues at Arizona Charlie's Boulder for the year ended December 31, 2002 were $30.0 million, or 11.0% of gross revenues, approximately the same as revenues for the year ended December 31, 2001. CASINO REVENUES Casino revenues during the year ended December 31, 2002 were $143.1 million, an increase of $0.1 million as compared to the year ended December 31, 2001. Slot machine revenues were $118.2 million, or 82.6% of casino revenues, and table game revenues were $23.3 million, or 16.3% of the casino revenues, for the year ended December 31, 2002 as compared to $115.1 million and $22.9 million, respectively, for the year ended December 31, 2001. Casino revenues at the Stratosphere for the year ended December 31, 2002 were $67.2 million, an increase of $5.7 million, or 9.3%, as compared to the year ended December 31, 2001, primarily due to an increase in customer traffic. For the year ended December 31, 2002, slot machine revenues were $48.7 million, or 72.4% of its casino revenues, and table game revenues were $18.0 million, or 26.8% of its casino revenues, as compared to $43.7 million and $16.5 million, respectively, for the year ended December 31, 2001. Average win per slot machine per day at the Stratosphere for the year ended December 31, 2002 was $90.74 as compared to $85.37 for 2001. Average win per table per day at the Stratosphere for the year ended December 31, 2002 was $1,022.50 as compared to $984.58 for 2001. Casino revenues at Arizona Charlie's Decatur for the year ended December 31, 2002 were $56.1 million, a decrease of $5.6 million as compared to the year ended December 31, 2001 primarily due to a tightening of our complimentary policies. For the year ended December 31, 2002, slot machine revenues were $51.2 million, or 91.3% of casino revenues at Arizona Charlie's Decatur, and table game revenues were $3.2 million, or 5.7% of its casino revenues as compared to $54.3 million and $4.1 million, respectively, for the year ended December 31, 2001. Average win per slot machine per day at Arizona Charlie's Decatur for the year ended December 31, 2002 was $92.93, as compared to $97.85 for 2001. This decline was primarily due to a decrease in slot play as a result of tightening our complimentary policy. Casino revenues at Arizona Charlie's Boulder for the year ended December 31, 2002 were $19.7 million, which was flat as compared to the year ended December 31, 2001. For the year ended December 31, 2002, slot machine revenues were $18.3 million, or 92.9% of its casino revenues, and table game revenues were $2.1 million, or 10.4% of its casino revenues, as compared to $17.1 million and $2.2 million, respectively, for the year ended December 31, 2001. Average win per slot machine per day at Arizona Charlie's Boulder for the year ended December 31, 2002 was $65.53 as compared to $61.96 for 2001. 57 NON-CASINO REVENUES Hotel revenues totaled $44.3 million, or 16.3% of gross revenues, for the year ended December 31, 2002 as compared to $38.3 million, or 14.4% of combined gross revenues, for the year ended December 31, 2001. Hotel revenues at the Stratosphere totaled $38.1 million for the year ended December 31, 2002 as compared to $32.0 million for the year ended December 31, 2001. Stratosphere hotel occupancy during the period was 89.6%, as compared to 93.2% for the year ended December 31, 2001. ADR decreased from $48.54 for 2001 to $48.28 for 2002. Hotel revenues at Arizona Charlie's Decatur were $2.9 million for the year ended December 31, 2002, a decrease of 4.8% from the previous year. Hotel revenues at Arizona Charlie's Boulder were $3.3 million for the year ended December 31, 2002 as compared to $3.2 million for the year ended December 31, 2001. Food and beverage revenues for the year ended December 31, 2002 were $56.3 million, or 20.7% of gross revenues, as compared to $55.5 million, or 20.8% of gross revenues, for the year ended December 31, 2001. Food and beverage revenues at the Stratosphere increased 8.8% from $36.5 million for the year ended December 31, 2001 to $39.7 million for the year ended December 31, 2002, primarily due to an 8.6% increase in average revenue per cover offset, in part, by a 0.6% decrease in food covers. At Arizona Charlie's Decatur, food and beverage revenues were $10.4 million for the year ended December 31, 2002, a decrease of $2.2 million, or 17.7%, from the year ended December 31, 2001 primarily due to the tightening of our complimentary policies. At Arizona Charlie's Boulder, food and beverage revenues were $6.3 million for the year ended December 31, 2002, a decrease of $0.1 million, or 1.4%, for the year ended December 31, 2001. Tower, retail and other revenues decreased $1.3 million to $28.2 million for the year ended December 31, 2002. PROMOTIONAL ALLOWANCES Promotional allowances provided to gaming patrons for the years ended December 31, 2002 and 2001 were $21.9 million and $23.7 million, respectively. Promotional allowances at the Stratosphere were $14.3 million, or 8.4% of its gross revenues, for the year ended December 31, 2002, a decrease of 1.5% from $14.6 million, or 9.3% of its gross revenues, for the year ended December 31, 2001. This decrease was primarily due to less aggressive promotional policies. Promotional allowances at Arizona Charlie's Decatur were $5.0 million for the year ended December 31, 2002, or 7.0% of its gross revenues, compared to $6.6 million, or 8.3% of its gross revenues, for the year ended December 31, 2001. This decrease was primarily due to a tightening of its complimentary policies. Promotional allowances at Arizona Charlie's Boulder were $2.6 million for the year ended December 31, 2002, or 8.7% of its gross revenues, compared to $2.5 million, or 8.4% of its gross revenues, for the year ended December 31, 2001. OPERATING EXPENSES Casino operating expense for the year ended December 31, 2002 totaled $59.9 million, or 41.9% of casino revenues, as compared to $60.0 million, or 42.0% of casino revenues, for the year ended December 31, 2001. Casino operating expenses at the Stratosphere were $29.0 million, or 43.1% of its casino revenues, for the year ended December 31, 2002 as compared to $27.0 million, or 43.8% of its casino revenues, for the year ended December 31, 2001. This increase was primarily due to increases in complimentary and promotional expenses related to increased promotional events, many of which were 58 undertaken to increase customer traffic following September 11, 2001. Casino operating expenses at Arizona Charlie's Decatur were $21.3 million, or 37.9% of its casino revenues, for the year ended December 31, 2002 as compared to $23.1 million, or 37.4% of its casino revenues, for the year ended December 31, 2001. This decrease was primarily due to cost reduction efforts as a result of technology improvements and staffing reductions. Casino operating expenses at Arizona Charlie's Boulder were $9.6 million, or 48.9% of its casino revenues, for the year ended December 31, 2002 as compared to $10.0 million, or 50.7% of its casino revenues, for the year ended December 31, 2001. This decrease was primarily due to staffing reductions. Selling, general and administrative expenses for the year ended December 31, 2002 were $80.0 million, or 29.4% of gross revenues, as compared to $78.7 million, or 29.6% of gross revenues, for the year ended December 31, 2001. Selling, general and administrative expenses at the Stratosphere were $45.7 million, or 26.9% of its gross revenues, for the year ended December 31, 2002 as compared to $46.1 million, or 29.5% of its gross revenues, for the year ended December 31, 2001. Selling, general and administrative expenses at Arizona Charlie's Decatur were $19.5 million, or 27.3% of its gross revenues, for the year ended December 31, 2002, as compared to $19.5 million, or 24.3% of its gross revenues, for the year ended December 31, 2001. Selling, general and administrative expenses at Arizona Charlie's Boulder were $14.6 million, or 48.7% of its gross revenues, as compared to $13.2 million, or 43.8% of its gross revenues, for the prior year. Selling, general and administrative expenses at the Arizona Charlie's Boulder property increased year over year primarily due to an increase in healthcare costs of $0.9 million. INCOME FROM OPERATIONS Operating income for the year ended December 31, 2002 was $11.4 million as compared to $10.9 million for the year ended December 31, 2001. Operating income at the Stratosphere for the year ended December 31, 2002 was $11.3 million as compared to $4.6 million for the year ended December 31, 2001. This increase was primarily due to the hotel expansion which resulted in an increase in all revenue categories. Operating income at Arizona Charlie's Decatur for the year ended December 31, 2002 was $8.8 million as compared to $13.7 million for the year ended December 31, 2002. This decrease was primarily due to a decrease in net revenues of $7.1 million and offset, in part, by cost reductions of $1.8 million. For the years ended December 31, 2002 and December 31, 2001, Arizona Charlie's Boulder incurred operating losses of $8.6 million and $7.3 million, respectively. The increased operating loss at Arizona Charlie's Boulder was primarily due to an increase in employee healthcare benefits of $1.1 million. LIQUIDITY AND CAPITAL RESOURCES We completed the acquisitions of three Las Vegas, Nevada gaming and entertainment properties from affiliated parties on May 26, 2004. We applied the net proceeds from the offering of our $215 million principal amount of 7.85% senior secured notes due 2012 to pay the acquisition price for two of the properties, repay indebtedness owed to our parent, to make a distribution to our parent and to pay fees and expenses of the offering. Pending consummation of the acquisitions, the perfection of security interests in the assets of the properties acquired, the receipt of all necessary approvals of the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and certain other events, the net proceeds of the offering, were held in escrow in a note proceeds account, together with an additional amount sufficient to fund a special redemption obligation if, among other things, the acquisitions were not completed by August 31, 2004. Upon closing of the acquisitions, perfection of such security interests, receipt of necessary approvals of the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and such other events, the funds held in escrow in the note proceeds 59 account and additional cash on hand were used in connection with the acquisitions, to repay intercompany indebtedness, to fund distribution to our parent company and to pay related fees and expenses. At June 30, 2004, we had cash and cash equivalents of $49.2 million. Upon the release of funds from the escrow account, we retained an amount equal to accrued interest through the date of release, May 26, 2004, plus an amount equal to estimated unpaid fees and expenses related to the notes offering. Our capital expenditures for 2003 were $33.5 million. We currently anticipate capital expenditures for 2004 and 2005 to be approximately $15.0 million for each year. We expect to fund our operating and capital needs, as currently contemplated, with operating cash flows and, if necessary, borrowings under our senior secured revolving credit facility entered into by American Casino & Entertainment Properties LLC, as borrower and certain of its subsidiaries, as guarantors. The senior secured revolving credit facility allows for borrowings of up to $20.0 million, subject to us complying with financial and other covenants, until January 29, 2008. We met our capital requirements in 2003 through net cash from operating activities. For the six months ended June 30, 2004, net cash provided by operating activities totaled approximately $24.1 million and cash used for investing activities totaled $5.2 million, compared to approximately $22.2 million provided by operating activities and $4.8 million used in investing activities for the six months ended June 30, 2003. Management believes borrowings available under the senior secured revolving credit facility and operating cash flows will be adequate to meet our anticipated future requirements for working capital, capital expenditures and scheduled interest payments on the notes and under the senior secured revolving credit facility, lease payments and other permitted indebtedness at least through the next twelve months. Although no additional financing is currently contemplated, we will seek, if necessary and to the extent permitted under the indenture governing the notes and the terms of the senior secured revolving credit facility, additional financing through bank borrowings or debt or equity financings. However, additional financing, if needed, may not be available to us, or if available, the financing may not be on terms favorable to us. Our estimates of our reasonably anticipated liquidity needs may not be accurate and new business developments or other unforeseen events may occur, resulting in the need to raise additional funds. The following table summarizes contractual obligations and commitments to make future payments under certain contracts, including long-term debt obligations, and operating leases at June 30, 2004.
PAYMENTS DUE BY PERIOD -------------------------------------------------------------------- LESS THAN AFTER CONTRACTUAL OBLIGATIONS AND COMMITMENTS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS --------------------------------------- ----- ------ --------- --------- ------- (IN THOUSANDS) Long-term debt.......................... $ 215,000 $ -- $ -- $ -- $ 215,000 Capital leases.......................... 11,358 665 1,995 1,288 7,362 ------------- ----------- ------------ ------------ --------- Total cash obligations.................. $ 226,358 $ 665 $ 1,995 $ 1,337 $ 222,362 ============= =========== ============ ============ =========
60 CRITICAL ACCOUNTING POLICIES Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions about the effects of matters that are inherently uncertain. We have summarized our significant accounting policies in note 1 to our combined financial statements. Of the accounting policies, we believe the following may involve a higher degree of judgment and complexity. Revenue Recognition. Casino revenues represent the net win from gaming activities, which is the difference between gaming wins and losses. Hotel and other revenues are recognized at the time the related service is performed. Property and Equipment. At June 30, 2004, we had approximately $322.0 million of net property and equipment recorded on our balance sheet. We depreciate our assets on a straight-line basis over their estimated useful lives. The estimate of the useful lives is based on the nature of the asset as well as our current operating strategy. Future events, such as property expansions, new competition and new regulations, could result in a change in the manner in which we use certain assets, which could require a change in the estimated useful lives of such assets. In assessing the recoverability of the carrying value of property and equipment, we must make assumptions regarding estimated future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record impairment charges for these assets. Slot Club Liability. We offer a program whereby participants can accumulate points for casino wagering that can currently be redeemed for cash, lodging, food and beverages, and merchandise. A liability is recorded for the estimate of unredeemed points based upon redemption history at our casinos. Changes in the program, increases in membership and changes in the redemption patterns of the participants can impact this liability. Points expire after twelve months. Litigation, Claims and Assessment. We also utilize estimates for litigation, claims and assessments. These estimates are based upon management's knowledge and experience about past and current events and also upon reasonable future events. Actual results may differ from those estimates. QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. As of March 31, 2004, Stratosphere had an intercompany note payable to AREH of $76.3 million, which bore interest at a rate of 90-day LIBOR plus a spread of 3.0%. Upon the closing of the acquisitions, we repaid this note. All of our debt is at a fixed rate of interest. We can borrow, from time to time, up to $20.0 million under the senior secured revolving credit facility for working capital purposes. At March 31, 2004, we could not borrow under the facility, pending completion of the acquisitions. At June 30, 2004, there was not any amount outstanding under the facility. The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. Based on the borrowing rates currently available to us for debt with similar terms and average maturities, the estimated fair value of long-term debt outstanding is approximately $219 million as of June 30, 2004. 61 We do not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets. Under SFAS No. 143, the fair value of a liability for an asset retirement obligation is required to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. We adopted SFAS No. 143 on January 1, 2003. Adoption of SFAS No. 143 did not have a material impact on our financial condition, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Among other matters, SFAS No. 145 addresses the presentation for gains and losses on early retirements of debt in the statement of operations. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Adoption of SFAS No. 145 did not have a material impact on our financial condition, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The provisions of SFAS No. 146 became effective for exit or disposal activities commenced subsequent to December 31, 2002. We do not have any such activities and therefore do not expect any impact on our financial condition, results of operations or cash flows. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of SFAS Nos. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on our combined financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 31, 2002. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of SFAS No. 123. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures of the effect of the fair value method in both annual and interim financial statements. We do not anticipate the adoption of this Statement to have a material impact upon the combined financial statements. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For nonpublic enterprises, such as us, with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation is applied to the enterprise no later than the end of the first annual reporting period beginning after June 15, 2003. The application of this Interpretation is not expected to have a material effect on our financial statements. The Interpretation requires certain disclosures in financial statements 62 issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. We do not believe that we have any variable interest entities. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that companies classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after December 15, 2003. The impact of this Statement is not expected to have a significant effect on our financial statements. 63 BUSINESS OUR COMPANY We own and operate three gaming and entertainment properties in the Las Vegas metropolitan area. The three properties include the Stratosphere, which is located on the Las Vegas Strip and caters to visitors to Las Vegas, and two off-Strip casinos, Arizona Charlie's Decatur and Arizona Charlie's Boulder, which cater primarily to residents of Las Vegas and the surrounding communities. The Stratosphere is one of the most recognized landmarks in Las Vegas and our two Arizona Charlie's branded properties are well-recognized casinos in their respective marketplaces. Each of our properties offers customers a value-oriented experience, by providing competitive odds in our casinos, high-quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere, an offering of entertainment attractions found nowhere else in Las Vegas. We believe the value we offer our patrons, together with a strong focus on customer service, will enable us to continue to attract customer traffic to our properties. We are a holding company that was incorporated in Delaware on December 29, 2003 for the purpose of acquiring the entities that own and operate the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. The Stratosphere was a direct subsidiary of AREH. AREP and API, together, own 100% of AREH. The entities that own Arizona Charlie's Decatur and Arizona Charlie's Boulder have been indirect subsidiaries of Mr. Icahn and his affiliates since September 1998 and January 2000, respectively. We are a subsidiary of AREP, a New York Stock Exchange-listed company with over $2.0 billion in assets at March 31, 2004 and after giving effect to an offering by it of 8?% Senior Notes due 2012, which was completed on May 12, 2004, and the acquisitions and related transactions. Mr. Icahn owns over 86% of AREP's outstanding depositary units and preferred units. American Casino & Entertainment Properties Finance Corp., a Delaware corporation, is a wholly owned subsidiary of American Casino & Entertainment Properties LLC with no operations. American Casino & Entertainment Properties Finance Corp. was formed solely for the purpose of serving as co-issuer of debt securities of American Casino & Entertainment Properties LLC in order to facilitate offerings of such debt securities. Other than as a co-issuer of the notes, American Casino & Entertainment Properties Finance Corp. does not have any operations or assets and does not have any revenues. THE LAS VEGAS MARKET Las Vegas is one of the fastest-growing and largest entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. We believe that the Las Vegas gaming market has two distinct sub-segments: the tourist market, which tends to be concentrated on the Las Vegas Strip and the local market, which tends to be located in the areas surrounding the Las Vegas Strip, including Boulder Strip and North Las Vegas. TOURIST MARKET According to the Las Vegas Convention and Visitors Authority, or LVCVA, the number of visitors traveling to Las Vegas has increased over the last ten years from 21.9 million visitors in 1992 to 35.1 million visitors in 2002, a compound annual growth rate of 4.8%. The number of hotel and motel rooms in Las Vegas has increased by over 65% from 76,523 at the end of 1992 to 126,787 at the end of 2002, giving Las Vegas the most hotel and motel rooms of any metropolitan area in the world. Despite this significant increase in the supply of rooms, the Las Vegas hotel occupancy rate exceeded 88% for each of the years from 1992 through 2002. Las Vegas Strip gaming revenues have grown as Las Vegas visitations and hotel room count have 64 grown. Between 1992 and 2002, gaming revenues on the Las Vegas Strip experienced a compound annual growth of 5.9% According to the LVCVA, Las Vegas has been the United States' top-ranked destination for trade shows for the last nine years. The number of trade show attendees in Las Vegas increased from approximately 2.0 million in 1992 to 5.1 million in 2002, representing a compound annual growth rate of 10.0%. Attendees spent approximately $5.9 billion in 2002. We believe that the growth in the Las Vegas tourist market has been enhanced by a dedicated program of the LVCVA and major Las Vegas hotels to promote Las Vegas as an exciting vacation and convention site, the increased capacity of McCarran International Airport and the introduction of large, themed destination resorts in Las Vegas. The Robert N. Broadbent Las Vegas Monorail, a driverless, state-of-the art urban public transportation system is expected to become operational in early 2004. The monorail will initially operate on a route approximately four miles long, running along the east side of the Las Vegas Strip from the Sahara Hotel to the MGM Grand. We anticipate that the monorail will significantly reduce traffic congestion on the Las Vegas Strip. Plans have been announced to eventually extend the monorail to downtown Las Vegas at its northern end and McCarran International Airport at its southern end. LOCAL MARKET Nevada has been the fastest-growing state in the United States for the last 17 years and has enjoyed a strong economy and demographics that include an increasing number of retirees and other active gaming patrons. A majority of Nevada's growth has occurred in Las Vegas. The population of Clark County has grown from 873,730 in 1992 to 1,560,653 in 2002, a compound annual growth rate of 6.0%. In comparison, the United States population increased at a compound annual growth rate of 1.2% during this period. In 2002, median household income in Clark County was $43,765, compared with the national median income of $43,057. Gaming revenues have increased along with population growth. Between 1992 and 2002, gaming revenues in the Las Vegas local market, comprised of Boulder Highway and North Las Vegas, experienced a compound annual growth rate of 15.7%. OUR GAMING AND ENTERTAINMENT PROPERTIES Stratosphere The Stratosphere is situated on approximately 31 acres of land located at the northern end of the Las Vegas Strip and is a tourist-oriented gaming and entertainment destination property. The Stratosphere operates the Stratosphere Tower, a hotel, casino and a retail center. The Stratosphere is centered around the Stratosphere Tower, the tallest free-standing observation tower in the United States. Standing 1,149 feet above the Las Vegas Strip, the Stratosphere Tower is visible from all directions, including from the McCarran International Airport. Casino The Stratosphere's casino contains approximately 80,000 square feet of gaming space, with approximately 1,416 slot machines, 50 table games, a 125-seat race and sports book and a Keno lounge. Eight themed restaurants and four bars, two of which feature live entertainment are all located adjacent to 65 the casino. These facilities have been designed to enable convenient access to the casino. For the years ended December 31, 2001, 2002 and 2003, approximately 71.0%, 72.4% and 70.0%, respectively, of the Stratosphere's gaming revenue was generated by slot machine play and 26.9%, 26.8% and 27.9%, respectively, by table games. The Stratosphere derives its other gaming revenue from the race and sports book, which primarily serves to attract customers for slot machines and table games. Hotel, Food and Beverage The hotel has 2,444 rooms, including 120 suites. The hotel amenities include a 67,000 square foot pool and a recreation area with a new snack and cocktail bar, private cabanas and a fitness center with views of the Las Vegas Strip. The Stratosphere offers eight restaurants: - Top of the World Restaurant and Lounge, a 380-seat revolving restaurant located in the Tower's Pod, a 12-story building that begins at the 771-foot level of the Tower; - The Courtyard Buffet, a 470-seat 24-hour buffet; - The Crazy Armadillo, a 160-seat restaurant featuring Tex-Mex cuisine and an oyster bar; - Roxy's Diner, a 160-seat diner offering a selection of burgers, sandwiches and shakes; - Lucky's Cafe, a 240-seat "vintage Vegas"-themed coffee shop; - Fellini's Ristorante Italiano, a 250-seat restaurant serving Italian cuisine; - Hamada Asian Village, a 180-seat restaurant serving Asian cuisine; and - Triple Crown Deli, a 42-seat New York-style deli. Top of the World has been awarded "Best Gourmet Restaurant" by the Nevada Magazine. Roxy's Diner has been awarded "Best Casual Dining Restaurant" by Positive Image News & Reviews. Both Fellini's Ristorante Italiano and Hamada Asian Village are operated by third parties. The Tower The Tower is the tallest free-standing observation tower in the United States and, at 1,149 feet, the tallest building west of the Mississippi River. From the indoor/outdoor observation decks, lounge and restaurant, Tower visitors have dramatic views of the Las Vegas Strip, downtown Las Vegas and the surrounding Las Vegas Valley. Visitors travel to the observation decks in four high speed, double-decked elevators, which travel at 1,800 feet per minute. We currently charge $9 per person to go to the observation decks. The Tower's Pod features the three highest thrill rides in the world: - Big Shot, which catapults up to 16 riders from the 921-foot level of the Tower's Pod 160 feet straight up the mast of the Tower, in a harnessed seat, and allows for a controlled free fall back to the landing platform; 66 - High Roller, which begins at the 909-foot level and transports up to 28 passengers at a time along tracks wrapped around the top portion of the Tower's Pod; and - X Scream, which opened in October 2003, is shaped like a giant teeter-totter and launches up to eight riders approximately 30 feet over the edge of the Tower and then dangles them weightlessly above the Las Vegas Strip. We charge $9 per ride for each of the Big Shot and the X Scream and $5 per ride for the High Roller. The Tower's Pod also includes: - event space, as well as a wedding chapel, at levels 103 and 104; - the Top of the World restaurant, at level 106; - a 175-seat cocktail lounge, at level 107; and - indoor/outdoor observation decks, at levels 108 and 109, containing two gift shops, free-standing vending machines featuring souvenirs and snacks designed to capitalize on the unique nature of the Tower. The Tower's Pod has a maximum capacity of 2,500 visitors at any one time and is open from 10:00 a.m. to 1:00 a.m. on Sunday through Thursday and 10:00 a.m. to 2:00 a.m. on Friday and Saturday. Retail and Entertainment The retail center, located on the second floor of the base building, occupies approximately 110,000 square feet of developed retail space. The retail center contains 43 shops, six of which are food venues, and 13 merchant kiosks. Adjacent to the retail center is the 640-seat showroom that currently offers afternoon and evening shows, which are designed to appeal to the wide spectrum of value-minded visitors who come to Las Vegas. The Stratosphere's entertainment includes American Superstars, a celebrity tribute featuring today's and yesterday's hottest stars, and Viva Las Vegas, Las Vegas" longest-running daytime show now in its twelfth year, features singing, dancing, comedy and specialty acts. The retail center also includes a full-service salon. The parking facility accommodates approximately 4,000 cars. Business and Marketing Strategy The Stratosphere utilizes the unique amenities of its Tower to attract visitors. Gaming products, hotel rooms, entertainment and food and beverage products are priced to appeal to the value-conscious, middle-market Las Vegas visitor. The Top of the World restaurant, however, caters to higher-end customers. Stratosphere offers competitive payout ratios for its slot machines and video poker machines and competitive odds for its table games and sports book products. Stratosphere offers attractive and often unique table games, including Single Zero Roulette and Ten Times Odds Craps, that provide patrons with odds that are better than the standard odds at other Las Vegas Strip casinos. The Stratosphere participates in our Ultimate Rewards Club which provides members with cash or complimentaries which can be used at all three of our properties. Advertising and promotional campaigns are designed to maximize hotel room occupancy, visits to the Tower and retention of guests on property. 67 The Stratosphere employs direct mail and electronic mail programs targeting guests in its database with a variety of product offerings, including incentives to visit Stratosphere's facilities on a frequent basis. The Stratosphere uses print, radio and outdoor advertising. The Stratosphere has significant outdoor advertising in and around McCarran International Airport. The Stratosphere also advertises on the local Las Vegas hospitality network television, which we believe many tourists use to determine which attractions to attend. The Stratosphere has a website where customers can learn about the property, make hotel reservations, purchase show tickets and make restaurant reservations. ARIZONA CHARLIE'S DECATUR Arizona Charlie's Decatur opened in April 1988 as a full-service casino and hotel geared toward residents of Las Vegas and surrounding communities. Arizona Charlie's Decatur is located on approximately 17 acres of land four miles west of the Las Vegas Strip in the heavily populated west Las Vegas area. The property is easily accessible from Route 95, a major highway in Las Vegas. Casino Arizona Charlie's Decatur contains approximately 52,000 square feet of gaming space with 1,516 slot machines, 14 table games, a 120-seat race and sports book, a 486-seat, 24-hour bingo parlor, a 16-seat Keno lounge and a 16-seat poker lounge. Approximately 72% of the slot machines at Arizona Charlie's Decatur are video poker games. Arizona Charlie's Decatur emphasizes video poker because it is popular with local players and generates, as a result, high volumes of play and casino revenue. Arizona Charlie' Decatur has converted 100% of its video poker and slot machines to Ticket-In/Ticket-Out technology. Most table games at Arizona Charlie' Decatur are devoted to double-deck, hand-dealt blackjack play. For the years ended December 31, 2001, 2002 and 2003, approximately 87.9%, 91.3% and 90.7%, respectively, of the property' gaming revenue was generated by slot machine play and 6.7%, 5.7% and 5.0%, respectively, by table games. Arizona Charlie' Decatur derives its other gaming revenue from bingo and the race and sports book, which primarily serve to attract customers for slot machines and table games. Hotel, Food and Beverage Arizona Charlie' Decatur currently has 258 rooms, including eight suites. Hotel customers include local residents and their out-of-town guests, as well as those business and leisure travelers who, because of location and cost considerations, choose not to stay on the Las Vegas Strip or at other hotels in Las Vegas. Arizona Charlie' Decatur has four restaurants: - Sourdough Cafe, open 24 hours a day, is located adjacent to the casino floor and seats 250 patrons; - Frisco Market Buffet, opened in October 2003, serves American and international food in a San Francisco-themed atmosphere and is located on the second floor and seats 260 patrons; - Yukon Grille, an American-style steakhouse, is located on the first floor, seats 95 patrons and attracts guests interested in a more upscale dining experience; and 68 - One quick service restaurant featuring two franchised brands is located in close proximity to the poker room and the race and sports book. We believe that much of the casino and other business is attributable to traffic created by the restaurants, and therefore prices are set at levels designed to draw patrons to the facility. Our restaurants offer quality food and service at affordable prices. Sourdough Cafe has been awarded the "Best Breakfast Special" by the Las Vegas Review-Journal' "Best of Las Vegas Readers Poll" for the past five years. Arizona Charlie's Decatur also has three bars, one of which includes a lounge. Retail and Entertainment Arizona Charlie's Decatur provides complimentary entertainment as a component of its overall customer appeal. The Naughty Ladies Saloon, a 111-seat facility, features a variety of entertainment, including live bands, musician showcase nights and jam sessions. Arizona Charlie's Decatur has focused on the appeal of its entertainment programming in order to retain its customers and increase the play at its casino. A small gift shop located adjacent to the casino provides a limited range of inexpensive gift items, candy, newspapers, magazines and cigarettes. Added focus has been placed on logo merchandise promoting the Arizona Charlie's name and motif. Arizona Charlie's Decatur offers on-site valet and self-parking lots with combined capacity for over 1,400 vehicles. We believe that ease of access to the casino is an important element in the appeal of Arizona Charlie's Decatur to local customers. Business and Marketing Strategy Arizona Charlie's Decatur markets its hotel and casino primarily to local residents of Las Vegas and the surrounding communities. We believe that the property's pricing and gaming odds make it one of the best values in the gaming industry and that its gaming products, hotel rooms, restaurants and other amenities attract local customers in search of reasonable prices, smaller casinos and more attentive service. Arizona Charlie's Decatur also tailors its selection of slot machines, including many diverse video poker machines, and table games, including double-deck, hand-dealt blackjack, to local casino patrons. In addition, the casino features a selection of games that invite personal interaction and which we believe are set for higher payout rates than those at other Las Vegas casinos generally. We use billboards, radio and television advertising, promotional messages posted on our marquee, direct mailings to previous customers and e-mail promotions, to promote the property and target our customers. Arizona Charlie's Decatur also participates in the Ultimate Rewards Club and the Action Cash program. Arizona Charlie's Boulder is the only other casino that participates in the Action Cash program. Both programs permit their members to accumulate points which can be redeemed for cash at the casino and complimentaries at all three of our properties. We have approximately 114,000 members registered with our Ultimate Rewards Club, and approximately 38,000 of them are active members who have visited the property at least once during the past 90 days. Importantly, approximately 19% of our active Ultimate Rewards Club members frequented our property, on average, more than four times per month. 69 ARIZONA CHARLIE'S BOULDER Arizona Charlie's Boulder opened in May 2000 as a full-service casino, hotel and RV park. Arizona Charlie's Boulder is situated on approximately 24 acres of land located on Boulder Highway, in an established retail and residential neighborhood in the eastern metropolitan area of Las Vegas. The property is easily accessible from I-515 the most heavily traveled east/west highway in Las Vegas. Casino Arizona Charlie's Boulder contains approximately 41,000 square feet of gaming space with 835 slot machines, 13 table games, a 43-seat race and sports book and a 500-seat, 24-hour bingo parlor. Approximately 66% of the slot machines at Arizona Charlie's Boulder are video poker games. Arizona Charlie's Boulder emphasizes video poker because it is popular with local players and generates, as a result, high volumes of play and casino revenue. Arizona Charlie's Boulder is 100% converted to Ticket-In/ Ticket-Out technology. Most table games at Arizona Charlie's Boulder are devoted to double-deck, hand-dealt blackjack play. For the years ended December 31, 2001, 2002 and 2003, approximately 87.2%, 92.9% and 88.0%, respectively, of gaming revenue was generated by gaming machine play and 11.4%, 10.4% and 8.6%, respectively, by table games. Arizona Charlie's Boulder derives its other gaming revenue from bingo and the race and sports book, which primarily serve to attract customers for slot machines and table games. Hotel, Food and Beverage Arizona Charlie's Boulder hotel currently has 303 rooms, including 219 suites. Hotel customers include local residents and their out-of-town guests, as well as those business and leisure travelers who, because of location and cost considerations, choose not to stay on the Las Vegas Strip or at other hotels in Las Vegas. We completed an approximate $2.3 million renovation to the hotel room interiors in January 2004. Arizona Charlie's Boulder has four restaurants: - Sourdough Cafe, open 24 hours a day, is located on the second floor and seats 124 patrons; - Wild West Buffet, serves a variety of foods and is located on the second floor and seats 158 patrons; - Yukon Grille, an American-style steakhouse, is located on the second floor, seats 86 patrons and attracts guests interested in a more upscale dining experience; and - the Deli is located in close proximity to the race and sports book, and seats 24 patrons. We believe that much of the casino and other business is attributable to traffic created by the restaurants, and therefore prices are set at levels designed to draw patrons to the facility. The Sourdough Cafe, Wild West Buffet, Yukon Grille and Deli offer quality food and service at affordable prices. The Sourdough Cafe has been awarded the "Best Breakfast Special" by the Las Vegas Review-Journal's "Best of Las Vegas Readers Poll" for the past three years. Arizona Charlie's Boulder also has three bars, one of which includes a lounge. 70 Retail and Entertainment The emphasis of Arizona Charlie's Boulder on complimentary entertainment is a component of its overall customer appeal. Palace Grand, a 112-seat facility, features live bands at no charge. Arizona Charlie's Boulder has focused on the appeal of its entertainment programming in order to retain its customers and increase the play at its casino. Arizona Charlie's Boulder also has an RV park. With 30- to 70-foot pull through stations and over 200 spaces, it is one of the largest short-term RV parks on the Boulder Strip. The RV park offers a range of services including laundry facilities, game and exercise rooms, swimming pool, whirlpool and shower facilities which are included in the nightly, weekly or monthly rates. A small gift shop located adjacent to the casino provides a limited range of inexpensive gift items, candy, newspapers, magazines and cigarettes. Added focus has been placed on logo merchandise promoting the Arizona Charlie's name and motif. Arizona Charlie's Boulder offers on-site valet and self-parking lots with combined capacity for over 1,200 vehicles. We believe that ease of access to the casino is an important element in the appeal of Arizona Charlie's Boulder to local customers. Business and Marketing Strategy Arizona Charlie's Boulder markets its hotel and casino primarily to residents of Las Vegas and the surrounding communities. We believe that its pricing and gaming odds make it one of the best values in the gaming industry and that its gaming products, hotel rooms, restaurants, and other amenities attract local customers in search of reasonable prices, smaller casinos and more attentive service. Arizona Charlie's Boulder also tailors its selection of slot machines, including many diverse video poker machines, and table games, including double-deck, hand-dealt blackjack, to local casino patrons. In addition, the casino features a selection of games that invites personal interaction and which we believe are set for higher payout rates than those at other Las Vegas casinos generally. We use billboards, radio and television advertising, promotional messages posted on our marquee, direct mailings to previous customers and e-mail promotions, to promote the property and target our customers. Arizona Charlie's Boulder also participates in the Ultimate Rewards Club and the Action Cash program. Arizona Charlie's Decatur is the only other casino that participates in the Action Cash program. Both programs permit its members to accumulate points which can be redeemed for cash at the casino earned and complimentaries at all three of our properties. We have approximately 97,000 members registered with our Ultimate Rewards Club, and approximately 26,000 of them are active members who have visited the property at least once during the past 90 days. Importantly, approximately 15% of our active Ultimate Rewards Club members frequented our property, on average, more than four times per month. OUR BUSINESS STRATEGY AND COMPETITIVE STRENGTHS We intend to grow the revenues and profitability of our business through the continued execution of a number of key operating strategies: 71 VALUE-ORIENTED EXPERIENCE We target primarily middle-market customers who focus on obtaining value in their gaming, lodging, dining and entertainment experiences. We strive to deliver value to our gaming customers at our Arizona Charlie's locations by offering payout ratios on our slot and video poker machines that we believe are among the highest payout ratios in Las Vegas. Similarly, at the Stratosphere, we offer attractive table games, including Single Zero Roulette and Ten Times Odds Craps, that provide patrons with odds that are better than the standard odds for these games at other Las Vegas Strip casinos. We also provide our customers with attractive offerings in the areas of lodging and food and beverage service. Our product offerings in each of these categories are reasonably priced and of consistently high quality. In addition, we believe our Ultimate Rewards Club, which enables customers to receive and redeem rewards at all three of our properties, offers our customers some of the most generous complimentary policies in Las Vegas, rewarding and further encouraging frequent visitations by our customers. CUSTOMER SERVICE We are committed to providing our patrons a high level of customer service. Our employees participate in regular and intensive customer service training programs and are rewarded and incentivized, in part, based upon the quality of service they provide to customers. We routinely conduct comprehensive customer surveys at all of our properties, and we pursue a process of continuous improvement at our properties based on the information gathered from our surveys. STRATOSPHERE AS A DESTINATION PROPERTY FOR VISITORS TO LAS VEGAS We believe the Stratosphere is one of the most recognized landmarks in Las Vegas. The Stratosphere offers the tallest free-standing observation tower in the United States and, at 1,149 feet, it is the tallest building west of the Mississippi River. The Stratosphere Tower boasts some of the most unique amenities in Las Vegas, including an award-winning, 380-seat revolving restaurant with unparalleled views of Las Vegas, known as the Top of the World, the highest indoor/outdoor observation deck in Las Vegas, and the three highest amusement rides in the world: the Big Shot, the High Roller and the recently launched X Scream. The Stratosphere Tower also has a 175-seat cocktail lounge, a wedding chapel and 6,200 square feet of event space. We believe that the distinctive amenities of the Stratosphere, together with our dedication to providing a high-quality, value-oriented experience, have significantly contributed to the over 1.4 million visits to the Stratosphere Tower in the twelve months ended June 30, 2004. We believe our attractions, as well as the introduction of additional entertainment-driven amenities, will enable us to continue to market the Stratosphere as a "must see" destination property in Las Vegas. RECENT SUCCESSFUL INITIATIVES Our management team has improved operating results by: repositioning each of our properties to better target their respective markets, expanding and improving our existing facilities, focusing on customer service and implementing a targeted cost reduction program. We believe there are a number of additional initiatives which should contribute to a further improvement in our operating performance, including the conversion of 100% of the slot floor space at each of our properties from coin-operated to Ticket-In/ Ticket-Out, the introduction of new entertainment attractions and other amenities into our casinos, further refinements to our Ultimate Rewards Club and the continued execution of our integration strategy and cost savings initiatives. 72 EMPHASIS ON SLOT PLAY We have focused our marketing efforts on attracting customers with an affinity for playing slot and video poker machines. Similarly, we have intentionally avoided competing for the attention of high-stakes table game customers. We believe slot machine players are a more consistently profitable customer type, and our properties are specifically oriented to this type of customer. We have invested in outfitting our casinos with the latest in slot and video poker machine technology and game brands. We regularly modify our mix of slot machine product to maximize the profitability of our casinos, while also providing our customers with the most current product offerings. We expect the conversion to the 100% Ticket-In/Ticket-Out format to be completed at all of our properties by the end of the first quarter of 2004. We anticipate this format will yield meaningful operating efficiencies for us, while also increasing the rate of customer play, as patrons will be able to enjoy a gaming experience uninterrupted by the machine servicing requirements typically necessary for coin-operated slot machines. STRONG OWNERSHIP AND EXPERIENCED MANAGEMENT TEAM We are a subsidiary of AREP, a New York Stock Exchange-listed limited partnership which had over $2.0 billion in assets at March 31, 2004 and after giving effect to an offering by it of 8?% Senior Notes due 2012, which was completed on May 12, 2004, and the acquisitions and related transactions. Carl C. Icahn, through affiliates, owns 100% of AREP's general partner and over 86% of AREP's outstanding depositary units and preferred units. Our senior management team, which collectively has over 100 years of operating experience in the gaming industry, has successfully managed a significant improvement in the operating performance of our properties. Our executive and property-level management teams have an established record of developing, integrating and operating gaming and entertainment properties. Our management team is focused on controlling costs in an effort to increase operating cash flow. COMPETITION The hotel and casino industry in general, and the markets in which we compete in particular, are highly competitive. The Las Vegas market includes many world class destination resorts, with numerous other tourist attractions. Numerous Las Vegas hotel and casino resorts are themselves tourist attractions. Each of these resorts competes with us in our ability to attract visitors to the Stratosphere. The Stratosphere's hotel and food and beverage operations compete directly with other properties targeting the budget-minded, middle-market Las Vegas visitor. Arizona Charlie's Decatur and Arizona Charlie's Boulder compete primarily with other Las Vegas hotels and casinos located outside of the Las Vegas Strip. The Arizona Charlie's properties compete for local customers with other hotels and casinos targeting this group and located near their respective hotel and casino. The Arizona Charlie's properties compete with other casinos in the Las Vegas metropolitan area based on a mix of casino games, personal service, payout ratios, location, price of hotel rooms, restaurant value and promotions. SEASONALITY Generally, our gaming and entertainment properties are not affected by seasonal trends. However, our gaming and entertainment properties tend to have increased customer flow from mid-January through Easter and from mid-September through Thanksgiving and during periods of large events, conventions or trade shows. Our gaming and entertainment properties tend to have decreased customer flow from Thanksgiving through the middle of January, except during the week between Christmas and New Year's. 73 EMPLOYEES At June 30, 2004, the Stratosphere employs approximately 2,399 full and part-time employees, of whom approximately 1,319 were covered by collective bargaining agreements. At June 30, 2004, approximately 1,241 employees working in kitchen production, food service, slot service, bell service, housekeeping, and beverage service currently were covered by a collective bargaining agreement between Stratosphere Gaming Corporation and the Culinary Workers Union, Local 226 and the Bartenders Union, Local 165. This agreement has been in effect since June 1, 2002 and will expire on May 31, 2007. At June 30, 2004, approximately 67 employees working in maintenance and engineering classifications were covered by a collective bargaining agreement between Stratosphere Corporation and the International Union of Operating Engineers, Local No. 501. This agreement has been in effect since October 15, 2002 and will expire on October 14, 2005. At June 30, 2004, approximately 11 employees working in the warehouse are currently covered by a collective bargaining agreement between Stratosphere Gaming Corporation and the Professional, Clerical and Miscellaneous Employees, Teamsters, Local Union No. 995. This agreement has been in effect since August 1, 2001 and will expire on July 31, 2004. The Stratosphere has historically had good relationships with unions representing its employees. At June 30, 2004, Arizona Charlie's Decatur and Arizona Charlie's Boulder employed approximately 868 persons and 584 persons, respectively, none of whom was employed pursuant to collective bargaining or other union arrangements. Management believes that its employee relations are good. PROPERTIES The Stratosphere is located at 2000 Las Vegas Boulevard South on the Las Vegas Strip on approximately 31 acres owned by us. The property includes approximately eight acres of undeveloped land. Arizona Charlie's Decatur is located at 740 South Decatur Boulevard, Las Vegas, Nevada on approximately 17 acres owned by us. In addition, Arizona Charlie's Decatur leases office, storage and laundry space located in an adjacent shopping center. The current annual rent payable, including insurance, tax and common area maintenance payments, under lease aggregates approximately $85,000. Arizona Charlie's Boulder is located at 4575 Boulder Highway, Las Vegas, Nevada on approximately 24 acres owned by us. ENVIRONMENTAL MATTERS We are subject to various federal, state and local laws, ordinances and regulations that (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water or (2) may impose liability for the costs of cleaning up and certain damages resulting from sites of past spills, disposals or other releases of hazardous or toxic substances or wastes. We endeavor to maintain compliance with environmental laws, but from time to time, current or historical operations on our property may have resulted or may result in noncompliance or liability for cleanup pursuant to environmental laws. In that regard, we may incur costs for cleaning up contamination relating to historical 74 uses of certain of its properties. LEGAL PROCEEDINGS We are from time to time parties to various legal proceedings arising out of our businesses. We believe, however, that, other than the proceedings discussed below, there are no proceedings pending or threatened against us which, if determined adversely, would have a material adverse effect on our business, financial condition, results or operation or liquidity. In December 2001, Tiffiny Decorating Company, a subcontractor to Great Western Drywall, Inc., commenced an action against Stratosphere Corporation, Stratosphere Development, LLC, AREH, Great Western and Nevada Title and Safeco Insurance in the Eighth Judicial District Court of the State of Nevada. The action asserts claims that include breach of contract, unjust enrichment and foreclosure of lien. We filed a cross-claim against Great Western in that action. Additionally, Great Western has filed a separate legal action against the Stratosphere parties setting forth the same disputed issues and claiming additional damages. That separate action has been consolidated with the case brought by Tiffiny. The initial complaint brought by Tiffiny asserts that Tiffiny performed certain construction services at the Stratosphere and was not fully paid for those services. Tiffiny claims the sum of approximately $521,562 against Great Western, the Stratosphere parties and the other defendants, which the Stratosphere parties contend has been paid to Great Western for payment to Tiffiny. Great Western is alleging that it is owed payment from the Stratosphere parties for work performed and for delay and disruption damages. Great Western is claiming damages in the sum of $3,935,438 plus interest, costs and legal fees from the Stratosphere parties. The amount apparently includes the Tiffiny claim. The Stratosphere parties have evaluated the project and have determined that the amount of approximately $1,004,059, of which $195,953 and $371,973 were disbursed to Tiffiny and Great Western in 2002, respectively, is properly due and payable to satisfy all claims for the work performed, including the claim by Tiffiny. The remaining amount has been segregated in a separate interest bearing account. The Stratosphere parties intend to vigorously defend the action for claims in excess of $1,004,059. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 1, 2004, KPMG LLP advised our indirect parent, American Real Estate Partners, L.P., or AREP, that it would not seek re-election as AREP's independent auditor for 2004, and that the client-auditor relationship between AREP and KPMG had ceased and, therefore, our relationship with KPMG has also ceased. None of KPMG's reports on our combined financial statements for the years ended December 31, 2002 or 2003 contained an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years and the interim period preceding receipt of KPMG's letter, there were no (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its report or (2) "reportable events" as such term is defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934. Effective as of April 26, 2004, AREP's audit committee engaged Grant Thornton LLP as its independent public accountant and, therefore, our independent public accountant. During the years ended December 31, 2002 and 2003, and from January 1, 2004 through April 26, 2004 (the date Grant Thornton 75 LLP was appointed), neither we, AREP nor AREP's audit committee consulted Grant Thornton LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed; or any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). 76 REGULATION INTRODUCTION The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming Control Act and the regulations made under such Act, as well as various local ordinances. The gaming operations of our casinos are subject to the licensing and regulatory control of the Nevada Gaming Commission and the Nevada State Gaming Control Board. Our casinos' operations are also subject to regulation by the Clark County Liquor and Gaming Licensing Board and the City of Las Vegas. These agencies are referred to herein collectively as the Nevada Gaming Authorities. POLICY CONCERNS OF GAMING LAWS The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy. These public policy concerns include, among other things: - preventing unsavory or unsuitable persons from being directly or indirectly involved with gaming at any time or in any capacity; - establishing and maintaining responsible accounting practices and procedures; - maintaining effective controls over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs, and safeguarding assets and revenue, providing reliable recordkeeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; - preventing cheating and fraudulent practices; and - providing a source of state and local revenue through taxation and licensing fees. - Changes in these laws, regulations and procedures could have significant negative effects on our gaming operations and our financial condition and results of operations. OWNER AND OPERATOR LICENSING REQUIREMENTS Our casinos are licensed by the Nevada Gaming Authorities as corporate and limited liability company licensees, which we refer to herein as company licensees. Under their gaming licenses, our casinos are required to pay periodic fees and taxes. The gaming licenses are not transferable. To date, our casino properties have obtained all gaming licenses necessary for the operation of their existing gaming operations; however, gaming licenses and related approvals are privileges under Nevada law, and we cannot assure you that any new gaming license or related approvals that may be required in the future will be granted, or that any existing gaming licenses or related approvals will not be limited, conditioned, suspended or revoked or will be renewed. OUR REGISTRATION REQUIREMENTS We have been found suitable by the Nevada Gaming Commission to own the equity interests of Charlie's Holding LLC and the stock of Stratosphere Corporation. We have also been registered by the Nevada Gaming Commission as a holding company, which we refer to herein as a registered company, for the purposes of the Nevada Gaming Control Act. American Entertainment Properties Corp., our direct 77 parent, has been found suitable by the Nevada Gaming Commission to own our equity interests and to be registered by the Nevada Gaming Commission as a holding company. Charlie's Holding LLC has been found suitable by the Nevada Gaming Commission to own the equity securities of its licensed subsidiaries. Periodically, we will be required to submit detailed financial and operating reports to the Nevada Gaming Commission and to provide any other information that the Nevada Gaming Commission may require. Substantially all of our material loans, leases, sales of securities and similar financing transactions must be reported to, or approved by, the Nevada Gaming Commission. INDIVIDUAL LICENSING REQUIREMENTS No person may become a stockholder or member of, or receive any percentage of the profits of, a non-publicly traded holding or intermediary company or company licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to or material involvement with us to determine whether the individual is suitable or should be licensed as a business associate of a gaming licensee. Keith A. Meister has filed an application to be licensed or found suitable by the Nevada Gaming Authorities as one of our officers and as a director of American Entertainment Properties Corp., our direct parent. Key employees of a company licensee may also be required to file such applications. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay or must cause to be paid all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. In addition, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada. CONSEQUENCES OF VIOLATING GAMING LAWS If the Nevada Gaming Commission decides that we have violated the Nevada Gaming Control Act or any of its regulations, it could limit, condition, suspend or revoke our registrations and gaming licenses. In addition, we and the persons involved could be subject to substantial fines for each separate violation of the Nevada Gaming Control Act, or of the regulations of the Nevada Gaming Commission, at the discretion of the Nevada Gaming Commission. Further, the Nevada Gaming Commission could appoint a supervisor to conduct the operations of our casinos and, under specified circumstances, earnings generated during the supervisor's appointment, except for the reasonable rental value of the premises, could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any of our gaming licenses and the appointment of a supervisor could, and revocation of any gaming license would, have a significant negative effect on our gaming operations. REQUIREMENTS FOR BENEFICIAL SECURITIES HOLDERS Regardless of the number of equity interests held, any beneficial holder of our voting securities may be required to file an application, be investigated and have that person's suitability as a beneficial 78 holder of voting securities determined if the Nevada Gaming Commission has reason to believe that the ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the beneficial holder of the voting securities who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of its beneficial owners. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any investigation. The Nevada Gaming Control Act requires any person who acquires more than 5% of the voting securities of a publicly traded registered company to report the acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act requires beneficial owners of more than 10% of a publicly traded registered company's voting securities to apply to the Nevada Gaming Commission for a finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Gaming Control Act, which acquires more than 10%, but not more than 15%, of the publicly traded registered company's voting securities may apply to the Nevada Gaming Commission for a waiver of a finding of suitability if the institutional investor holds the voting securities for investment purposes only. In certain circumstances, an institutional investor that has obtained a waiver can hold up to 19% of a registered company's voting securities for a limited period of time and maintain the waiver. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board at directors of the publicly traded registered company, a change in the corporate charter, bylaws, management, policies or operations of the publicly traded registered company, or any of its gaming affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding the publicly traded registered company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: - voting on all matters voted on by stockholders or interest holders; - making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and - other activities that the Nevada Gaming Commission may determine to be consistent with such investment intent. CONSEQUENCES OF BEING FOUND UNSUITABLE Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or by the Chairman of the Nevada State Gaming Control Board, or who refuses or fails to pay the investigative costs incurred by the Nevada Gaming Authorities in connection with the investigation of its application, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of any voting security or debt security of a registered company beyond the period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity interest or to have any other relationship with, we: - pay that person any dividend or interest upon any voting securities; 79 - allow that person to exercise, directly or indirectly, any voting right held by that person; - pay remuneration in any form to that person for services rendered or otherwise; or - fail to pursue all lawful efforts to require the unsuitable person to relinquish such person's voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value. GAMING LAWS RELATING TO SECURITIES OWNERSHIP The Nevada Gaming Commission may, in its discretion, require the holder of any debt or similar securities of a registered company to file applications, be investigated and be found suitable to own the debt or other security of the registered company if the Nevada Gaming Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. If the Nevada Gaming Commission decides that a person is unsuitable to own the security, then under the Nevada Gaming Control Act, the registered company can be sanctioned, including the loss of its approvals if, without the prior approval of the Nevada Gaming Commission, it: - pays to the unsuitable person any dividend, interest or any distribution whatsoever; - recognizes any voting right by the unsuitable person in connection with the securities; - pays the unsuitable person remuneration in any form; or - makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. We are required to maintain a current stock ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make the disclosure may be grounds for finding the record holder unsuitable. We will be required to render maximum assistance in determining the identity of the beneficial owner of any of our voting securities. The Nevada Gaming Commission has the power to require the stock certificates of any registered company to bear a legend indicating that the securities are subject to the Nevada Gaming Control Act and certain subject to restrictions imposed by applicable gaming laws. To date, this requirement will be imposed on us. APPROVAL OF STOCK PLEDGES AND CERTAIN NEGATIVE COVENANTS The pledge of the equity securities of Charlie's Holding LLC, Stratosphere Corporation and their licensed subsidiaries and any of our other future subsidiaries that obtains a Nevada gaming license, or is registered with the Nevada Gaming Commission, requires the approval of the Nevada Gaming Commission, upon the recommendation of the Nevada Gaming Control Board, before becoming effective. Such approval is also required in relation to restrictions on the transfer of and agreements not to encumber the equity securities of Charlie's Holding LLC, Stratosphere Corporation and their licensed subsidiaries or any other of our future subsidiaries that obtains a Nevada gaming license or is registered with the Nevada Gaming Commission. These approvals have been granted with respect to our existing licensed and registered subsidiaries. Approval by the Nevada Gaming Commission of the pledges does not constitute approval to foreclose on the pledges. Separate approval would be required to foreclose on the pledges and to transfer ownership of the underlying membership interests. Approval to foreclose on the pledges would require the licensing of the trustee or other secured party, unless the Nevada Gaming 80 Commission waives such licensing requirements upon application of the secured party. No assurance can be given that approval to foreclose on the pledges would be granted, or that the secured party seeking to foreclose on the equity pledges would be licensed or would receive a waiver of such licensing requirements. Foreclosure on a lien on collateral consisting of gaming devices in respect of the notes and the exchange notes and the taking of possession of such gaming devices may require that the Nevada Gaming Commission license the foreclosing party as a distributor. Under the Nevada Gaming Control Act, however, the Nevada Gaming Control Board may authorize the disposition of gaming devices without requiring a distributor's license when such gaming devices are acquired through foreclosure on a lien secured in whole or part by gaming devices. No assurance can be given that the Nevada Gaming Control Board would grant such approval or that if that approval were not granted, the foreclosing party would be granted a license as a distributor. APPROVAL OF PUBLIC OFFERINGS Neither we nor any of our affiliates may make a public offering of our securities without the prior approval of the Nevada Gaming Commission if the proceeds from the offering are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes or for similar transactions. Any approval of any future public offerings will not constitute a finding, recommendation or approval by any of the Nevada Gaming Authorities as to the accuracy or adequacy of the offering document or the investment merits of the securities. Any statement indicating otherwise is unlawful. The offer by us to exchange the notes for publicly registered notes will require the review of, and prior approval by, the Nevada Gaming Authorities. We will apply to the Nevada Gaming Commission for approval of the exchange offer. If granted this approval will permit us to issue the exchange notes. There can be no assurance that this approval will be granted or that it will be granted on a timely manner. APPROVAL OF CHANGES IN CONTROL We must obtain prior approval of the Nevada Gaming Commission with respect to a change in control through: - merger; - consolidation; - stock or asset acquisitions; - management or consulting agreements; or - any act or conduct by a person by which the person obtains control of us. Entities seeking to acquire control of a registered company must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission with respect to a variety of stringent standards before assuming control of the registered company. The Nevada Gaming Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction. 81 APPROVAL OF DEFENSIVE TACTICS The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licenses or affecting registered companies that are affiliated with the operations permitted by Nevada gaming licenses may be harmful to stable and productive corporate gaming. The Nevada Gaming Commission has established a regulatory scheme to reduce the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: - assure the financial stability of corporate gaming operators and their affiliates; - preserve the beneficial aspects of conducting business in the corporate form; and - promote a neutral environment for the orderly governance of corporate affairs. Approvals may be required from the Nevada Gaming Commission before we can make exceptional repurchases of voting securities above our current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Gaming Control Act also requires prior approval of a plan of recapitalization proposed by a registered company's board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control. FEES AND TAXES License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the licensed subsidiaries respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon: - a percentage of gross revenues received; - the number of gaming devices operated; or - the number of table games operated. A live entertainment tax is also paid by casino operations where entertainment is furnished in connection with an admission charge, the selling or serving of food or refreshments or the selling of merchandise. Our casinos are also subject to a state payroll tax based on the wages paid to their employees. FOREIGN GAMING INVESTIGATIONS Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with those persons, which we refer to as licensees, and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada State Gaming Control Board of the licensee's or registrant's participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Gaming Commission. Licensees and registrants are required to comply with the reporting requirements imposed by the Nevada Gaming Control Act. A licensee or registrant is also subject to disciplinary action by the Nevada Gaming Commission if it: 82 - knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation; - fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations; - engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reflects or tends to reflect, discredit or disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the gaming policies of Nevada; - engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or - employs, contracts with or associates with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of unsuitability. LICENSE FOR CONDUCT OF GAMING AND SALE OF ALCOHOLIC BEVERAGES The conduct of gaming activities and the service and sale of alcoholic beverages by our casinos are subject to licensing, control and regulation by the Clark County Liquor and Gaming Licensing Board and the City of Las Vegas. In addition to approving our casinos, the Clark County Liquor and Gaming License Board and the City of Las Vegas have the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. All licenses are revocable and are not transferable. The county and city agencies have full power to limit, condition, suspend or revoke any license. Any disciplinary action could, and revocation would, have a substantial negative impact upon our operations. INDEMNIFICATION OBLIGATIONS Starfire Holding Corporation and Mr. Icahn agreed to indemnify American Casino & Entertainment Properties LLC against, and agreed to hold it harmless from, any and all losses it incurs associated with any breach of or any inaccuracy in any representation or warranty made by the sellers in the membership interest purchase agreement, or any breach of or failure by the sellers to perform any of their covenants or obligations set out or contemplated in the membership interest purchase agreement. 83 MANAGEMENT The following table sets forth certain information as of June 30, 2004, concerning the executive officers and directors of American Entertainment Properties Corp., our parent, and American Casino & Entertainment Properties Finance Corp. who have been appointed subject to receipt of any necessary approvals from the Nevada gaming authorities:
NAME AGE POSITION - -------------------- --- ---------------------------------------------- Jack G. Wasserman 67 Director William A. Leidesdorf 59 Director James L. Nelson 54 Director Keith A. Meister 31 Director Richard P. Brown 57 President, Chief Executive Officer and Director Denise Barton 47 Senior Vice President, Chief Financial Officer, Treasurer and Secretary
The following table sets forth certain information as of June 30, 2004, concerning our executive officers and key employees who have been appointed subject to receipt of any necessary approvals from the Nevada gaming authorities:
NAME AGE POSITION - ----------------- --- ----------------------------------------------------------------------- Richard P. Brown 57 President and Chief Executive Officer Denise Barton 47 Senior Vice President, Chief Financial Officer, Treasurer and Secretary Ronald P. Lurie 63 General Manager -- Arizona Charlie's Decatur Bobby Ray Harris 45 General Manager -- Stratosphere Operations Mark Majetich 54 General Manager -- Arizona Charlie's Boulder
Jack G. Wasserman has served as a Director of American Entertainment Properties Corp., American Casino & Entertainment Properties Finance Corp. and American Real Estate Finance Corp. since inception and a Director of API since December 3, 1993. Mr. Wasserman is an attorney and a member of the bars of New York, Florida, and the District of Columbia. From 1966 until 2001, he was a senior partner of Wasserman, Schneider, Babb & Reed, a New York-based law firm and its predecessors. Since September 2001, Mr. Wasserman has been engaged in the practice of law as a sole practitioner. Mr. Wasserman has been licensed by the New Jersey State Casino Control Commission and the Nevada State Gaming Commission and, at the latter's direction, is an independent member and the Chairman of the Stratosphere's Compliance Committee. Mr. Wasserman is not a member of the Stratosphere's Board of Directors. Since December 1, 1998, Mr. Wasserman has been a Director of National Energy Group, Inc., which, on December 4, 1998, sought protection under the Federal bankruptcy laws. A Plan of Reorganization became effective on August 4, 2000, and a final decree closing the case and settling all matters relating to the bankruptcy proceeding became effective on December 13, 2001. In 2003, National Energy Group, Inc. became a subsidiary of AREH. Mr. Wasserman is also a Director of Cadus Pharmaceutical Corporation, a publicly-traded biotechnology company. Affiliates of Mr. Icahn are controlling shareholders of each of these companies. On June 9, 2004, Mr. Wasserman was elected to the Board of Directors of Triarc Industries, Inc., a publicly traded diversified holding company. William A. Leidesdorf has served as a Director of American Entertainment Properties Corp., American Casino & Entertainment Properties Finance Corp. and American Real Estate Finance Corp. since inception and a Director of API since March 26, 1991. Mr. Leidesdorf is also a Director of Renco Steel Group, Inc. and its subsidiary, WCI Steel Inc., a steel producer which filed for Chapter 11 bankruptcy protection in September 2003. Since June 1997, Mr. Leidesdorf has been an owner and a managing director of Renaissance Housing, LLC, a company primarily engaged in acquiring multifamily residential properties. From April 1995 through December 1997, Mr. Leidesdorf acted as an independent 84 real estate investment banker. Mr. Leidesdorf has been licensed by the New Jersey Casino Control Commission and the Nevada State Gaming Control Commission. James L. Nelson has served as a Director of American Entertainment Properties Corp., American Casino & Entertainment Properties Finance Corp. and American Real Estate Finance Corp. since inception and a Director of API since June 12, 2001. From 1986 until the present, Mr. Nelson has been Chairman and Chief Executive Officer of Eaglescliff Corporation, a specialty investment banking, consulting and wealth management company. From March 1998 through 2003, Mr. Nelson was Chairman and Chief Executive Officer of Orbit Aviation, Inc., a company engaged in the acquisition and completion of Boeing Business Jets for private and corporate clients. From August 1995 until July 1999, he was Chief Executive Officer and Co-Chairman of Orbitex Management, Inc. Mr. Nelson currently serves as a Director of Viskase Corporation, a closely-held supplier for the meat and poultry business. Until March 2001, he was on the Board of Orbitex Financial Services Group, a financial services company in the mutual fund sector. Mr. Nelson has been licensed by the New Jersey State Casino Control Commission and the Nevada State Gaming Control Commission. Keith A. Meister has served as a Director of American Entertainment Properties Corp., American Casino & Entertainment Properties Finance Corp. and American Real Estate Finance Corp. since inception. Since August 2003, Mr. Meister has served as President and Chief Executive Officer of API. He also continues to serve as a senior investment analyst of High River Limited Partnership, a company affiliated with Mr. Icahn, a position he has held since June 2002. From March 2000 through 2001, Mr. Meister co-founded and served as co-president of J Net Ventures, a venture capital fund focused on investments in information technology and enterprise software businesses. From 1997 through 1999, Mr. Meister served as an investment professional at Northstar Capital Partners, an opportunistic real estate investment partnership. Prior to Northstar, Mr. Meister served as an investment analyst in the investment banking group at Lazard Freres. He also serves on the following Boards of Directors: XO Communications, Inc., a company that is majority-owned by various Icahn entities; TransTexas Gas Corporation, a company that is 85%-owned by various Icahn entities and managed by National Energy Group, Inc., a subsidiary of AREH; and Scientia Corporation, a private health care venture company in which AREH holds less than a 10% equity interest. Richard P. Brown has served as our President and Chief Executive Officer and President, Chief Executive Officer and a director of American Entertainment Properties Corp. and American Casino & Entertainment Properties Finance Corp. since inception. Mr. Brown has over 12 years experience in the gaming industry. Mr. Brown has been the President and Chief Executive Officer of each of the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder since June 2002. From January 2001 to June 2002, he served as Chief Operating Officer for all three properties. Prior to joining Stratosphere Gaming Corporation in March 2000 as Executive Vice President of Marketing, Mr. Brown held executive positions with Harrah's Entertainment and Hilton Hotels Corporation. Mr. Brown also serves as President and Chief Executive Officer of Greate Bay Hotel and Casino, Inc., which owns and operates the Sands Hotel and Casino in Atlantic City, New Jersey and which is controlled by affiliates of Mr. Icahn. Denise Barton has served as the Senior Vice President, Chief Financial Officer, Treasurer and Secretary of American Entertainment Properties Corp., American Casino & Entertainment Properties Finance Corp. and American Casino & Entertainment Properties LLC since inception. Ms. Barton has been Senior Vice President and Chief Financial Officer of each of the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder since February 2003. Ms. Barton joined the Stratosphere as Vice President of Finance and Chief Financial Officer in August 2002. Subject to the approval of the New Jersey Casino Control Commission, Ms. Barton will serve as the interim Chief Financial Officer of Greate Bay Holding, Inc., an entity controlled by affiliates of Mr. Icahn. From February 1999 to June 85 2002, she served as Chief Financial Officer for Lowestfare.com, a travel company controlled by affiliates of Mr. Icahn. Ms. Barton was employed by KPMG LLP, certified public accountants, from January 1990 to February 1999. Ms. Barton is a certified public accountant. Ronald P. Lurie has served as our General Manager -- Arizona Charlie's Decatur since inception and as Executive Vice President and General Manager of Arizona Charlie's Decatur since January 1999. From November 1990 until January 1999, Mr. Lurie held various positions at Sunset Coin, an affiliate of Arizona Charlie's, Inc., including most recently as General Manager of Sunset Coin. In addition to his 25 years in the gaming industry, Mr. Lurie served as a Las Vegas City Councilman from 1973 to 1987 and as the Mayor of Las Vegas from June 1987 to June 1991. Bobby Ray Harris has served as our General Manager -- Stratosphere Operations since inception and as Senior Vice President -- Stratosphere Operations since March 2000. From February 1999 to March 2000 he served as Vice President -- Hotel and Tower Operations and from August 1996 to February 1999 he served as Director of Hotel Operations. Mr. Harris joined the Stratosphere in October 1995 as the director of marketing services. Prior to joining the Stratosphere, Mr. Harris held various management positions at Caesars Tahoe and MGM Grand. He has more than 20 years of experience in the gaming industry. Mark Majetich has served as our General Manager -- Arizona Charlie's Boulder since inception and Vice President -- General Manager for Arizona Charlie's Boulder since May 2001. He served as Director of Operations at Arizona Charlie's Boulder from February 2001 until May 2001. From June 2000 until January 2001, he was Director of Hotel Operations for the Stratosphere. From November 1992 until August 1999, Mr. Majetich held various positions at the Excalibur Hotel/Casino, including most recently, Hotel Manager. He has more than 25 years of experience in the gaming industry. COMPENSATION OF DIRECTORS Our parent's directors who are not employees of American Casino & Entertainment Properties LLC do not receive any compensation for their service as members of our parent's board of directors, but are reimbursed for reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the board of directors. EXECUTIVE COMPENSATION The following table sets forth the compensation earned during the year ended December 31, 2003 and, with respect to the Stratosphere only, the years ended December 31, 2001 and 2002, by our Chief Executive Officer and our four other most highly compensated executive officers and key employees for services rendered in all capacities for those years. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------- NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) - ---------------------------------------------------- ---- --------- -------- Richard P. Brown.................................... 2003 317,411 20,000(1) President and Chief Executive Officer 2002 276,823 20,000 2001 202,896 - Denise Barton....................................... 2003 182,507 37,000 Senior Vice President, Chief Financial Officer, Treasurer and Secretary 2002 64,029 26,250 Ronald Lurie........................................ 2003 222,954 52,500 General Manager -- Arizona Charlie's Decatur 2002 216,311 -
86
ANNUAL COMPENSATION ------------------- NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) - ---------------------------------------------------- ---- --------- -------- Bobby Ray Harris.................................... 2003 185,374 37,000 General Manager -- Stratosphere Operations 2002 171,417 35,000 2001 158,325 26,200 Mark Majetich....................................... 2003 149,471 37,500 General Manager -- Arizona Charlie's Boulder 2002 141,682 10,000
- --------------- (1) Represents bonus earned in 2003 and paid in 2004. OPTION GRANTS IN LAST FISCAL YEAR We have not implemented a stock option plan. EMPLOYMENT AGREEMENTS We and Mr. Richard Brown, our President and Chief Executive Officer, entered into a two-year employment agreement effective April 1, 2004. Mr. Brown's agreement provides that he will be paid a base annual compensation of $500,000. The agreement also provides that Mr. Brown will receive an annual bonus of up to 50% of his annual compensation based on operating results of the company. The agreement further provides that if Mr. Brown is terminated without cause (as defined in the agreement), then Mr. Brown will receive any amounts of the base salary and previously earned bonus due and unpaid to Mr. Brown as of the termination date plus a lump-sum payment in the amount equal to the then current base salary. OUR SOLE STOCKHOLDER American Entertainment Properties Corp. owns all of the membership interests of American Casino & Entertainment Properties LLC. The principal executive offices of American Entertainment Properties Corp. are located at 2000 Las Vegas Boulevard South, Las Vegas, Nevada 89104. American Entertainment Properties Corp. is wholly owned by American Real Estate Holdings Limited Partnership, or AREH. American Real Estate Partners, L.P., or AREP, owns a 99% limited partner interest in AREH. Carl C. Icahn, through certain affiliates, currently owns 100% of AREP's and AREH's general partner and over 86% of AREP's outstanding depositary units and preferred units. Neither our officers nor the officers and directors of our parent own any of our equity interests or the equity interests of our parent or subsidiaries. 87 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS THE ACQUISITIONS As of December 31, 2003, affiliates of Mr. Icahn owned over 86% of AREP's outstanding depositary units and preferred units. AREP's general partner is API, which is a wholly-owned subsidiary of Beckton Corp. All of the capital stock of Beckton is owned by Mr. Icahn. AREP's business is conducted through a subsidiary limited partnership, AREH, in which AREP owns a 99% limited partnership interest. API has a 1% general partnership interest in each of AREP and AREH. AREH owns 100% of American Entertainment Properties Corp. which is our direct parent. Pre-Acquisition Transactions Prior to the acquisitions on May 26, 2004 by us of Stratosphere, Arizona Charlie's Boulder and Arizona Charlie's Decatur, AREH owned 100% of Stratosphere Corporation. In addition, prior to the acquisitions, Fresca, LLC, the holder of Arizona Charlie's Boulder, was owned by Mr. Icahn and Mr. Icahn's wholly-owned subsidiary, Starfire Holding Corporation, and Arizona Charlie's, Inc., the holder of Arizona Charlie's Decatur, was wholly-owned by Nybor Limited Partnership, the limited partner of which is Starfire Holding Corporation and the general partner of which is Barberry Corp., which is wholly-owned by Mr. Icahn. Prior to the acquisitions, Stratosphere Corporation repaid a portion of the principal amount of its intercompany debt owed to AREH $30.7 million, which was an amount equal to not more than the cash Stratosphere Corporation held in excess of $12 million. In addition, the entity which owns Arizona Charlie's Decatur made a cash distribution in an amount equal to not more than the cash the entity which owned Arizona Charlie's Decatur had in excess of $8 million and such distribution was included in the assets that were acquired by us. Acquisitions In January 2004, we entered into a membership interest purchase agreement with Starfire Holding Corporation and Mr. Icahn, as sellers, in which American Casino & Entertainment Properties LLC agreed to purchase all of the membership interests in Charlie's Holding LLC, a newly formed entity that owned indirectly Arizona Charlie's, LLC, the successor to Arizona Charlie's, Inc., which owns and operates Arizona Charlie's Decatur, and Fresca, LLC, which owns and operates Arizona Charlie's Boulder. The closing of this acquisition was approved by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board in May 2004. The purchase price was $125.9 million, subject to a dollar for dollar reduction based on a post-closing adjustment to the extent that, as of the closing date of the acquisitions, the working capital, defined as current assets minus current liabilities, of Arizona Charlie's, Inc. and Fresca, LLC was less than $6.037 million. In January 2004, we entered into a contribution agreement with American Entertainment Properties Corp., AREH and Stratosphere Corporation, in which AREH agreed to contribute to American Entertainment Properties Corp. 100% of the outstanding capital stock of Stratosphere Corporation, which American Entertainment Properties Corp. would then contribute to American Casino & Entertainment Properties LLC, subject only to necessary approvals under applicable Nevada gaming laws and the closing of the transaction contemplated by the membership interest purchase agreement. This transaction was also approved by the Nevada Gaming Commission upon the recommendation of the Nevada Gaming Control Board in May 2004. 88 Tax Allocation Agreement We and our subsidiaries entered into a tax allocation agreement with our parent, American Entertainment Properties Corp. The tax allocation agreement provides for payments to our parent of the tax liabilities, which we refer to as the standalone tax liabilities, of us and our subsidiaries, calculated as if we and our subsidiaries were a group of corporations filing consolidated income tax returns separately from our parent, which we refer to as the standalone group. The tax allocation agreement also provides for payments by our parent to us whenever previously paid standalone tax liabilities must be reduced either as a result of a subsequent determination such as by a governmental authority, or as a result of the incurrence by the standalone group of net operating losses, net capital losses or credits that may be carried back to prior years. OTHER TRANSACTIONS As of May 26, 2004, we have entered into an intercompany services agreement with GB Holdings, Inc. pursuant to which we provide management and consulting services. We are compensated based upon an allocation of salaries plus a 15% overhead charged based upon the salary allocation and reimbursed for reasonable out-of-pocket expenses. During 2002 and 2003 and the six months ended June 30, 2004, we received payments from the company that owns the Sands in Atlantic City, New Jersey, which is controlled by affiliates of Mr. Icahn, for services provided by certain of our employees in an amount equal to approximately $27,900 and $190,600 and $116,200, respectively. During 2001, 2002, 2003 and the six months ended June 30, 2004, we made payments to XO Communications, Inc., which, since January 2003, has been controlled by affiliates of Mr. Icahn, for certain telecommunications services provided to us in an amount equal to approximately $123,700, $160,900 and $161,400 and $80,900, respectively. On May 1, 2001, Stratosphere Corporation delivered a $73.0 million promissory note for a construction loan to AREH, in order to finance the construction of the 1,000-room hotel tower, Lucky's Cafe and a new pool area. The promissory note is secured by a deed of trust on certain real property. The promissory note is secured by a deed of trust in certain real property. Demand notes bearing interest at 9.5% per annum and totaling $48.0 million, as of April 18, 2001, were replaced by this note. During 2001, AREH provided additional advances of $25.0 million against the $73.0 million note. In November 2001, Stratosphere Corporation began making principal payments on the loan in equal monthly installments based on a 20 year amortization schedule, with the remaining balance due and payable June 2002. Interest accrues at a variable rate per annum equal to the sum of (1) 300 basis points plus (2) the 90 day London Interbank Offered Rate, LIBOR. This interest rate at December 31, 2003 was 4.69%. On July 3, 2002, Stratosphere Corporation paid AREH 1% or $730,000 to obtain a 24 month extension of the loan term. The extension fee is being amortized over the remaining term of the loan. The note has been extended to September 6, 2005. On May 26, 2004, upon the consummation of the acquisitions, we used a portion of the net proceeds from the offering to repay this note and the deed of trust securing the note will be reconveyed. On May 1, 2001, Stratosphere Corporation delivered a $12.5 million promissory note to AREH to replace the $12.5 million demand note used to acquire the property under the master lease from Strato-Retail, LLC. The promissory note is secured by a deed of trust on certain real property. In November 2001, Stratosphere Corporation began making principal payments on the loan in equal installments based on a 20 year amortization schedule with the remaining balance due and payable July 2002. Interest accrues at a variable rate per annum equal to the sum of (1) 350 basis points plus (2) the 90-day LIBOR. This interest rate at December 31, 2003 was 5.19%. On July 4, 2002, Stratosphere Corporation paid AREH 1%, or $125,000, to obtain a 12 month extension of the loan term. The loan extension fee is being 89 amortized over the remaining term of the loan. The note has been further extended to August 31, 2004. Stratosphere Corporation prepaid prior to the consummation of the acquisitions this note and the deed of trust securing the note was reconveyed. On September 24, 2001, Arizona Charlie's, Inc. refinanced the remaining principal balance of approximately $7.9 million on a prior note payable to Arnos Corp., a company related through common ownership. The note boar interest at the prime rate plus 1.50% (5.75% at December 31, 2002), with a maturity of June 2004, and was collateralized by all assets of Arizona Charlie's, Inc. The note was repaid during November 2003 and the security interest in the assets of Arizona Charlie's, Inc. was released. On January 2, 2002, Fresca, LLC entered into an unsecured line of credit in the amount of $25.0 million with Starfire Holding Corporation. The outstanding balance, including accrued interest, was due and payable on January 2, 2007. At March 31, 2004, Fresca, LLC, had $25.0 million outstanding. The note boar interest on the unpaid principal balance from January 2, 2002 until maturity at the rate per annum equal to the prime rate, as established by Fleet Bank, from time to time, plus 4.75%. Interest was payable semi-annually in arrears on the first day of January and July, and at maturity. The note was repaid on May 26, 2004. On November 20, 1998, Starfire Holding Corporation, an affiliate of Mr. Icahn, entered into an undertaking pursuant to which Starfire Holding Corporation agreed to indemnify AREP and its subsidiaries for losses resulting from the imposition by the PBGC of termination or minimum funding pension liabilities on AREP or its subsidiaries. These liabilities could be imposed as a result of AREP or its subsidiaries being members of the controlled group of entities of which Mr. Icahn has a direct or indirect ownership interest of at least 80%. Applicable pension and tax laws make each member of a "controlled group" jointly and severally liable for certain pension plan obligations of any member of the controlled group. The undertaking provides, among other things, that Starfire Holding Corporation will not make any distribution to its stockholders that would reduce its net worth to below $250.0 million. 90 DESCRIPTION OF SENIOR SECURED REVOLVING CREDIT FACILITY We entered into a new senior secured revolving credit facility on the date of the closing of the notes offering. That facility became available upon the consummation of the acquisitions, the perfection of the security interests in the assets of the properties acquired, the receipt of all necessary approvals of the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and certain other events. The following discussion summarizes the material terms of the senior secured revolving credit facility. This summary does not purport to be complete and is qualified in its entirety by reference to the provisions of the credit agreement, guaranty and other related agreements. General. A syndicate of lenders has provided a non-amortizing $20.0 million revolving credit facility. The commitments are available to us in the form of revolving loans, and include a letter of credit facility (subject to a $10.0 million sublimit). The proceeds of loans under the senior secured revolving credit facility will be available to us to provide working capital for us and our subsidiaries and other general corporate purposes. Loans made under the senior secured revolving facility will mature and the commitments under them will terminate on January 29, 2008. Guarantees and Ranking. The senior secured revolving credit facility is jointly, severally and unconditionally guaranteed by the guarantors of the notes. This indebtedness is our and the guarantors' senior secured debt and ranks equally with all of our and the guarantors' existing and future senior secured debt. However, the senior secured revolving credit facility and the guarantees are secured by a first-priority security interest in the note collateral, while the notes are secured by a second-priority security interest in the note collateral. Interest and Fees. The loans under the senior secured revolving credit facility bear interest, at our option, at a rate per annum equal to (a) a LIBOR rate plus a spread payable monthly, bi-monthly or quarterly, or (b) a base rate plus a spread, payable quarterly. We pay administration fees, commitment fees, letter of credit fees and certain expenses and provide certain indemnities that are customary for a financing of this type. Covenants. The senior secured revolving credit facility contains customary affirmative covenants for this type of transaction. In addition, the negative covenants are similar to those contained in the indenture. However, certain of those covenants are more restrictive than those contained in the indenture, including certain financial covenants with which we must comply on an ongoing basis. For example, the senior secured revolving credit facility contains limitations on liens and certain other financial covenants that are not included in the indenture. Prepayments. The senior secured revolving credit facility contains customary mandatory prepayment requirements, including, without limitation, requiring prepayment from proceeds that we receive as a result of certain asset sales, subject to re-investment provisions. We are permitted to make voluntary prepayments or permanently reduce the commitments under the senior secured revolving credit facility in whole or in part, at our option, without premium or penalty, subject to reimbursement of the lenders" breakage and other losses. Events of Default. The senior secured revolving credit facility contains customary events of default, including, without limitation, nonpayment of principal, interest, fees or other amounts when due, violation of covenants, inaccuracy of representations and warranties, cross-default and/or cross-acceleration to other indebtedness, bankruptcy, ERISA, material judgments and change of control. Amendment and Waiver. The senior secured revolving credit facility is subject to amendment or waiver by the holders of a majority in principal amount of the revolving loans. 91 DESCRIPTION OF INTERCREDITOR AGREEMENT The agent under our first-priority lien secured indebtedness, including our senior secured revolving credit facility and the trustee under the indenture with respect to our notes entered into an intercreditor agreement. The intercreditor agreement sets forth certain agreements between the agent for our first-priority lien secured indebtedness, including our senior secured revolving credit facility, and the trustee regarding, among other things, the priority of their claims and interests in the note collateral, the arrangements applicable to actions with respect to approval rights and waivers, certain limitations on rights of enforcement upon default and the application of proceeds of enforcement. The following discussion summarizes the material terms of the intercreditor agreement. This summary does not purport to be complete and is qualified in its entirety by reference to provisions of the definitive intercreditor agreement. NOTE COLLATERAL; PRIORITY OF LIENS Pursuant to the intercreditor agreement, the trustee and the agent under our first-priority lien secured indebtedness, including our senior secured revolving credit facility, may appoint a collateral agent. If so, the collateral agent will hold some or all of the note collateral and act on their behalf under the collateral documents and the intercreditor agreement, including exercising any remedies with respect to such collateral upon an event of default. The intercreditor agreement provides that the liens and security interests granted to the lenders of the first-priority lien secured indebtedness, including our senior secured revolving credit facility, will be first-priority liens and those granted to the noteholders will be second-priority liens, in each case, subject to permitted liens, as defined, notwithstanding (1) the availability of any other collateral to any lender, (2) the actual date and time of execution, delivery, recording, filing and perfection of any of the collateral documents, (3) whether or not such liens are perfected and (4) the fact that any lien or security interest created by any of the collateral documents, or any claim with respect thereto, is or may be subordinated, avoided or disallowed in whole or in part under any bankruptcy or insolvency law or other applicable federal or state law. The obligations due and outstanding under the lenders" respective debt instruments include all principal, additional advances permitted under the instruments, protective advances made by such party to protect or preserve the note collateral, interest, default interest, post-petition interest and all other amounts due thereunder, for periods before and for periods after the commencement of any legal proceedings, even if the claim for any of those amounts is disallowed pursuant to applicable law. PERMITTED FACILITY AMENDMENTS; ADDITIONAL INDEBTEDNESS The intercreditor agreement provides that the lenders under any first-priority lien secured indebtedness facility may amend their facilities without the consent of the holders of the notes or any other lender under another first-priority lien debt facility, so long as the amendment does not increase the maximum principal amount of our first-priority lien secured indebtedness by more than the amount permitted under the indenture governing the notes. The intercreditor agreement also provides that the lenders of the first-priority lien secured 92 indebtedness will have the right to make additional "protective" advances in order to protect, preserve, repair and maintain the security interest in the note collateral. For example, the intercreditor agreement provides that the lenders under our first-priority lien secured indebtedness may make advances (1) to pay delinquent taxes or insurance premiums, and (2) to pay claims that otherwise might have lien priority over the liens of those lenders. Any amounts so advanced will be secured by the lien granted to secure the loan provided by the lenders of the first-priority lien secured indebtedness in the same priority as regular advances made by the lenders in accordance with that facility. This priority will be maintained regardless of whether the amount of protective advances causes the aggregate amount of outstanding first-priority lien secured indebtedness to exceed the amount of first-priority lien secured indebtedness permitted by the indenture. PERMITTED AMENDMENTS TO COLLATERAL DOCUMENTS Subject to certain exceptions, the intercreditor agreement provides that the terms and conditions of any collateral document, including any event of default under it, may be modified or waived by a writing duly signed by us (or our subsidiary that is party to the document) and the agent for the first-priority lien secured indebtedness and the consent of the trustee. However, to the extent such modification or waiver results in the release of any first-priority lien in any note collateral, the consent of the trustee will not be required to release the second-priority lien on that collateral if, after giving effect to such release, the aggregate book value of all the assets released will not exceed 10% of our total combined assets as of the date of issuance of the notes. Release of substantially all of the collateral will require approval by vote of the holders of 75% of the principal amount of the outstanding notes (other than in accordance with the indenture and the collateral documents). ADDITIONAL PARTIES TO INTERCREDITOR AGREEMENT The intercreditor agreement provides that any other lenders of first-priority lien secured indebtedness that are permitted under the terms of the indenture and the senior secured revolving credit facility will be added from time to time as "secured creditors" under the intercreditor agreement and that addition will not require the written consent of the trustee so long as the addition does not otherwise violate the indenture. Upon their addition as "secured creditors," the additional secured creditors will have substantially the same rights and obligations under the intercreditor agreement as the lenders under our senior secured revolving credit facility. EVENTS OF DEFAULT The intercreditor agreement provides that the lenders under a particular debt facility will be entitled to declare an event of default and accelerate their indebtedness in accordance with the terms of their credit facility. The exercise of any remedies by each party to the intercreditor agreement will be subject to the following conditions: (5) each party to the intercreditor agreement will be subject to a 30-day standstill period; (6) the standstill period with respect to the exercise of remedies by or on behalf of holders of the notes may be extended by the lenders under our senior secured revolving credit facility and the lenders under any other first-priority lien secured indebtedness for an additional 45-day period; (7) each party to the intercreditor agreement will not be entitled to initiate or join as a petitioning creditor in an involuntary proceeding against us (or against any of our affiliates) until 10 days after the expiration of the standstill period; and 93 (8) upon expiration of the standstill period, each party to the intercreditor agreement will be entitled to exercise remedies against us or with respect to the note collateral, provided that: (a) (1) if any lenders under our senior secured revolving credit facility or any other first-priority lien secured indebtedness accelerates the indebtedness under their respective facility, then that lender will concurrently provide the trustee with notice of such acceleration and (2) the agent for the first-priority lien secured indebtedness will provide the trustee at least 5 business days prior notice of its intent to file a notice of default, and (b) (1) as a condition to completing any foreclosure by the trustee on behalf of the noteholders, the trustee must have provided reasonable assurances to the agent for the first-priority lien secured indebtedness that such foreclosure will generate sufficient net proceeds to pay off all first-lien obligations in full and (2) concurrently with any such foreclosure, all then outstanding first-lien secured indebtedness must be paid in full. 94 DESCRIPTION OF NOTES GENERAL The terms of the new notes we are issuing in the exchange offer and the private notes that are outstanding are identical in all respects, except: - the new notes will be registered under the Securities Act of 1933; and - the new notes will not contain transfer restrictions and registration rights that relate to private notes. You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the word "ACEP" refers only to American Casino & Entertainment Properties LLC and not to any of its Subsidiaries. The term "ACEP Finance" refers only to American Casino & Entertainment Properties Finance Corp. and not to any of its Subsidiaries. The term "issuers" refers to ACEP and ACEP Finance, collectively. issuers will issue the new notes under an indenture among the issuers, the note guarantors and Wilmington Trust Company, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The Collateral Documents referred to under the caption "-- Security" define the terms of the agreements that secure the notes and the Note Guarantees. The following description is a summary of the material provisions of the indenture, the registration rights agreement and the Collateral Documents. It does not restate those agreements in their entirety. We urge you to read the indenture, the registration rights agreement and the Collateral Documents because they, and not this description, define your rights as holders of the notes. Copies of the indenture, the registration rights agreement and the Collateral Documents are available as set forth below under "-- Additional Information." Certain defined terms used in this description but not defined below under "-- Certain Definitions" have the meanings assigned to them in the indenture and the registration rights agreement. The registered holder of a note will be treated as the owner of it for all purposes. Only registered holders will have rights under the indenture. BRIEF DESCRIPTION OF THE NOTES AND THE NOTE GUARANTEES THE NOTES The notes: - are the general obligation of each of the issuers; - are secured by a second-priority security interest in the Note Collateral to the extent owned by any of the issuers, which represents substantially all of the assets of the issuers, which consist primarily of the capital stock of the subsidiaries that own the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder; - are (1) pari passu in right of payment to all existing and future senior Indebtedness of the issuers, except that the notes are effectively subordinated to all First Lien Obligations of the 95 issuers, including borrowings under the Credit Facilities, which are secured by a first-priority security interest in the Note Collateral and (2) effectively senior to any future unsecured senior obligations of the issuers to the extent of the value of the Note Collateral; and - are senior in right of payment to any future subordinated Indebtedness of the issuers. The notes are jointly, severally and unconditionally guaranteed by each of the Note Guarantors and will be guaranteed in the future by certain Restricted Subsidiaries. Stratosphere Corporation, which owns and operates the Stratosphere, Stratosphere Gaming Corporation, which holds Stratosphere's gaming licenses, Arizona Charlie's, LLC, which owns and operates the Arizona Charlie's Decatur, Fresca, LLC, which owns and operates the Arizona Charlie's Boulder, and Charlie's Holding LLC, which holds the membership interests of each of Arizona Charlie's, LLC and Fresca, LLC, each is a Note Guarantor. THE NOTES GUARANTEES Each Note Guarantee: - is the general obligation of each Note Guarantor; - is secured by a second-priority Lien on the Note Collateral to the extent owned by the Note Guarantor, which Note Collateral consists, in the aggregate, of substantially all of the assets of Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder (with certain exceptions described below); - is (1) pari passu in right of payment to all existing and future senior Indebtedness of the Note Guarantor, except that the notes are effectively subordinated to all First Lien Obligations of the Note Guarantor, including guarantees or borrowings under the Credit Facilities, which are secured by a first-priority security interest in the Note Collateral of the Note Guarantor, and (2) effectively senior to any future unsecured senior obligations of the Note Guarantor to the extent of the value of the Note Collateral of the Note Guarantor; and - are senior in right of payment to any future subordinated Indebtedness of the Note Guarantor. The operations of ACEP will be conducted through its subsidiaries and, therefore, ACEP depends on the cash flow of its subsidiaries to meet its obligations, including its obligations under the notes. The Note Guarantors generated all of our combined revenues in the twelve-months period ended December 31, 2003 and held all of our assets as of December 31, 2003. In the event of a bankruptcy, liquidation or reorganization of any future Subsidiaries that are not Note Guarantors, those Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. Currently, all of our Subsidiaries, other than JetSet LLC are "Restricted Subsidiaries" and "Note Guarantors." However, under the circumstances described below under the caption "-- Certain Covenants -- Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our Subsidiaries as "Unrestricted Subsidiaries" and it is possible that we may designate Unrestricted Subsidiaries prior to the Acquisition Date. Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not guarantee the notes. 96 PRINCIPAL, MATURITY AND INTEREST The issuers are offering to issue up to $215.0 million in aggregate principal amount of new notes in exchange for a like principal amount of private notes to satisfy its obligations under the registration rights agreement that it entered into when the private notes were issued. The issuers may issue additional notes ("Additional Notes") from time to time after this offering. Any offering of Additional Notes is subject to the covenant "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." In the case of each series, the notes and any Additional Notes subsequently issued under the indenture will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemption and offers to purchase. The issuers will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on February 1, 2012. Interest on the notes will accrue at the rate of 7.85% per annum and will be payable semi-annually in arrears on February 1 and August 1, commencing on August 1, 2004. Interest on overdue principal and interest and Liquidated Damages, if any, will accrue at a rate that is 1% higher than the then applicable interest rate on the notes. The issuers will make each interest payment to the holders of record on the immediately preceding January 15 and July 15. Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. METHODS OF RECEIVING PAYMENTS ON THE NOTES If a noteholder holds at least $2.0 million aggregate principal amount of notes, such holder may give wire transfer instructions to the issuers and the issuers will pay all principal, interest and premium and Liquidated Damages, if any, on that holder's notes in accordance with those instructions. All other payments on the notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless the issuers elect to make interest payments by check mailed to the noteholders at their address set forth in the register of holders. In addition, all payments will be subject to the applicable rules and procedures of the settlement systems (including, if applicable, those of Euroclear and Clearstream), which may change from time to time. PAYING AGENT AND REGISTRAR FOR THE NOTES The trustee will initially act as paying agent and registrar. The issuers may change the paying agent or registrar without prior notice to the holders of the notes, and the issuers or any of their Subsidiaries may act as paying agent or registrar. TRANSFER AND EXCHANGE A holder may transfer or exchange notes in accordance with the provisions of the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. The issuers will not be required to transfer or exchange any note selected for redemption. Also, the issuers will not be required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. SECURITY The notes are secured by a second-priority Lien on the Note Collateral owned by the issuers, and 97 the Note Guarantees are secured by a second-priority Lien on the Note Collateral owned by the Note Guarantors. The issuers' principal assets consist of the Capital Stock of ACEP's wholly owned subsidiary that owns and operates the Stratosphere, and of ACEP's wholly owned subsidiary that owns the Capital Stock of the subsidiaries that own and operate Arizona Charlie's Decatur and Arizona Charlie's Boulder. The principal assets of the Note Guarantors will consist of the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder (each of which are owned and operated by a separate Note Guarantor) and the Capital Stock of the Subsidiary operating the Arizona Charlie's Decatur and the Subsidiary operating the Arizona Charlie's Boulder. The Liens securing the notes and the Note Guarantees are prior to all other Liens on the Note Collateral, except for First Lien Obligations and Permitted Liens. First Lien Obligations include obligations under the Bank Credit Facility. The Liens securing the issuers' obligations with respect to the First Lien Obligations are senior to the Liens securing the notes, and the Liens securing the Note Guarantors' obligations with respect to First Lien Obligations will be senior to the Liens securing the Note Guarantees (except that the Liens securing First Lien Obligations will not extend to the funds in the Notes Proceeds Account or funds put aside for defeasance or discharge, which funds will only secure the notes). The Note Collateral includes all assets, now owned or hereafter acquired, of the issuers or any Note Guarantor defined as collateral in the Collateral Documents, which will initially include, subject to the exceptions described below, a second-priority Lien on: - the Capital Stock of all Restricted Subsidiaries including the Stratosphere Corporation, Stratosphere Gaming Corp., Charlie's Holding LLC, Fresca, LLC and Arizona Charlie's, LLC; - the Properties; - the furniture, fixtures and equipment (other than those separately financed or leased to us as permitted by the indenture) of the Properties; - intercompany notes (including a pledge of any debt (and related security interest)) owed to the issuers or any of the Restricted Subsidiaries, if any; and - certain material contract rights of the issuers or the Restricted Subsidiaries, excluding, however, any rights of the issuers or the Restricted Subsidiaries to any Gaming License. The Note Collateral will not include: (1) property, plant or equipment financed by other parties (including equipment financed or leased to us as permitted by the indenture) (or other assets or property that are permitted to secure certain other obligations as provided for in the indenture), (2) any property or assets (other than Cash Equivalents) acquired by the issuers or the Restricted Subsidiaries in the future that are neither (A) located on the Properties nor (B) necessary for the operation of any of the Properties in the ordinary 98 course, (3) any assets held by an Unrestricted Subsidiary or a Foreign Subsidiary (provided that if the asset came from the issuers or a Restricted Subsidiary, that the transfer to the Unrestricted Subsidiary or the Foreign Subsidiary was permitted by the indenture), (4) certain reserves for other lenders and (5) certain other customary exceptions. In the event of Asset Sales permitted by the indenture and in certain other events, the trustee will release assets included in the Note Collateral so long as all other Liens on such assets securing any Credit Facility or any other Indebtedness that is secured by that asset (including all commitments thereunder) are also released. Concurrently with the acquisition by the issuers or any Note Guarantor of any assets or property that either (1) secures First Lien Obligations or (2) has a Fair Market Value in excess of $2.0 million individually or $10.0 million in a series of one or more related transactions, subject to the approval by Gaming Authorities or to the extent not prohibited by applicable Gaming Laws, the issuers will, or will cause the applicable Note Guarantor to: (1) in the case of personal property, execute and deliver to the trustee for the benefit of the noteholders such Uniform Commercial Code financing statements or take such other actions as shall be necessary or (in the opinion of the trustee) desirable to perfect and protect the trustee's security interest in such assets or property for the benefit of the noteholders; (2) in the case of real property, execute and deliver to the trustee: (a) a deed of trust or a leasehold deed of trust, as appropriate, substantially in the form of the deeds of trust or leasehold deeds of trust, as appropriate, executed in connection with the Liens on the Properties (with such modifications as are necessary to comply with applicable law) that secure the Note Guarantees; and (b) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property; and (3) promptly deliver to the trustee such opinions of counsel, if any, as the trustee may reasonably require with respect to the foregoing (including opinions as to enforceability and perfection of security interests); provided, however, that (1) the issuers and the Note Guarantors will not be required to provide a security interest in any assets or property that are permitted to secure certain other obligations as provided for in the indenture, and (2) no more than 65% of the Capital Stock of any Foreign Subsidiary will be required to be pledged as Note Collateral. Also, if the granting of such a security interest in such property to the trustee requires the consent of a third party, the issuers will use commercially reasonable efforts to obtain such consent. 99 Any future Foreign Subsidiary of the issuers that is a direct borrower with respect to the Indebtedness described in clause (1) of the definition of Permitted Debt under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" may, to the extent otherwise permitted by the indenture, grant a security interest in its property to the lenders therein with respect to such Indebtedness, or to an agent or trustee on behalf of such lenders, to secure obligations with respect to such Indebtedness, without being required to provide a second-priority security interest upon such property as security for the notes; provided, however, that no such security interest shall secure any Indebtedness of the issuers, any Restricted Subsidiary or any Note Guarantor. So long as no Event of Default shall have occurred and be continuing, and subject to certain terms and conditions in the indenture and the Collateral Documents, the issuers and the Restricted Subsidiaries will be entitled to use the Note Collateral in a manner consistent with normal business practices and applicable law. Upon the occurrence and during the continuance of an Event of Default, and, except as provided below, as a result of which, the obligations under the notes have been accelerated to become immediately due and payable, but subject to certain terms, conditions and limitations in the Intercreditor Agreement, the trustee may sell the Note Collateral or any part thereof in accordance with the terms of the Collateral Documents. All funds distributed under the Collateral Documents and received by the trustee for the benefit of the holders of the notes shall be distributed by the trustee in accordance with the provisions of the indenture. Under the terms of the Collateral Documents but subject to certain terms, conditions and limitations set forth in the Intercreditor Agreement, the trustee will determine the circumstances and manner in which the Note Collateral will be disposed of, including, but not limited to, the determination of whether to release all or any portion of the Note Collateral from the Liens created by the Collateral Documents and whether to foreclose on the Note Collateral following an Event of Default. Subject to certain additional provisions set forth in the indenture, the Note Collateral may be released from the Lien and security interest created by the indenture and the Collateral Documents at any time or from time to time upon the request of the issuers pursuant to an Officers' Certificate certifying that all terms for release and conditions precedent under the indenture and under any applicable Collateral Document have been met and specifying (1) the identity of the Note Collateral to be released and (2) the provision of the indenture which authorizes such release. The trustee shall release (at the sole cost and expense of the issuers): (1) all Note Collateral that is contributed, sold, leased, conveyed, transferred or otherwise disposed of to any Person (other than the issuers or any Restricted Subsidiary (including any Note Collateral that is contributed, sold, leased, conveyed, transferred or otherwise disposed of to an Unrestricted Subsidiary)); provided, such contribution, sale, lease, conveyance, transfer or other disposition is or will be in accordance with the provisions and limitations of the indenture, including, without limitation, if applicable, the requirement that the net proceeds from such contribution, sale, lease, conveyance, transfer or other disposition are or will be applied (subject to the provisions of the Intercreditor Agreement) in accordance with the indenture and that no Default or Event of Default has occurred and is continuing or would occur immediately following such release; (2) Note Collateral that is condemned, seized or taken by the power of eminent domain or otherwise confiscated pursuant to an Event of Loss; provided that the Net Loss Proceeds, if any, from such Event of Loss are or will be applied in accordance with the covenant described above under "Repurchase at the Option of Holders -- Events of Loss;" 100 (3) all Note Collateral which may be released with the consent of holders pursuant to the amendment provisions of the indenture; (4) all Note Collateral (except as provided in the discharge and defeasance provisions of the indenture and, in particular, the funds in the trust fund described in such provisions) upon discharge or defeasance of the indenture in accordance with the discharge and defeasance provisions of the indenture; (5) all Note Collateral upon the payment in full of all obligations of the issuers with respect to the notes and the Note Guarantors with respect the Note Guarantees; (6) Note Collateral of a Note Guarantor whose Note Guarantee is released pursuant to the terms of the indenture; (7) assets included in the Note Collateral with a Fair Market Value of up to $1.0 million in any calendar year, subject to cumulative carryover for any amount not used in any prior calendar year; and (8) all Note Collateral that constituted furnishings, fixtures or equipment that is financed with the proceeds of the Indebtedness to any Person (including to the issuers or an Affiliate of the issuers provided that such financing action complies with the requirements of "-- Transactions with Affiliates") financed or permitted to be incurred pursuant to the subparagraph (3) of the second paragraph of the covenant described above under the heading "-- Incurrence of Indebtedness and Issuance of Preferred Stock." CERTAIN GAMING LAW LIMITATIONS The trustee's ability to foreclose upon the pledged Capital Stock and other gaming collateral comprising our gaming businesses is limited by applicable Gaming Laws. Regulations of the Nevada Gaming Commission provide that no Person may acquire an interest in a gaming licensee or enforce a security interest in the equity of a corporation, limited liability company or other entity which is the holder of a gaming license or which owns equity in such a corporation, limited liability company or other entity without the prior approval of the Nevada Gaming Commission. As such, neither the trustee nor any holder of the notes is permitted to operate or manage any gaming business or assets unless such Person has been licensed under applicable Gaming Laws for such purpose. Nevada Gaming Laws also require that all Persons who propose to own equity of licensed corporations, limited liability companies or other entities or of registered holding companies, limited liability companies or other entities must be found suitable as an equityholder of such corporations, limited liability companies or other entities by the Nevada Gaming Commission and other relevant Gaming Authorities before acquiring ownership of such equity interests. Consequently, it would be necessary for the trustee to file an application with the Nevada Gaming Authorities requesting approval to enforce the security interest in the pledged equity interests and obtain such approval before it may take any steps to enforce the security interest. Additionally, the trustee must file applications with the Nevada Gaming Authorities requesting approval to enforce a security interest in gaming assets before it may take steps to enforce the security interest. Moreover, it would be necessary for a prospective purchaser of the pledged equity interests or the assets comprising the gaming businesses to file the necessary applications, be investigated, and be found suitable by the Nevada Gaming Authorities before acquiring the gaming assets or the pledged equity interests through a foreclosure sale. Under Nevada Gaming Law, the applicant for such approvals must file all applications required by the Nevada Gaming Authorities, be investigated, provide all information requested by the investigating agency and pay all fees and costs 101 charged by the Nevada Gaming Authorities for such investigations. Although the regulations of the Nevada Gaming Commission provide that the Nevada Gaming Commission may, in its discretion, grant a temporary or permanent waiver of these requirements with respect to foreclosure on pledged equity interests, no action to enforce the security interest in the pledged equity interests may be taken nor may the ownership of the equity interests be transferred until these procedures are complied with so long as the entities hold gaming licenses or are registered with the Nevada Gaming Commission as a holding company which owns any interest in a licensed company. These requirements may therefore limit the number of potential bidders who would participate in any foreclosure sale and may delay the sale of the pledged equity interests or other gaming assets, either of which could have an adverse effect on the proceeds received from such sales. CERTAIN BANKRUPTCY LIMITATIONS The right of the trustee to repossess and dispose of the Note Collateral upon the occurrence of an Event of Default is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or against the issuers or a Note Guarantor prior to the trustee having repossessed and disposed of the Note Collateral. Under bankruptcy law, a secured creditor such as the trustee is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral (and the proceeds, products, rents or profits of such collateral) even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include, if approved by the court, cash payments or the granting of additional security for any diminution in the value of the collateral as a result of the stay of repossession or the disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. The court has broad discretionary powers in all these matters, including the valuation of collateral. In addition, because the enforcement of the Lien of the trustee in cash, deposit accounts and cash equivalents may be limited in a bankruptcy proceeding, the holders of the notes may not have any consent rights with respect to the use of those funds by the issuers or any of their Subsidiaries during the pendency of the proceeding. In view of these considerations, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the trustee could repossess or dispose of the Note Collateral or whether or to what extent holders of the notes would be compensated for any delay in payment or loss of value of the Note Collateral. OPTIONAL REDEMPTION At any time prior to February 1, 2007, the issuers may on one or more occasions redeem up to 35% of the aggregate principal amount of notes (including Additional Notes) issued under the indenture at a redemption price of 107.850% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings or from the proceeds of Permitted Affiliate Subordinated Debt of ACEP; provided, however, that: (1) at least 65% of the aggregate principal amount of notes issued under the indenture remains outstanding immediately after the occurrence of such redemption (excluding notes held by ACEP and its Subsidiaries); and 102 (2) the redemption occurs within 60 days of the date of the closing of such Equity Offering or the issuance of Permitted Affiliate Subordinated Debt. Except pursuant to the preceding paragraph, the notes will not be redeemable at the issuers' option prior to February 1, 2008. On or after February 1, 2008, the issuers may redeem all or a part of the notes upon not less than 15 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2008...................................................................... 103.925% 2009...................................................................... 101.963% 2010 and thereafter....................................................... 100.000%
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS If any Gaming Authority requires that a holder or Beneficial Owner of notes be licensed, qualified or found suitable under any applicable Gaming Law and such holder or Beneficial Owner: (1) fails to apply for a license, qualification or a finding of suitability within 30 days (or such shorter period as may be required by the applicable Gaming Authority) after being requested to do so by the Gaming Authority; or (2) is denied such license or qualification or not found suitable; ACEP shall then have the right, at its option: (3) to require each such holder or Beneficial Owner to dispose of its notes within 30 days (or such earlier date as may be required by the applicable Gaming Authority) of the occurrence of the event described in clause (1) or (2) above, or (4) to redeem the notes of each such holder or Beneficial Owner, in accordance with Rule 14e-1, if applicable, at a redemption price equal to the lowest of: (a) the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the date 30 days' after such holder or Beneficial Owner is required to apply for a license, qualification or finding of suitability (or such shorter period that may be required by any applicable Gaming Authority) if such holder or Beneficial Owner fails to do so ("Application Date") or of the date of denial of license or qualification or of the finding of unsuitability by such Gaming Authority; (b) the price at which such holder or Beneficial Owner acquired the notes, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the Application Date or the date of 103 the denial of license or qualification or of the finding of unsuitability by such Gaming Authority; and (c) such other lesser amount as may be required by any Gaming Authority. Immediately upon a determination by a Gaming Authority that a holder or Beneficial Owner of the notes will not be licensed, qualified or found suitable and must dispose of the notes, the holder or Beneficial Owner will, to the extent required by applicable Gaming Laws, have no further right: (1) to exercise, directly or indirectly, through any trustee or nominee or any other person or entity, any right conferred by the notes, the Note Guarantees or the indenture; or (2) to receive any interest, Liquidated Damages, dividend, economic interests or any other distributions or payments with respect to the notes and the Note Guarantees or any remuneration in any form with respect to the notes and the Note Guarantees from the issuers, the Note Guarantors or the trustee, except the redemption price referred to above. ACEP will notify the trustee in writing of any such redemption as soon as practicable. Any holder or Beneficial Owner that is required to apply for a license, qualification or a finding of suitability will be responsible for all fees and costs of applying for and obtaining the license, qualification or finding of suitability and of any investigation by the applicable Gaming Authorities and the issuers will not reimburse any holder or Beneficial Owner for such expense. MANDATORY REDEMPTION Other than in connection with the special mandatory redemption, the issuers are not required to make mandatory redemption or sinking fund payments with respect to the notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL If a Change of Control occurs, each holder of notes will have the right to require the issuers to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's notes pursuant to a Change of Control offer on the terms set forth in the indenture. In the Change of Control offer, the issuers will offer a Change of Control payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, on the notes repurchased, to the date of purchase. Within 30 days following any Change of Control, the issuers will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. On the Change of Control payment date, the issuers will, to the extent lawful: (1) accept for payment all notes or portions of notes properly tendered and not withdrawn pursuant to the Change of Control offer; 104 (2) deposit with the paying agent an amount equal to the Change of Control payment in respect of all notes or portions of notes properly tendered; and (3) deliver or cause to be delivered to the trustee the notes properly accepted together with an Officers' Certificate stating the aggregate principal amount of notes or portions of notes being purchased by the issuers. The paying agent will promptly mail to each holder of notes properly tendered the Change of Control payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. The issuers will publicly announce the results of the Change of Control offer on or as soon as practicable after the Change of Control payment date. The provisions described above that require the issuers to make a Change of Control offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that the issuers repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. The issuers will not be required to make a Change of Control offer upon a Change of Control if a third party makes the Change of Control offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control offer made by the issuers and purchases all notes properly tendered and not withdrawn under the Change of Control offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of ACEP and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require the issuers to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of ACEP and its Subsidiaries taken as a whole to another Person or group may be uncertain. ASSET SALES ACEP will not, and will not permit any Restricted Subsidiary to, consummate an Asset Sale unless: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Asset Sale; (2) ACEP (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets sold, leased, transferred, conveyed or otherwise disposed of or Equity Interests issued or sold or otherwise disposed of; (3) with respect to any Asset Sale involving consideration or property in excess of $2.5 million, such Fair Market Value is evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the trustee; 105 (4) at least 75% of the consideration received in the Asset Sale by ACEP or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as shown on ACEP's or such Restricted Subsidiary's most recent balance sheet, of ACEP or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Note Guarantee which may be assumed only if such liabilities are deemed to be Restricted Payments and such Restricted Payment may then be made) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases ACEP or such Restricted Subsidiary from further liability; and (b) any securities, notes or other obligations received by ACEP or any such Restricted Subsidiary from such transferee that are converted by ACEP or such Restricted Subsidiary into cash within 30 days, to the extent of the cash received in that conversion; and (5) the Board of Directors has determined in good faith that the Asset Sale complies with the provisions of the indenture summarized in clauses (2), (3) and (4) above. Within one year after the receipt of any Net Asset Sale Proceeds, ACEP or the Restricted Subsidiary may apply those Net Asset Sale Proceeds at its option: (6) to repay First Lien Obligations or any other Indebtedness that is pari passu with the notes, including any notes and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (7) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Principal Business; (8) to make an Investment in or expenditures for acquiring or constructing properties and assets that replace the properties and assets that were the subject of the Asset Sale; or (9) to acquire, construct, repair or rebuild other assets or property, other than current assets, that are used or useful in a Principal Business; provided, however, that with respect to any assets that are acquired or constructed or Voting Stock that is acquired with such Net Asset Sale Proceeds, ACEP or the applicable Restricted Subsidiary, as the case may be, promptly grants to the trustee, on behalf of the holders of the notes, a second-priority security interest on any such assets or Voting Stock on the terms set forth in the indenture and the Collateral Documents. Pending the final application of any Net Asset Sale Proceeds, ACEP or the applicable Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest the Net Asset Sale Proceeds in any manner that is not prohibited by the indenture. Any Net Asset Sale Proceeds that are not applied or invested as provided in the preceding paragraph (or in the case of clauses (2), (3) or (4), contracted or committed to within one year; provided that such acquisition, investment, construction, repair or reconstruction is completed within two years of the date of such contract or commitment) will constitute "Excess Proceeds." When the aggregate amount 106 of Excess Proceeds exceeds $5.0 million, the issuers will make an offer (an "Asset Sale Offer") to all holders of notes to purchase the maximum principal amount of notes and, if the issuers are required to do so under the terms of any other Indebtedness that is pari passu with the notes, such other Indebtedness on a pro rata basis with the notes, that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of the purchase of all properly tendered and not withdrawn notes pursuant to an Asset Sale Offer, ACEP may use such remaining Excess Proceeds for any purpose not otherwise prohibited by the indenture and the Collateral Documents. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer (together with any other pari passu Indebtedness expected to be repaid from such Excess Proceeds) exceeds the amount of Excess Proceeds, the trustee will select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of notes and such other Indebtedness tendered (or otherwise expected to be repaid). Upon completion of any Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The issuers may commence an Asset Sale Offer without having to wait for the expiration of the one year period. EVENTS OF LOSS Within one year (or two years in the case of clause (1) below) after any Event of Loss with respect to (1) any of the Properties, or any other assets or property, with a Fair Market Value (or replacement cost, if greater) in excess of $15.0 million, ACEP or the affected Restricted Subsidiary, as the case may be, may apply the Net Loss Proceeds from such Event of Loss in any manner permitted by clauses (1) through (4) of the second paragraph of the covenant described above under the caption "-- Asset Sales" for Net Asset Sale Proceeds from an Asset Sale or to the rebuilding or repair of the Subject Property (as defined), or (2) any other Event of Loss, ACEP or the affected Restricted Subsidiary, as the case may be, may apply the Net Loss Proceeds from such Event of Loss to repay First Lien Obligations or any indebtedness pari passu with the notes, including any notes, or to the rebuilding, repair, replacement or construction of improvements to the property affected by such Event of Loss (the "Subject Property"), with no concurrent obligation to make any purchase of any notes; provided, however, that ACEP delivers to the trustee: (1) within either (a) 150 days of such Event of Loss a written opinion from a reputable contractor that the Subject Property can be rebuilt, repaired, replaced or constructed in, and operating in, substantially the same condition (or better) as existed prior to the Event of Loss within 24 months of the Event of Loss or (b) 60 days of such Event of Loss a written opinion from a reputable contractor that the Subject Property can be rebuilt, repaired, replaced or constructed in, and operating in, substantially the same condition (or better) as existed prior to the Event of Loss within two years of the receipt of Net Loss Proceeds; and (2) an Officers' Certificate (delivered concurrently with the opinion specified in clause (i) or (ii) above) certifying that ACEP has available from Net Loss Proceeds or other sources sufficient funds to complete the rebuilding, repair, replacement or construction referred to in clause (1) above. 107 Any Net Loss Proceeds from any Event of Loss that are not applied or permitted to be reinvested as provided in the preceding paragraph will constitute "Excess Loss Proceeds." When the aggregate amount of Excess Loss Proceeds exceeds $5.0 million, the issuers will make an offer (an "Event of Loss Offer") to all holders of notes to purchase the maximum principal amount of notes and, if the issuers are required to do so under the terms of any other Indebtedness that is pari passu with the notes, such other Indebtedness on a pro rata basis with the notes, that may be purchased out of the Excess Loss Proceeds. The offer price in any Event of Loss Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Loss Proceeds remain after consummation of the purchase of all properly tendered and not withdrawn notes pursuant to an Event of Loss Offer, ACEP may use such remaining Excess Loss Proceeds for any purpose not otherwise prohibited by the indenture and the Collateral Documents. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Event of Loss Offer (together with any pari passu Indebtedness expected to be repaid from such Event of Loss proceeds) exceeds the amount of Excess Loss Proceeds, the trustee will select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of notes and such other Indebtedness tendered (or expected to be repaid). Upon completion of any such Event of Loss Offer, the amount of Excess Loss Proceeds will be reset at zero. In the event of an Event of Loss pursuant to clause (3) of the definition of "Event of Loss" with respect to any property or assets that have a Fair Market Value (or replacement cost, if greater) in excess of $5.0 million, ACEP or the affected Restricted Subsidiary, as the case may be, will be required to receive consideration and with respect to any Event of Loss of any portion of the hotel, casino or parking structure and other property comprising part of the Properties, at least 75% of which is in the form of cash or Cash Equivalents. CERTAIN COVENANTS RESTRICTED PAYMENTS ACEP will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of ACEP's or any Restricted Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving ACEP or any Restricted Subsidiary) or to the direct or indirect holders of ACEP's or any Restricted Subsidiary's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of ACEP or to ACEP or a Restricted Subsidiary of ACEP); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving ACEP) any Equity Interests of ACEP or any direct or indirect parent of ACEP; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of ACEP or any Note Guarantor that is contractually subordinated to the notes or to any Note Guarantee (excluding any intercompany Indebtedness between or among ACEP and any of its Restricted Subsidiaries), except a payment of interest, Other Liquidated Damages or principal at the Stated Maturity on such subordinated Indebtedness that is not Permitted Affiliate Subordinated Indebtedness; 108 (4) purchase, redeem, defease or otherwise retire for value or pay any interest, principal or other amount on any Permitted Affiliate Subordinated Indebtedness (other than payment of interest in the form of additional Permitted Affiliate Subordinated Indebtedness or Equity Interests in ACEP (other than Disqualified Stock) or accrual of interest on Permitted Affiliate Subordinated Indebtedness); or (5) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (5) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; (2) ACEP would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four-quarter period for which financial statements are available, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by ACEP and the Restricted Subsidiaries after the date of the indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7), (8) and (9) of the next succeeding paragraph) is less than the sum, without duplication, of: 109 (a) 50% of the Consolidated Net Income of ACEP for the period (taken as one accounting period) from the Acquisition Date to the end of ACEP's most recently ended fiscal quarter for which financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); provided, however, that to the extent any payments pursuant to the Tax Allocation Agreement were excluded from the calculation of Consolidated Net Income during the applicable period, for the purposes of this clause (a), such payments pursuant to the Tax Allocation Agreement will be deducted from Consolidated Net Income, plus (b) 100% of the aggregate net cash proceeds received by ACEP since the date of the indenture as a contribution to its common equity capital or received as cash proceeds of Permitted Affiliate Subordinated Debt of ACEP or from the issue or sale of Equity Interests of ACEP (excluding Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of ACEP that have been converted into or exchanged for such Equity Interests (other than Equity Interests or Disqualified Stock or debt securities) sold to a Subsidiary of ACEP, plus (c) 100% of the lesser of (1) the aggregate amount received in cash and the Fair Market Value of property received by means of (B) the sale or other disposition (other than to ACEP or a Restricted Subsidiary) of Restricted Investments made by ACEP or its Restricted Subsidiaries and repurchases and redemptions of such Restricted Investments from ACEP or its Restricted Subsidiaries and repayments of loans or advances which constitute Restricted Investments by ACEP or its Restricted Subsidiaries or (C) the sale (other than to ACEP or a Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary (other than in each case to the extent the Investment in such Unrestricted Subsidiary was made by a Restricted Subsidiary pursuant to clause (9) of the next succeeding paragraph or to the extent such Investment constituted a Permitted Investment) or a dividend from an Unrestricted Subsidiary and (2) the aggregate amount of Restricted Payments made to make the Restricted Investment so sold or disposed of or in the Capital Stock of the Unrestricted Subsidiary so sold or disposed of (provided, however, that if the cash received in any transaction described in clause (A) or (B) of this clause (c) plus the cash received from the disposition of any property received in any 110 such transaction is greater than the amount otherwise calculated under this clause (c), then such greater cash amount may be added to this clause (c) in lieu of such lesser amount), plus (d) in case, after the date hereof, any Unrestricted Subsidiary has been redesignated as a Restricted Subsidiary pursuant to the terms of the indenture or has been merged, consolidated or amalgamated with or into, or transfers or conveys assets to, or is liquidated into ACEP or a Restricted Subsidiary, and no Default or Event of Default is then occurring or results therefrom, an amount equal to the lesser of (1) the Fair Market Value of the Investments owned by ACEP and the Restricted Subsidiaries in such Unrestricted Subsidiary at the time of the redesignation, combination, transfer or liquidation (or of the assets transferred or conveyed, as applicable) and (2) the aggregate amount of Restricted Payments made in such Unrestricted Subsidiary. So long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of the indenture; (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of ACEP) of, Equity Interests (other than Disqualified Stock) or Permitted Affiliate Subordinated Debt of ACEP or from the substantially concurrent contribution of common equity capital to ACEP; provided, however, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (3) (b) of the preceding paragraph; (3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of ACEP or any Note Guarantor that is contractually subordinated to the notes or to any Note Guarantee with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of ACEP to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of ACEP, any parent of ACEP or any Restricted Subsidiary of ACEP held by any member of ACEP's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.0 million; 111 (6) the redemption or repurchase of any Equity Interests or Indebtedness of ACEP or any of its Subsidiaries to the extent required by any Gaming Authority or, if determined in the good faith judgment of the Board of Directors of ACEP as evidenced by a resolution of the Board of Directors that has been delivered to the trustee, required to prevent the loss or to secure the grant or establishment of any gaming license or other right to conduct lawful gaming operations in the United States; (7) Permitted Payments to Parent; (8) Restricted Payments pursuant to the terms of the Acquisition Agreements and the payment of the balance of the intercompany debt owed by Stratosphere Corporation to American Real Estate Holdings Limited Partnership; (9) the one-time payment of a distribution of Cash Equivalents and marketable securities to the Parent (the "Parent Distribution") to be paid within twenty days of the Acquisition Date such that, at the Acquisition Date after giving effect to the Parent Distribution, the purchase price of the Acquisition, the payment of the balance of the intercompany debt owed by Stratosphere Corporation to American Real Estate Holdings Limited Partnership and any unpaid fees and expenses relating to the offering of the notes, ACEP and its Restricted Subsidiaries, on a combined basis, would have cash no less than the sum of (x) $25.0 million and (y) the amount of accrued interest on the notes from the Issuance Date to, and including, the Acquisition Date; provided, that from the Issuance Date to the date of the Parent Distribution, except as disclosed in the Offering Memorandum and contemplated in the Acquisition Agreements, ACEP shall not take any actions and shall cause its Affiliates not to take any actions that would cause the business of the Properties to be conducted, in any material respect, other than in the ordinary course; and (10) other Restricted Payments in an aggregate amount since the Issuance Date not to exceed $2.5 million. For purposes of determining compliance with this covenant, in the event that a proposed Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in clauses (1) through (10) above, or is permitted to be made pursuant to the first paragraph of this covenant, ACEP shall, in its sole discretion, classify such Restricted Payment in any manner that complies with this covenant. The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the assets, property or securities proposed to be transferred or issued by ACEP or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK ACEP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the issuers will not issue any Disqualified Stock and will not permit any of their Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the issuers may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Note Guarantors may incur Indebtedness (including Acquired Debt) or issue preferred stock, if: the Fixed Charge Coverage Ratio for the issuers' most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such 112 additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by ACEP and any Note Guarantor of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of ACEP and its Restricted Subsidiaries thereunder) not to exceed $50.0 million less the aggregate amount of all Net Asset Sale Proceeds of Asset Sales applied by ACEP or any of its Restricted Subsidiaries since the date of the indenture to repay any term Indebtedness under a Credit Facility or to repay any revolving credit Indebtedness under a Credit Facility and effect a corresponding commitment reduction thereunder pursuant to the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales;" (2) the incurrence by the issuers and the Note Guarantors of Indebtedness represented by the notes and the related Note Guarantees to be issued on the date of the indenture and the exchange notes and the related Note Guarantees to be issued pursuant to the registration rights agreement; (3) the incurrence by ACEP and the Note Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of acquisition, construction or improvement of property, plant or equipment used or to be used in the business of ACEP or such Note Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (3), not to exceed $10.0 million at any time outstanding; (4) the incurrence by ACEP and the Note Guarantors of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under the first paragraph of this covenant or clauses (2), (3), (4), (10), (11) or (14) of this paragraph; (5) the incurrence by ACEP and its Restricted Subsidiaries of intercompany Indebtedness between or among ACEP and any of its Restricted Subsidiaries; provided, however, that: 113 (a) if ACEP is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes; (b) if a Note Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of its Note Guarantee; and (c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than ACEP or a Restricted Subsidiary of ACEP and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either ACEP or a Restricted Subsidiary of ACEP shall be deemed, in each case, to constitute an incurrence of such Indebtedness by ACEP or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (5); provided that in the case of clauses (a) and (b), that no restriction on the payment of principal, interest or other obligations in connection with such intercompany Indebtedness shall be required by such subordinated terms except during the occurrence and continuation of a Default or Event of Default; (6) the incurrence by ACEP and any of its Restricted Subsidiaries of Hedging Obligations that are incurred in the normal course of business; (7) the Guarantee by ACEP or any of the Note Guarantors of Indebtedness of the issuers or a Restricted Subsidiary of ACEP that was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the notes, then the Guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; (8) the incurrence by ACEP or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, performance and surety bonds in the ordinary course of business; (9) the incurrence by ACEP or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (10) the incurrence by ACEP and its Restricted Subsidiaries of the Existing Indebtedness; (11) the incurrence by ACEP or any of its Restricted Subsidiaries of Non-Recourse Financing used to finance the construction, purchase or lease of personal or real property used in the business of ACEP or such Restricted Subsidiary; provided, that the Indebtedness incurred pursuant to this clause (11) (including any refinancings thereof pursuant to clause (4) above) shall not exceed $15.0 million outstanding at any time; (12) Indebtedness arising from any agreement entered into by ACEP or any of its Restricted Subsidiaries providing for indemnification, purchase price adjustment or similar obligations, in each case, incurred or assumed in connection with an Asset Sale; 114 (13) the incurrence by ACEP or any Restricted Subsidiary of Permitted Affiliate Subordinated Indebtedness; (14) the incurrence by ACEP of Additional Notes used for Property Improvements, in an aggregate principal amount not to exceed 2.0 times the net cash proceeds received by ACEP after the Acquisition Date from Equity Offerings and the issuance of Permitted Affiliate Subordinated Debt, the net cash proceeds of which Equity Offerings and the issuance of Permitted Affiliate Subordinated Debt are also used in Property Improvements; and (15) the incurrence by ACEP or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (15), not to exceed $10.0 million at any one time outstanding. The issuers and their Restricted Subsidiaries will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the issuers or its Restricted Subsidiaries unless such Indebtedness is also contractually subordinated in right of payment to the notes or the applicable Note Guarantee on substantially identical terms; provided, however, that no Indebtedness of the issuers and its Restricted Subsidiaries shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the issuers or its Restricted Subsidiaries for purposes of this paragraph solely by virtue of being unsecured or secured to a lesser extent or on a junior Lien basis. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above or is entitled to be incurred pursuant to the first paragraph of this covenant, in each case, as of the date of incurrence thereof, the issuers shall, in their sole discretion, classify (or later reclassify in whole or in part, in its sole discretion) such item of Indebtedness in any manner that complies with this covenant and such Indebtedness will be treated as having been incurred pursuant to such clauses or the first paragraph hereof, as the case may be, designated by the issuers. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, that in each such case, that the amount thereof shall be included in Fixed Charges of ACEP as accrued (to the extent applicable under the definition of Fixed Charges). Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that ACEP or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and 115 (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (a) the Fair Market Value of such assets at the date of determination; and (b) the amount of the Indebtedness of the other Person. Upon entering into or refinancing or replacement of the Credit Facilities or any portion thereof with a lender that was not party to the Intercreditor Agreement or the incurrence of any Indebtedness permitted by the indenture to be First Lien Obligations, the trustee shall enter into an intercreditor agreement with such lender with terms that are no less favorable to the trustee or the holders of notes than those contained in the Intercreditor Agreement. LIENS ACEP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset, now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom, except Permitted Liens. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES ACEP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to ACEP or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to ACEP or any of its Restricted Subsidiaries; (2) make loans or advances to ACEP or any of its Restricted Subsidiaries; or (3) sell, lease or transfer any of its properties or assets to ACEP or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (4) agreements in effect on the Acquisition Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided, however, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other restrictions than those contained in those agreements on the Acquisition Date; (5) the indenture, the notes, the Note Guarantees, the Credit Facilities and the Collateral Documents; 116 (6) applicable law, rule or order of an applicable governmental body; (7) any instrument governing Indebtedness or Capital Stock of a Person acquired by ACEP or any Restricted Subsidiary as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; (8) customary non-assignment provisions in leases entered into in the ordinary course of business; (9) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph; (10) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (11) Permitted Refinancing Indebtedness; provided, however, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (12) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under the caption "-- Liens;" and (13) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business. ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES ACEP (a) will not, and will not permit any Restricted Subsidiary to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Restricted Subsidiary to any Person (other than to ACEP or to any Restricted Subsidiary), unless: (1) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Restricted Subsidiary, and (2) the Net Asset Sale Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions described under "-- Repurchase at the Option of Holders -- Asset Sales" above; provided, however, that this clause (a) will not apply to any pledge of Capital Stock of any Restricted Subsidiary securing First Lien Obligations, including the Credit Facilities, or any exercise of remedies in connection therewith; and 117 (b) will not permit any Restricted Subsidiary to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares and shares of Capital Stock of foreign Subsidiaries issued to foreign nationals to the extent required under applicable law) to any Person other than ACEP or any Restricted Subsidiary. MERGER, CONSOLIDATION OR SALE OF ASSETS Neither ACEP nor any Note Guarantor may, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not ACEP or such Note Guarantor, as the case may be, is the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of ACEP or any Note Guarantor, in one or more related transactions, to another Person; unless: (1) either: (a) ACEP or such Note Guarantor, as the case may be, is the surviving corporation, or (b) the Person formed by or surviving any such consolidation or merger (if other than ACEP or such Note Guarantor, as the case may be) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation, limited liability company or limited partnership entity organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than ACEP or such Note Guarantor, as the case may be) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of ACEP or such Note Guarantor, as the case may be, under the notes, the Note Guarantees, the indenture, the registration rights agreement and the Collateral Documents, as applicable; (3) immediately after such transaction no Default or Event of Default exists; (4) ACEP or such Note Guarantor, as the case may be, or the Person formed by or surviving any such consolidation or merger (if other than ACEP or such Note Guarantor, as the case may be), or to which such sale, assignment, transfer, conveyance or other disposition has been made has, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, a Fixed Charge Coverage Ratio not less than the Fixed Charge Coverage Ratio immediately preceding such transactions; (5) such transaction would not result in the loss or suspension or material impairment of any of ACEP's or any Note Guarantor's Material Gaming Licenses, unless a comparable replacement Gaming License is effective prior to or simultaneously with such loss, suspension or material impairment; (6) such transaction would not require any holder or Beneficial Owner of notes in their capacity as such to obtain a Gaming License or be qualified or found suitable under the law of any applicable gaming jurisdiction; provided that such holder or Beneficial Owner would not have been required to obtain a Gaming License or be qualified or found suitable under the laws of any applicable gaming jurisdiction in the absence of such transaction; and (7) ACEP has delivered to the trustee an officers' certificate and opinion of counsel, each stating that such transaction complies with the terms of the indenture. 118 ACEP will not have to comply with clause (4) above in connection with any merger or consolidation or the sale, assignment, transfer, conveyance or other disposition of all or substantially all of its properties or assets with an Affiliate that has no material assets or liabilities where the primary purpose of such transaction is to change ACEP into a corporation or other form of business entity and such transaction does not cause the realization of any material federal or state tax liability that will be paid by ACEP or any Restricted Subsidiary. For purposes of this paragraph, the term material refers to any assets, liabilities or tax liabilities that are greater than $1.0 million. In addition, ACEP may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. In the case of a lease of all or substantially all of the assets of ACEP, ACEP will not be released from its obligations under the notes or the indenture, as applicable. This "Merger, Consolidation or Sale of Assets" covenant will not apply to: (1) a merger of ACEP or ACEP Finance with an Affiliate solely for the purpose of reorganizing ACEP or ACEP Finance in another jurisdiction; or (2) any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the issuers and their Restricted Subsidiaries or between or among Restricted Subsidiaries. Except as described with respect to the release of Note Guarantees of Note Guarantors under the caption "-- Note Guarantees" above, the entity or person formed by or surviving any consolidation or merger (if other than ACEP or a Note Guarantor, as the case may be) or the sale, assignment, transfer, conveyance or other disposition of all or substantially all of its properties or assets will succeed to, and be substituted for, and may exercise every right and power of ACEP or such Note Guarantor, as the case may be, under the indenture. TRANSACTIONS WITH AFFILIATES ACEP will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, any Affiliate of ACEP (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are not materially less favorable to ACEP or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by ACEP or such Restricted Subsidiary with an unrelated Person as determined in good faith by the Board of Directors of ACEP; and (2) ACEP delivers to the trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.0 million, a resolution of the Board of Directors of ACEP set forth in an officers' certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a 119 majority of the disinterested members of the Board of Directors of ACEP; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to ACEP or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of recognized standing. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by ACEP or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto; (2) transactions between or among ACEP and/or its Restricted Subsidiaries; (3) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of ACEP; (4) any issuance of Equity Interests (other than Disqualified Stock) of ACEP to Affiliates of ACEP; (5) Restricted Payments that do not violate the provisions of the indenture described above under the caption "-- Restricted Payments;" (6) the transactions pursuant to the Acquisition Agreements and the transactions described above under the caption "Use of Proceeds;" (7) Permitted Affiliate Subordinated Indebtedness; (8) transactions between ACEP and/or any of its Restricted Subsidiaries, on the one hand, and other Affiliates, on the other hand, for the provision of goods or services in the ordinary course of business by such other Affiliates; provided that such other Affiliate is in the business of providing such goods or services in the ordinary course of business to unaffiliated third parties and the terms and pricing for such goods and services overall are not less favorable to ACEP and/or its Restricted Subsidiaries than the terms and pricing upon which such goods and services are provided to unaffiliated third parties; (9) loans or advances to employees in the ordinary course of business not to exceed $1.0 million in the aggregate at any one time outstanding; (10) the provision of accounting, financial, management, information technology and other ancillary services to Affiliates, provided that ACEP or its Restricted Subsidiaries are paid a fee equal to its out of pocket costs and allocated overhead (including a portion of salaries and benefits) as determined by ACEP in its reasonable judgment; provided further that this services under this clause shall not include providing complimentaries or other benefits to customers of an Affiliate; and 120 (11) Permitted Payments to Parent. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES The Board of Directors of ACEP may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event will Project Assets of any of the Properties be transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by ACEP and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption "-- Restricted Payments" or under one or more clauses of the definition of Permitted Investments, as determined by ACEP. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of ACEP may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Any designation of a Subsidiary of ACEP as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of a resolution of the Board of Directors giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "-- Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of ACEP as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock," ACEP will be in default of such covenant. The Board of Directors of ACEP may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of ACEP; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of ACEP of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. LINE OF BUSINESS For so long as any notes are outstanding, the issuers shall not, and shall not permit any of the Restricted Subsidiaries to, engage in any business or activity other than the Principal Business, except to such extent as would not be material to the issuers and their Subsidiaries taken as a whole. SALE AND LEASEBACK TRANSACTIONS ACEP will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that ACEP or any of its Restricted Subsidiaries may enter into a sale and leaseback transaction if: (1) ACEP or that Restricted Subsidiary could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" and 121 (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption "-- Liens;" (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, set forth in an officers' certificate delivered to the trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and ACEP applies the proceeds of such transaction in compliance with, the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales." RESTRICTIONS ON LEASING AND DEDICATION OF PROPERTY ACEP will not, and will not permit any of the Restricted Subsidiaries to lease, sublease, or grant a license, concession or other agreement to occupy, manage or use, as lessor or sublessor, any real or personal Project Assets owned or leased by ACEP or any Restricted Subsidiary for annual lease base rent, excluding common area maintenance and percentage rent, exceeding $2.0 million with respect to any individual transaction (each, a "Lease Transaction"), other than the following Lease Transactions: (1) ACEP or any Restricted Subsidiary may enter into a Lease Transaction with respect to any Project Assets, within or outside the Properties, or with any Person, provided that, in the reasonable opinion of ACEP, (a) such Lease Transaction will not materially interfere with, impair or detract from the operations of any of the Project Assets, and will in the reasonable judgment of ACEP enhance the value and operations of the Properties and (b) such Lease Transaction is at a fair market rent (in light of other similar or comparable prevailing commercial transactions or in the reasonable judgement of ACEP, otherwise enhances the value and operations of any of the Properties) and contains such other terms such that the Lease Transaction, taken as a whole, is commercially reasonable and fair to ACEP or such Restricted Subsidiary; (2) the transactions and agreements described under "--Transactions with Affiliates," to the extent such transactions or agreements constitute Lease Transactions; (3) ACEP or any Restricted Subsidiary may enter into a management or operating agreement with respect to any Project Asset, including any hotel with any Person (other than an Unrestricted Subsidiary or other Affiliate of the Principal (other than ACEP or any Restricted Subsidiary)); provided that (i) the manager or operator has experience in managing or operating similar operations or assets and (ii) such management or operating agreement is on commercially reasonable and fair terms to ACEP or such Restricted Subsidiary (in either case, in the reasonable judgment of ACEP); and (4) ACEP and any Restricted Subsidiary of ACEP may enter into a Lease Transaction with any of ACEP or any Restricted Subsidiary. Notwithstanding the foregoing, (a) no gaming or casino operations may be conducted on any Project Asset that is the subject of such Lease Transaction other than by ACEP or a Restricted Subsidiary; and (b) no Lease Transaction may provide that ACEP or any Restricted Subsidiary may subordinate its fee or leasehold interest to any lessee or any party providing financing to any lessee. The trustee shall at the request of ACEP or any Restricted Subsidiary enter into a commercially customary leasehold non-disturbance and attornment agreement with the lessee under any Lease 122 Transaction permitted under the covenant described above. Such agreement, among other things, shall provide that if the interests of ACEP (or in the case of a Lease Transaction being entered by a Restricted Subsidiary, the interests of the Restricted Subsidiary) in the Project Assets subject to the Lease Transaction are acquired by the trustee (on behalf of the holders of the notes), whether by purchase and sale, foreclosure, or deed in lieu of foreclosure or in any other way, or by a successor to the trustee, including without limitation a purchaser at a foreclosure sale, then in each case subject to any applicable law or Gaming License, (1) the interests of the lessee in the Project Assets subject to the Lease Transaction shall continue in full force and effect and shall not be terminated or disturbed, except in accordance with the lease documentation applicable to the Lease Transaction, and (2) the lessee in the Lease Transaction shall attorn to and be bound to the trustee (on behalf of the holders), its successors and assigns under all terms, covenants and conditions of the lease documentation applicable to the Lease Transaction. Such agreement shall also contain such other provisions that are commercially customary and that will not materially and adversely affect the Lien granted by the Collateral Documents (other than pursuant to the terms of the applicable non-disturbance agreement) as certified to the trustee by an Officer of ACEP. INSURANCE ACEP from and after the Acquisition Date will, and will cause the Restricted Subsidiaries to, maintain the specified levels of insurance set forth in the indenture, which shall not be less than the levels required in any applicable Gaming License. NOTE GUARANTEES ACEP's and ACEP Finance's obligations under the notes, and ACEP's and ACEP Finance's obligations under the indenture and the Collateral Documents, will be unconditionally guaranteed by each of the Note Guarantors. The obligations of each Note Guarantor under its Note Guarantee will be limited to the extent necessary to ensure it does not constitute a fraudulent conveyance under applicable law. No Note Guarantor will consolidate with, or merge with or into (whether or not such Note Guarantor is the surviving Person), another Person, whether or not affiliated with such Note Guarantor, where the survivor of such consolidation or merger is a Subsidiary of ACEP (other than an Unrestricted Subsidiary that is properly designated as such pursuant to the terms of the Indenture), unless: (1) subject to the provisions of the following paragraph and certain other provisions of the indenture, the Person formed by or surviving any such consolidation or merger (if other than such Note Guarantor) assumes all the obligations of such Note Guarantor pursuant to a supplemental indenture and supplemental Collateral Documents in form reasonably satisfactory to the trustee pursuant to which such Person shall unconditionally guarantee, all of such Note Guarantor's obligations under such Note Guarantee, the indenture and the Collateral Documents on the terms set forth in the indenture; and (2) immediately after giving effect to such transaction, no Default or Event of Default exists. In the event of (1) a sale or other disposition of all or substantially all of the assets of any Note Guarantor, by way of merger, consolidation or otherwise in accordance with the terms of the indenture, a Note Guarantor becoming an Unrestricted Subsidiary pursuant to the terms of the indenture, a sale or other disposition of all of the Capital Stock of any Note Guarantor in accordance with the terms of the indenture, or a sale or disposition of Capital Stock or other transaction which results in any Note Guarantor ceasing to be a Restricted Subsidiary without any action required on the part of the trustee or any holder of the notes, then such Note Guarantor (in the event of a sale or other disposition, by way of 123 such a merger, consolidation or otherwise, of all of the Capital Stock of such Note Guarantor or the Note Guarantor becoming an Unrestricted Subsidiary pursuant to the terms of the indenture) or the Person acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Note Guarantor) shall be released and relieved of any obligations under its Note Guarantee without any action required on the part of the trustee or any holder of the notes; provided that (1) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and (2) if applicable, the Net Asset Sale Proceeds of any sale or other disposition are applied in accordance with the applicable provisions of the indenture relating to Asset Sales. See "-- Repurchase at the Option of Holders -- Asset Sales." A Note Guarantor may also be released from its obligations under its Note Guarantee with the requisite consent of the holders of the notes. See "-- Amendment, Supplement and Waiver." The indenture will provide that if any additional Restricted Subsidiary is created or a Subsidiary of ACEP becomes a Restricted Subsidiary and Investments in that Restricted Subsidiary exceed the amount described in clause (1) of the definition of Permitted Investments, then ACEP will cause that Restricted Subsidiary to (1) execute and deliver to the trustee a supplemental indenture and supplemental Collateral Documents in form reasonably satisfactory to the trustee pursuant to which that Restricted Subsidiary will unconditionally guarantee, all of the issuers' obligations under the notes, the indenture and the Collateral Documents on the terms set forth in the indenture which will be secured by a second-priority Lien on terms substantially similar to the other Restricted Subsidiaries and (2) deliver to the trustee an opinion of counsel that, subject to customary assumptions and exclusions, such supplemental indenture and supplemental Collateral Documents have been duly executed and delivered by such Restricted Subsidiary. FURTHER ASSURANCES ACEP will (and will cause each of the Restricted Subsidiaries to) execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as may be reasonably required from time to time in order: (1) to carry out more effectively the express purposes of the Collateral Documents; (2) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests required to be encumbered thereby and contemplated thereby; (3) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby and contemplated thereby; and (4) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the trustee any of the rights granted or now or hereafter intended by the parties thereto to be granted to the trustee or under any other instrument executed in connection therewith or granted to ACEP under the Collateral Documents or under any other instrument executed in connection therewith. Whether or not required by the rules and regulations of the SEC, so long as any notes are outstanding, the issuers will furnish to the holders of notes or cause the trustee to furnish to the holders of notes, within the time periods specified in the SEC's rules and regulations: 124 (5) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the issuers were required to file such reports; and (6) all current reports that would be required to be filed with the SEC on Form 8-K if the issuers were required to file such reports. All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on the issuers' consolidated financial statements by the issuers' certified independent accountants. In addition, following the consummation of the exchange offer, the issuers will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing) and, if the SEC will not accept such a filing, will post the reports on its website within those time periods. If, at any time after consummation of the exchange offer, the issuers are no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the issuers will nevertheless continue filing the reports specified in the preceding paragraphs of this covenant with the SEC within the time periods specified above unless the SEC will not accept such a filing. The issuers will not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC will not accept the issuers' filings for any reason, the issuers will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if the issuers were required to file those reports with the SEC. If ACEP has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of ACEP and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of ACEP. In addition, the issuers and the Note Guarantors agree that, for so long as any notes remain outstanding, if at any time they are not required to file with the SEC the reports required by the preceding paragraphs, they will furnish to the holders of notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES The following constitutes an Event of Default: (1) default in payment when due and payable, upon redemption or otherwise, of principal or premium, if any, on the notes or under any Note Guarantee; (2) default for 30 days or more in the payment when due of interest or Liquidated Damages on the notes or under any Note Guarantee; (3) failure by ACEP or any Note Guarantor to call for redemption or to purchase any notes, in each case when required under the indenture; 125 (4) failure by ACEP or any Note Guarantor for 30 days after written notice from the trustee to comply with the provisions described under the captions "Restricted Payments" or "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (5) failure by the issuers or any Note Guarantor for 60 days after receipt of written notice from the trustee to comply with any of its other agreements in the indenture, the Collateral Documents, the notes or the Note Guarantees; provided, however, that any such failure with respect to any Collateral Documents will not be deemed to have occurred for purposes of the foregoing, and notice thereof shall not be deemed to have been delivered, until the delivery of notice and the expiration of all available grace periods provided for in the applicable Collateral Documents; (6) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by ACEP or any of the Restricted Subsidiaries or default on any Guarantee by ACEP or any of the Restricted Subsidiaries of Indebtedness of a third party, whether such Indebtedness or Guarantee now exists or is created after the Issuance Date (other than any Non-Recourse Debt or any Guarantee related to Non-Recourse Debt), which default (a) is caused by a failure to pay when due at final maturity (giving effect to any grace period or waiver related thereto) the principal of such Indebtedness (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case (other than a Payment Default or an acceleration of first-lien Indebtedness), the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which a Payment Default then exists or with respect to which the maturity thereof has been so accelerated or which has not been paid at maturity, aggregates $5.0 million or more; (7) failure of the Escrow Agreement, at any time, to be in full force and effect (unless the escrow funds are released by the Escrow Agent) or any contest by the issuers or any of the Note Guarantors of the validity or enforceability of the Escrow Agreement; (8) failure by ACEP or any of the Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which final judgments remain unpaid, undischarged or unstayed for a period of more than 60 days after such judgment becomes a final judgment; (9) (a) except as permitted by the indenture, any Note Guarantee or any Collateral Document or any material security interest granted thereby shall be held in any judicial proceeding to be unenforceable or invalid, or shall cease for any reason to be in full force and effect and such default continues for 10 days after written notice to ACEP or (b) ACEP or any Note Guarantor, or any Person acting on behalf of ACEP or any Note Guarantor, shall deny or disaffirm its obligations under any Note Guarantee or Collateral Document, in each of clauses (a) and (b), which would materially and adversely impair the benefits to the trustee or the holders of the notes thereunder; (10) certain events of bankruptcy or insolvency with respect to ACEP or any Note Guarantor that is a Significant Subsidiary of ACEP or any group of Note Guarantors that together would constitute a Significant Subsidiary of ACEP; or (11) revocation, termination, suspension or other cessation of effectiveness of any Gaming License, which results in the cessation or suspension of gaming operations for a period of more than 90 consecutive days at any of the Properties (other than as a result of an Asset Sale) and such Property is the principal asset of a Significant Subsidiary or if such Property (considered separately) would constitute a Significant Subsidiary if it were the only asset in a Subsidiary. 126 Subject to the provisions of the Intercreditor Agreement, if any Event of Default (other than by reason of bankruptcy or insolvency) occurs and is continuing, the holders of more than 25% in principal amount of the then outstanding notes may declare the principal, premium, if any, interest, Liquidated Damages, if any, and any other monetary obligations on all the notes to be due and payable immediately. See "Description of Intercreditor Agreement." Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to ACEP, or any Note Guarantor that is a Significant Subsidiary, all outstanding notes will become due and payable without further action or notice. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust power, including (subject to limitations contained in the Intercreditor Agreement) the exercise of any remedy under the Collateral Documents or the giving of a notice of default. The trustee may withhold from holders of notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in its interest. In addition, the trustee shall have no obligation to accelerate the notes if in the best judgment of the trustee acceleration is not in the best interest of the holders of the notes. At any time after a declaration of acceleration with respect to the notes and subject to certain conditions, the holders of a majority in aggregate principal amount of notes outstanding may rescind and cancel such acceleration and its consequences. The holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest on, premium, if any, or the principal of, any note held by a non-consenting holder. For a discussion of the effect of the Intercreditor Agreement on the ability of the trustee or the holders of notes to exercise remedies after an Event of Default, see "Description of Intercreditor Agreement." The trustee may appoint one or more collateral agents, who may be delegated any one or more of the duties or rights of the trustee under the Collateral Documents or which are specified in any Collateral Documents. The issuers will be required to deliver to the trustee annually a statement regarding compliance with the indenture, and the issuers will be required, within ten Business Days, upon becoming aware of any Default or Event of Default to deliver to the trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND STOCKHOLDERS No director, officer, employee, incorporator, manager (or managing member) direct or indirect member, partner or stockholder of the issuers or the Note Guarantors, as such, shall have any liability for any obligations of the issuers or the Note Guarantors under the notes, any Note Guarantee, the indenture, the Collateral Documents, as applicable, or for any claim based on, in respect of, or by reason of such obligations or its creation. Each holder of the notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes and the Note Guarantees. COVENANT DEFEASANCE 127 The issuers may, at their option and at any time, elect to have their obligations and the obligations of any Restricted Subsidiary released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and, thereafter, any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the notes. In addition, the Note Collateral will be released and the Note Guarantees will be terminated and released upon Covenant Defeasance. In order to exercise Covenant Defeasance: (1) the issuers must irrevocably deposit, or cause to be deposited, with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, to pay the principal of, premium, if any, interest and Liquidated Damages, if any, due on the outstanding notes on the stated maturity date or on the applicable redemption date, as the case may be, in accordance with the terms of the indenture; (2) no Default or Event of Default shall have occurred and be continuing with respect to certain Events of Default on the date of such deposit; (3) such Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which the issuers or any of the Restricted Subsidiaries is a party or by which the issuers or any of the Restricted Subsidiaries is bound; (4) the issuers shall have delivered to the trustee an opinion of counsel, containing customary assumptions and exceptions, to the effect that upon and immediately following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally under any applicable law; (5) the issuers shall have delivered to the trustee an Officers' Certificate stating that the deposit was not made by the issuers with the intent of defeating, hindering, delaying or defrauding any creditors of the issuers or others; and (6) the issuers shall have delivered to the trustee an Officers' Certificate and an opinion of counsel in the United States (which opinion of counsel may be subject to customary assumptions and exclusions) each stating that all conditions precedent provided for or relating to the Covenant Defeasance have been complied with. SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder and all Liens securing the notes and obligations under the indenture including the Note Guarantees will be released, when: (1) either: (a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money 128 has been deposited in trust and thereafter repaid to the issuers, have been delivered to the trustee for cancellation; or (b) all notes that have not been delivered to the trustee for cancellation (1) have become due and payable by reason of the mailing of a notice of redemption or otherwise, (2) will become due and payable within one year or (3) are to be called for redemption within 12 months under arrangements reasonably satisfactory to the trustee for the giving of notice of redemption by the trustee in the name, and at the reasonable expense of the issuers, and the issuers or any Note Guarantor have irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the notes not delivered to the trustee for cancellation for principal and premium, if any, and accrued but unpaid interest to the date of maturity or redemption; (2) no Default of Event of Default has occurred and is continuing on the date of the deposit or will occur as a result of the deposit and the deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which the issuers or any Note Guarantor is a party or by which the issuers or any Note Guarantor is bound; (3) the issuers or any Note Guarantor have paid or caused to be paid all sums payable by them under the indenture; and (4) the issuers have delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be. In addition, the issuers must deliver an Officer's Certificate and an Opinion of Counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next three succeeding paragraphs, the indenture, the notes, the Note Guarantees or the Collateral Documents may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for notes), and any existing default or compliance with any provision of the indenture, the notes, the Note Guarantees or the Collateral Documents may be waived with the consent of the holders of a majority in principal amount of the then outstanding notes (including consents obtained in connection with a tender offer or exchange offer for notes). Without the consent of at least 75% of the holders in principal amount of the notes then outstanding, an amendment or waiver may not: (1) release all or substantially all of the Note Collateral from the Lien of the indenture or the Collateral Documents (other than in accordance with the indenture and the Collateral Documents); or 129 (2) release any Note Guarantor from any of its obligations under its Note Guarantee or the indenture (other than in accordance with the indenture). Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a nonconsenting holder of notes): (3) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; (4) reduce the principal of or change the fixed maturity of any note or alter or waive the provisions with respect to the redemption of the notes; (5) reduce the rate of or change the time for payment of interest on any note; (6) waive a Default or Event of Default in the payment of principal of, premium or interest on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); (7) make any note payable in money other than that stated in the notes; (8) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of or premium, if any, or interest on the notes; or (9) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any holder of notes, the issuers, the Note Guarantors and the trustee together may amend or supplement the indenture, the notes, the Note Guarantees or the Collateral Documents to cure any ambiguity, defect or inconsistency, to comply with the covenant relating to mergers, consolidations and sales of assets, to provide for uncertificated notes in addition to or in place of certificated notes, to provide for the assumption of the issuers' or any Note Guarantor's obligations to holders of the notes in the case of a merger, consolidation or asset sale, to make any change that would provide any additional rights or benefits to the holders of the notes (including providing for additional guarantees or collateral), or that does not adversely affect the legal rights under the indenture or the Collateral Documents of any such holder, or to enter into additional or supplemental Collateral Documents. CONCERNING THE TRUSTEE The indenture will contain certain limitations on the rights of the trustee, should it become a creditor of the issuers, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days or resign. The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy, available to the trustee, subject to certain exceptions. The indenture will provide that in case an Event of Default shall 130 occur (which shall not be cured), the trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The indenture, the notes and the Note Guarantees will be, subject to certain exceptions, governed by and construed in accordance with the internal laws of the State of New York, without regard to the choice of law rules thereof. The issuance of the notes and the Note Guarantees will also be subject to a certain extent to the laws of the jurisdiction of formation of the issuers. The Collateral Documents will be governed by the laws of the State of New York, except to the extent that (1) the laws of the State of Nevada are mandatory or (2) validity or perfection of security interests and exercise of remedies in respect of certain items of collateral, including, without limitation, real property, is governed by the laws of the jurisdiction where such collateral is located. ADDITIONAL INFORMATION Any holder of the notes or prospective investor may obtain a copy of the indenture and the Collateral Documents without charge by writing to Denise Barton, Chief Financial Officer, at ACEP and ACEP Finance, at 2000 Las Vegas Boulevard South, Las Vegas, Nevada 89104. BOOK-ENTRY, DELIVERY AND FORM The new notes will be issued in one or more notes in global form (the "Global Notes"). Except as set forth below, the notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess of $1,000. The Global Notes will be deposited upon issuance with the trustee as custodian for DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC, s described below. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for definitive notes in registered certificated form ("Certificated Notes") except in the limited circumstances described below. See "-- Exchange of Global Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of notes in certificated form. In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct and indirect participants (including, if applicable, those of Euroclear and Clerstream), which may change from time to time. Prospective purchasers are advised that the laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to such extent. So long as the Global Note Holders is the registered owner of any notes, the Global Note Holder will be considered the sole holder under the indenture of any notes evidenced by the Global Notes. Beneficial owners of notes evidenced by the Global Notes will not be considered the owners or holders of the notes under the indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the trustee thereunder. Neither the issuers nor the trustee will have any 131 responsibility or liability for any aspect of the records of DTC or for maintaining, supervising or reviewing any records of DTC relating to the notes. DEPOSITORY PROCEDURES The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. The issuers take no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters. DTC has advised the issuers that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchaser), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the issuers that, pursuant to procedures established by it: (1) upon deposit of the Global Notes, DTC will credit the accounts of the Participants designated by the initial purchaser with portions of the principal amount of the Global Notes; and (2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes). Investors in the Global Notes who are Participants may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. 132 Payments in respect of the principal of, and interest and premium, if any, and Liquidated Damages, if any, on, a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture. Under the terms of the indenture, the issuers and the trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither the issuers, the trustee nor any agent of the issuers or the trustee has or will have any responsibility or liability for: (1) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes; or (2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the issuers that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or the issuers. Neither the issuers nor the trustee will be liable for any delay by DTC or any of the Participants or the Indirect Participants in identifying the beneficial owners of the notes, and the issuers and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Transfers between the Participants will be effected in accordance with DTC"s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures. Cross-market transfers between the Participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by their respective depositaries; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream. DTC has advised the issuers that it will take any action permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for notes in certificated 133 form, and to distribute such notes to its Participants. Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. None of the issuers, the trustee and any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES A Global Note is exchangeable for Certificated Notes if: (1) DTC (a) notifies the issuers that it is unwilling or unable to continue as depository for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in either case, the issuers fail to appoint a successor depositary; (2) the issuers, at their option, notify the trustee in writing that they elect to cause the issuance of the Certificated Notes; or (3) there has occurred and is continuing a Default or Event of Default with respect to the notes. In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures). EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the trustee a written certificate (in the form provided in the indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such notes. See "Notice to Investors." SAME DAY SETTLEMENT AND PAYMENT The issuers will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) by wire transfer of immediately available funds to the accounts specified by DTC or its nominee. The issuers will make all payments of principal, interest and premium, if any, and Liquidated Damages, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such holder's registered address. The notes represented by the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. The issuers expect that secondary trading in any Certificated Notes will also be settled in immediately available funds. 134 Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the issuers that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACEP" means American Casino & Entertainment Properties LLC, a Delaware limited liability company, or any successor thereto permitted under the indenture. "ACEP Finance" means American Casino & Entertainment Properties Finance Corp., a Delaware corporation, or any successor thereto permitted under the indenture. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Acquisitions" means the acquisitions of the Properties by ACEP pursuant to the Acquisition Agreements. "Acquisition Agreements" means, that certain membership interest purchase agreement by and among ACEP, Starfire Holding Corporation and Carl C. Icahn, and that certain contribution agreement by and among ACEP, American Real Estate Holdings Limited Partnership, American Entertainment Properties Corp. and Stratosphere Corporation. "Acquisition Date" means the date and time of the consummation of the Acquisitions pursuant to the Acquisition Agreements. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. 135 "AREP" means American Real Estate Partners, L.P. "Arizona Charlie's Boulder" means that certain hotel and casino located on approximately 24 acres at 4575 Boulder Highway, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Arizona Charlie's Decatur" means that certain hotel and casino located on approximately 17 acres at 740 S. Decatur Boulevard, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of ACEP and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests in any of ACEP's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries by ACEP or a Restricted Subsidiary. Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (3) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $1.0 million; (4) a transfer of assets between or among the issuers and its Restricted Subsidiaries; (5) an issuance of Equity Interests by a Restricted Subsidiary of ACEP to ACEP or to a Restricted Subsidiary of ACEP; (6) the sale or lease of products, services, equipment or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; (7) the sale or other disposition of cash or Cash Equivalents; (8) a Restricted Payment that does not violate the covenant described above under the caption "-- Certain Covenants -- Restricted Payments" or a Permitted Investment; (9) any Event of Loss; (10) any Lease Transaction or any grant of easement or Permitted Liens or Hedging Obligations permitted by the indenture; (11) any dedication permitted pursuant to the covenant described above under the caption "Certain Covenants -- Restrictions on Leasing and Dedication of Property;" 136 (12) any licensing of trade names or trademarks in the ordinary course of business by any of ACEP or the Restricted Subsidiaries; and (13) the provision of accounting, financial management and information technology and other ancillary services to Affiliates provided in accordance with the covenant "-- Transactions with Affiliates." "Asset Sale Offer" has the meaning assigned to that term in the indenture governing the notes. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation." "Bank Credit Facility" means that certain Credit Agreement among ACEP and ACEP Finance, as borrowers, certain of ACEP's Subsidiaries, as guarantors, the lenders listed therein and Bear Stearns Corporate Lending Inc., as syndication agent and administrative agent together with all related agreements, instruments and documents executed or delivered pursuant thereto at any time (including, all notes, mortgages, guarantees, security agreements and all other collateral and security documents), in each case as such agreements, instruments and documents may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the aggregate principal amount that may be borrowed thereunder) all or any portion of the Indebtedness and other obligations under such agreement or agreements or any successor or replacement agreement or agreements, and whether by the same or any other agent, lender, debt holder or group of lenders or debt holders. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof or the Board of Directors of the managing member; and 137 (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such jurisdictions are authorized or required by law or other governmental action to close. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person but excluding from all of the foregoing (i) any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock and (ii) Financing Participations. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Facilities or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; 138 (5) commercial paper having one of the two highest ratings obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and, in each case, maturing within one year after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of ACEP and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act) other than the Principal or a Related Party; (2) the adoption of a plan relating to the liquidation or dissolution of the issuers; (3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any "person" (as defined above), other than the Principal or the Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of ACEP, measured by voting power rather than number of shares; or (4) after an initial public offering of ACEP or any direct or indirect parent of ACEP (in either case, the "public company"), the first day on which a majority of the members of the Board of Directors of the public company are not Continuing Directors. For purposes of this definition, any holding company whose only significant asset is the Capital Stock of ACEP shall be disregarded and the beneficial ownership of such holding company shall be attributed to ACEP and any Person which has entered into an agreement to acquire any Capital Stock of ACEP shall not be deemed to have any beneficial ownership of such Capital Stock until the closing of such acquisition. "Change of Control Offer" has the meaning assigned to that term in the indenture governing the notes. "Collateral Documents" means, collectively, the Pledge and Security Agreement, the Deeds of Trust and any other agreements, instruments, financing statements or other documents that evidence, set forth or limit the Lien of the trustee in the Note Collateral. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus 139 (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the cumulative effect of a change in accounting principles will be excluded; and (4) notwithstanding clause (1) above, the Net Income of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of a public company who: (1) was a member of such Board of Directors on the date of the indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of the Principal or any of the Related Parties or with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Credit Facilities" means one or more debt facilities (including, without limitation, the Bank Credit Facility) or commercial paper facilities, in each case, with banks or other lenders providing for 140 revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Deeds of Trust" means each mortgage made by each of Stratosphere Corporation, Arizona Charlie's, LLC and Fresca, LLC covering the land upon which each of their respective Properties will be located, as amended, modified or revised in accordance with its terms. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require ACEP to repurchase such Capital Stock upon the occurrence of a change of control, event of loss, an asset sale or other special redemption event will not constitute Disqualified Stock if the terms of such Capital Stock provide that ACEP may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "-- Certain Covenants -- Restricted Payments" or where the funds to pay for such repurchase was from the cash net proceeds of such Capital Stock and such net cash proceeds was set aside in a separate account to fund such repurchase. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of the indenture will be the maximum amount that ACEP and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offer and sale of Capital Stock (other than Disqualified Stock) of ACEP (other than an offer and sale relating to equity securities issuable under any employee benefit plan of ACEP) or a capital contribution in respect of Capital Stock (other than Disqualified Stock) of ACEP. "Escrow Agreement" means the Escrow and Security Agreement by and among the issuers, American Real Estate Holdings Limited Partnership, the trustee, the Escrow Agent and the securities intermediary. "Event of Loss" means, with respect to any property or asset (tangible or intangible, real or personal) of any of the Properties, any of the following: (1) any loss, destruction or damage of such property or asset; (2) any actual condemnation, seizure or taking by exercise of the power of eminent domain or otherwise of such property or asset, or confiscation of such property or asset or the requisition of the use of such property or asset; or (3) any settlement in lieu of clause (2) above. "Existing Indebtedness" means up to $3.9 million in aggregate principal amount of Indebtedness of ACEP and its Subsidiaries (other than Indebtedness under the Bank Credit Facility) in existence on the Acquisition Date, until such amounts are repaid. 141 "Fair Market Value" means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of ACEP (unless otherwise provided in the indenture). "Financing Participations" means a participation in the revenues generated by specified equipment or a specified amenity that was financed, in whole or in part, by the person receiving the participation. "First Lien Obligations" means, at any time, the obligations under any Indebtedness (including Guarantees and the Bank Credit Facility) of ACEP or any Restricted Subsidiary permitted to be incurred by the covenant "-- Incurrence of Indebtedness and Issuance of Preferred Stock" that is secured by a Lien on any of the Note Collateral that ranks senior in priority to the Lien securing the obligations under the notes and the Note Guarantees; provided that the holder of the Indebtedness secured by such Lien has executed the Intercreditor Agreement or an intercreditor agreement having substantially similar terms as the Intercreditor Agreement. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. For the purpose of calculating the Fixed Charge Coverage Ratio (or any component thereof) at any time prior to the completion of the fourth full fiscal quarter after the Acquisition Date (and the availability of internal financial statements for such period), the Fixed Charge Coverage Ratio (and each component thereof) shall be calculated as if the Acquisitions had occurred at a date prior to the beginning of the fourth full fiscal quarter prior to the date of determination and shall be based upon the historical combined financial statements for such period as reflected in the historical combined financial statements included in the Offering Memorandum; provided that such calculation shall give pro forma effect to the offering of the notes and the related interest, fees and expenses incurred in connection with the notes. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect (in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; 142 (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates (excluding any accrued interest or interest paid in kind in respect of Permitted Affiliate Subordinated Indebtedness); plus (2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period (excluding any capitalized interest in respect of Permitted Affiliate Subordinated Indebtedness); plus (3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on preferred stock payable solely in Equity Interests of ACEP (other than Disqualified Stock) or to ACEP or a Restricted Subsidiary of ACEP, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or 143 in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issuance Date. For the purposes of the indenture, the term "consolidated" with respect to any Person shall mean such Person consolidated with the Restricted Subsidiaries and shall not include any Unrestricted Subsidiary. "Gaming Authority" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States or other national government, any state, province or any city or other political subdivision, including without limitation, the State of Nevada, whether now or hereafter existing, or any officer or official thereof and any other agency with authority thereof to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Principal, its Related Parties, the issuers or any of their respective Subsidiaries or Affiliates. "Gaming Law" means any gaming law or regulation of any jurisdiction or jurisdictions to which the issuers or any of their Subsidiaries is, or may at any time after the issue date be, subject. "Gaming License" means every license, franchise or other authorization required to own, lease, operate or otherwise conduct activities of the issuers or any of the Restricted Subsidiaries, including without limitation, all such licenses granted under Nevada law, and the regulations promulgated in connection therewith, and other applicable national, provincial, or local laws. "Government Instrumentality" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, court, tribunal, commission, bureau or entity or any arbitrator with authority to bind a party at law. "Government Securities" means securities that are (1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of ACEP thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; 144 (2) other agreements or arrangements designed to manage interest rates or interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (a) the accreted value thereof, in the case of any Indebtedness with original issue discount, and (b) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. Notwithstanding anything in the indenture to the contrary, Indebtedness of ACEP and the Restricted Subsidiaries shall not include any Indebtedness that has been either satisfied and discharged or defeased through covenant defeasance or legal defeasance. "Independent Financial Advisor" means an accounting, appraisal or investment banking or financial advisory firm of internationally recognized standing that is not an Affiliate of the issuers, the Principal or its Related Parties. "Intercreditor Agreement" means the Intercreditor Agreement, among a collateral agent, if any, Bear Stearns Corporate Lending Inc., as agent acting on behalf of the other lenders pursuant to the Bank Credit Facility and the trustee, acting on behalf of the holders of the notes, as amended, revised, modified or restated from time to time in accordance with its terms. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other (including Affiliates) in the forms of loans (including Guarantees or other obligations), 145 advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and excluding accounts receivables created or acquired in the ordinary course of business), purchases or other acquisitions, for cash or property, of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; notwithstanding the foregoing, the right of any Person to receive payment based upon Financing Participations to the extent made in the ordinary course of business shall not be deemed to be an Investment. If ACEP or any Subsidiary of ACEP sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of ACEP such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of ACEP, ACEP will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of ACEP's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption " -- Certain Covenants -- Restricted Payments." The acquisition by ACEP or any Subsidiary of ACEP of a Person that holds an Investment in a third Person will be deemed to be an Investment by ACEP or such Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption " -- Certain Covenants -- Restricted Payments." Except as otherwise provided in the indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Issuance Date" means the closing date for the sale and original issuance of the notes. "Issuers" means ACEP and ACEP Finance, collectively. "Lenders" means any of the lenders under the Bank Credit Facility. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Liquidated Damages" means all liquidated damages then owing pursuant to the registration rights agreement. "Material Gaming License" means any Gaming License that the loss, suspension, revocation, termination or material impairment of which, individually or in the aggregate, would materially adversely affect any Property and such Property is the principal asset of a Significant Subsidiary or if such Property (considered separately) would constitute a Significant Subsidiary if it were the only asset in a Significant Subsidiary. "Net Asset Sale Proceeds" means the aggregate cash proceeds received by ACEP or any of the Restricted Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and expenses, consent fees, employee severance and termination costs, any trade payables or similar liabilities related to the assets sold and required to be paid by the seller as a result thereof and sales, finder's or broker's commissions), and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (including, without limitation, any taxes paid or payable by an owner of ACEP or any Restricted Subsidiary), amounts required to be applied to the repayment of Indebtedness secured by a Lien that ranks prior to the Lien securing the notes on the asset or assets that are the subject of such Asset Sale, all 146 distributions and other payments required to be made to minority interest holders in a subsidiary or joint venture as a result of the Asset Sale, any reserve for adjustment in respect of the sale price of such asset or assets or any liabilities associated with the asset disposed of in such Asset Sale and the deduction of appropriate amounts provided by the seller as a reserve in accordance with GAAP against any liabilities associated with the assets disposed of in the Asset Sale and retained by ACEP or any Restricted Subsidiary after that Asset Sale. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss); (3) any interest expense from Permitted Affiliate Subordinated Indebtedness, whether paid or accrued; and (4) any payments pursuant to the Tax Allocation Agreement. "Net Loss Proceeds" means the aggregate cash proceeds received by ACEP or any of the Restricted Subsidiaries in respect of any Event of Loss, including, without limitation, insurance proceeds, condemnation awards or damages awarded by any judgment, net of the direct costs in recovery of such Net Loss Proceeds (including, without limitation, legal, accounting, appraisal and insurance adjuster fees and expenses), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Event of Loss and any taxes paid or payable as a result thereof (including, without limitation, any taxes paid or payable by an owner of ACEP or any Restricted Subsidiary). "Nevada Gaming Authorities" means the Nevada State Gaming Control Board, the Nevada Gaming Commission, Clark County, Nevada and the City of Las Vegas, Nevada. "Non-Recourse Debt" means Indebtedness or Disqualified Stock, as the case may be, or that portion of Indebtedness or Disqualified Stock, as the case may be: (1) as to which neither ACEP nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of ACEP or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and 147 (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of ACEP or any of its Restricted Subsidiaries. "Non-Recourse Financing" means Indebtedness incurred in connection with the construction, purchase or lease of personal or real property or equipment (1) as to which the lender upon default may seek recourse or payment against ACEP or any Restricted Subsidiary only through the return or foreclosure or sale of the property or equipment so constructed, purchased or leased and to any proceeds of such property and Indebtedness and the related collateral account in which such proceeds are held and (2) may not otherwise assert a valid claim for payment on such Indebtedness against ACEP or any Restricted Subsidiary or any other property of ACEP or any Restricted Subsidiary except in each case in the case of fraud and other customary non-recourse exceptions. "Note Collateral" means all assets, now owned or hereafter acquired, of ACEP or any Note Guarantor defined as Collateral in the Collateral Documents. "Note Guarantee" means the Guarantee of the notes by a Note Guarantor. "Note Guarantor" means each Subsidiary that provides a Guarantee of the notes. "Note Proceeds Account" means the Account (as defined in the Escrow Agreement). "Notes" means the issuers" 7.85% senior secured notes issued under the indenture, including any Additional Notes issued. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering Memorandum" means this offering memorandum dated January 15, 2004. "Officers' Certificate" means a certificate signed on behalf of ACEP, ACEP Finance or a Note Guarantor, as the case may be, by two Officers (or if a limited liability company, two Officers of the managing member of such limited liability company) of ACEP, ACEP Finance or a Note Guarantor, as the case may be, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of ACEP, ACEP Finance or a Note Guarantor, as the case may be, that meets the requirements set forth in the indenture. "Other Liquidated Damages" means liquidated damages arising from a registration default under a registration rights agreement with respect to the registration of subordinated Indebtedness permitted to be incurred under the indenture. "Parent" means AREP, American Real Estate Holdings Limited Partnership or American Entertainment Properties Corp. 148 "Permitted Affiliate Subordinated Indebtedness" means any Indebtedness of ACEP or any of the Restricted Subsidiaries to an Affiliate of ACEP other than a Subsidiary of ACEP (1) for which no installment of principal or installment of interest may be made if a Default or Event of Default exists or is continuing (except that interest may accrue on Permitted Affiliate Subordinated Indebtedness or be paid in the form of additional Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified Stock), (2) for which no installment of principal matures earlier than the date that is three months after the final maturity date of the notes, (3) for which the payment of principal and interest is subordinated in right of payment to the notes or any note at least to the extent set forth in Appendix A-2 to the Indenture and (4) under which no interest, premium or penalty is due or payable (other than interest, premium and penalty payable in the form of additional Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified Stock and except that interest may accrue on Permitted Affiliate Subordinated Indebtedness) unless such amount may be paid as a Restricted Payment. "Permitted Investments" means: (1) any Investments in ACEP, or any Note Guarantor or in any Restricted Subsidiary that is not a Note Guarantor if the Investments in such Restricted Subsidiary that is not a Note Guarantor from ACEP, any Note Guarantor or any of the other Restricted Subsidiaries aggregate less than $1.0 million; (2) any Investments in Cash Equivalents; (3) Investments by ACEP or any Restricted Subsidiary of ACEP in a Person, if as a result of such Investment (a) such Person becomes a Note Guarantor or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, one of ACEP or a Note Guarantor; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales" or " -- Event of Loss;" (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of ACEP; (6) receivables owing to ACEP or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as ACEP or any such Restricted Subsidiary deems reasonable under the circumstances; (7) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (8) loans or advances to employees, former employees or directors of ACEP or the Restricted Subsidiaries (a) to fund the exercise price of options granted under the employment agreements or ACEP's stock option plans or agreements, in each case, as approved by ACEP's Board of Directors or (b) for any other purpose not to exceed $2.0 million in the aggregate at any one time outstanding under this clause (b); 149 (9) Investments received (a) in settlement of debts created in the ordinary course of business and owing to ACEP and any Restricted Subsidiary (including gaming debts in the ordinary course of business owed by a patron or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer), (b) in satisfaction of judgments or (c) settlement of litigation, arbitrations or other disputes; (10) Investments in any person engaged in the Principal Business which Investment is made by the issuance of Equity Interests (other than Disqualified Stock) of ACEP; (11) any Investments having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) since the Issuance Date not to exceed the sum of $20.0 million, plus the amount of cash repaid on any loan made pursuant to this clause (11) not to exceed the respective original principal amounts of such loans; (12) any grant to any Subsidiary of ACEP of gaming or other rights derivative of any Material Gaming License; (13) Investments represented by Hedging Obligations; (14) any Investments or loans made to third parties in connection with such third parties' build out and development of property located at any of the Properties not to exceed $10.0 million in the aggregate at any one time outstanding; (15) repurchases of the notes; and (16) Investments existing on the Issuance Date and any Investments of the funds in the Note Proceeds Account in accordance with the investment limitations in the Escrow Agreement. "Permitted Liens" means: (1) Liens in favor of the issuers or any Note Guarantor; provided that if such Liens are on any Note Collateral, that such Liens are either collaterally assigned to the trustee or a collateral agent for the trustee or subordinate to the Lien in favor of the trustee securing the notes or any Note Guarantee; (2) Liens on property of a Person existing at the time such Person became a Restricted Subsidiary, is merged into or consolidated with or into, or wound up into, one of ACEP or any Restricted Subsidiary of ACEP; provided, that such Liens were in existence prior to the consummation of, and were not entered into in contemplation of, such merger or consolidation or winding up and do not extend to any other assets other than those of the Person acquired by, merged into or consolidated with one of ACEP or such Restricted Subsidiary; (3) Liens on property existing at the time of acquisition thereof by ACEP or any Restricted Subsidiary of ACEP; provided that such Liens were in existence prior to the consummation of, and were not entered into in contemplation of, such acquisition; 150 (4) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business and in the improvement or repair of any of the Properties and which obligations are not expressly prohibited by the indenture; or if such Lien arises in the ordinary course of business and in the improvement or repair of any of the Properties, which ACEP shall have bonded within a reasonable time after becoming aware of the existence of such Lien subject to customary rights of set off upon deposit of cash in favor of a bank or other depositary institution in which such cash is maintained in the ordinary course of business; (5) Liens securing obligations in respect of the indenture, the notes, including Additional Notes, and any Note Guarantee; (6) Liens on assets that are not part of the Note Collateral to secure Indebtedness (including Guarantees) permitted to be incurred under the covenant " -- Incurrence of Indebtedness and Issuance of Preferred Stock;" provided, that such Indebtedness is not contractually subordinated in right of payment to the notes; (7) (a) Liens for taxes, assessments or governmental charges or claims or (b) statutory Liens of landlords, and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Liens arising in the ordinary course of business or in the improvement or repair of any of the Properties, in the case of each of (a) and (b), with respect to amounts that either (i) are not yet delinquent or (ii) are being contested in good faith by appropriate proceedings as to which appropriate reserves or other provisions have been made in accordance with GAAP; (8) easements, rights-of-way, aviational or navigational servitudes, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of ACEP and the Restricted Subsidiaries; (9) leases or a leasehold mortgage in favor of a party financing the lease of space, including, without limitation, construction or improvements thereto within a Property; provided that (a) such lease or the lease affected by such leasehold mortgage is permitted pursuant to the covenant entitled " -- Restrictions on Leasing and Dedication of Property," (b) neither ACEP nor any Restricted Subsidiary is liable for the payment of any principal of, or interest or premium on, such financing and (c) the affected lease and leasehold mortgage are expressly made subject and subordinate to the Lien of the Deed of Trust, subject to the provisions of the last paragraph in the covenant described under the caption " -- Restrictions on Leasing and Dedication of Property;" (10) Liens securing all Obligations under the Credit Facilities incurred pursuant to clause (1) or (15) of the second paragraph of the covenant described above under the caption " -- Incurrence of Indebtedness and Issuance of Preferred Stock," which Liens may be senior in right of payment to the Liens securing the obligations under the notes pursuant to the terms of the Intercreditor Agreement; (11) Liens incurred in connection with Hedging Obligations permitted to be incurred under the indenture, including first-priority Liens on the Note Collateral if the underlying obligations subject to the Hedging Obligations are secured by a first-priority Lien on the Note Collateral or second-priority Liens on the Note Collateral if the underlying obligations subject to the Hedging Obligations are secured by second-priority Liens on the Note Collateral; 151 (12) licenses of patents, trademarks and other intellectual property rights granted by ACEP or any Restricted Subsidiary of ACEP in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of such ACEP or such Restricted Subsidiary; (13) any judgment attachment or judgment Lien not constituting an Event of Default; (14) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (15) Liens incurred or deposits made in connection with workers' compensation, unemployment insurance and other types of social security, or to secure performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, trade contracts performance and return of money bonds and other obligation of a like nature incurred in the ordinary course; (16) Liens arising from filing financing statements or other instruments or documents relating to leases; (17) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (18) Liens on the assets of ACEP or any of the Restricted Subsidiaries incidental to the conduct of their respective businesses or the ownership of their respective Properties which were not created in connection with the incurrence of Indebtedness or the obtaining of advances or credit and which do not in the aggregate materially detract from the value or saleability of their respective Properties or materially impair the use thereof in the operation of their respective businesses; (19) Liens to secure Indebtedness permitted by clause (11) of the second paragraph of the covenant entitled " -- Incurrence of Indebtedness and Issuance of Preferred Stock" and extending only to the personal or real property as purchased or leased; provided, however, that, such Lien does not extend over the real property secured under the Deeds of Trust; (20) Liens to secure Indebtedness permitted by the first paragraph and clause (13) and (15) of the second paragraph of the covenant entitled " -- Incurrence of Indebtedness and Issuance of Preferred Stock"; provided that the notes will be secured equally and ratably by a pari passu Lien ranking equally in priority on any collateral subject to the Liens permitted by this clause (20); (21) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the indenture; provided, however, that: 152 (a) (a) the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof) and the priority of the new Lien with respect to the Lien securing the obligations under the notes is no greater than the priority of the Lien securing the Indebtedness so refinanced; (b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge; and (c) the Indebtedness secured by the new Lien is subject to and bound by the Intercreditor Agreement; (22) Liens to secure a deposit or deposits in connection with workers' compensation obligations or requirements, provided that such deposit or deposits do not exceed $1.0 million in the aggregate; and (23) Liens incurred in the ordinary course of business of ACEP or any Subsidiary of ACEP with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Payments to Parent" means, without duplication as to amounts: (1) payments to the Parent not to exceed $100,000 per annum; and (2) payments pursuant to the Tax Allocation Agreement. "Permitted Refinancing Indebtedness" means any Indebtedness of ACEP or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of ACEP or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, and Other Liquidated Damages, incurred in connection therewith); (2) in the case of Indebtedness other than First Lien Obligations or notes redeemed in accordance with " -- Mandatory Disposition Pursuant to Gaming Laws", such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; 153 (3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (4) such Indebtedness is incurred either by ACEP or by the Restricted Subsidiary who is the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (5) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged are First Lien Obligations and secured by any part of the Note Collateral, such Permitted Refinancing Indebtedness may be First Lien Obligations or Indebtedness secured by a Lien ranking equally and ratably with the Lien securing the notes, provided that such Permitted Refinancing Indebtedness is subject to and bound by the appropriate Intercreditor Agreement, or shall be unsecured Indebtedness; (6) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is Indebtedness secured by a Lien ranking equally and ratably with the Lien securing the notes and secured by any part of the Note Collateral, such Permitted Refinancing Indebtedness may be secured by a Lien ranking equally and ratably with the Lien securing the notes, provided that such Permitted Refinancing Indebtedness is subject to and bound by the appropriate Intercreditor Agreement, or shall be unsecured Indebtedness; and (7) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is Indebtedness secured by a Permitted Lien on collateral that is not Note Collateral, then such Permitted Refinancing Indebtedness may be secured by a Lien on such other collateral. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution, or winding up. "Principal" means AREP. "Principal Business" means the casino gaming, hotel, retail, conference center and entertainment mall and resort business (including, without limitation, the business contemplated by the Properties in the Offering Memorandum) and any activity or business incidental, directly related or similar thereto (including owning interests in Subsidiaries, operating a conference center and meeting facilities and owning and operating or licensing the operation of a retail and entertainment facilities), or any business or activity that is a reasonable extension, development or expansion thereof or ancillary thereto. "Project Assets" means, at any time, all of the assets then in use on the Properties including any real estate assets, any buildings or improvements thereon, and all equipment, furnishings and fixtures, but excluding: (1) any obsolete property determined by ACEP's Board of Directors to be no longer useful or necessary to the operations or support of such Property and (2) any personal property leased from a third party in the ordinary course of business. "Properties" means the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. A "Property" means any of the foregoing Properties and other properties that may be acquired. 154 "Property Improvement" means any improvement to, or addition or acquisition or construction of, the property, plant or equipment of any of the Properties, or any other property for the benefit of any of the Properties, including any land acquisition costs, financing costs, planning or development costs, construction costs, ancillary costs, fees and expenses. "Related Parties" means (1) Carl Icahn, any spouse and any child, stepchild, sibling or descendant of Carl Icahn, (2) any estate of the Carl Icahn or any person under clause (1), (3) any person who receives a beneficial interest in the Principal from any estate under clause (2) to the extent of such interest, (4) any executor, personal administrator or trustee who holds such beneficial interest in ACEP for the benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to the extent of such interest, (5) any corporation, partnership, limited liability company, trust, or similar entity, directly or indirectly owned or controlled by Carl Icahn or any other person or persons identified in clauses (1) or (2). "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means, at any time, any direct or indirect Subsidiary of ACEP that is not then an Unrestricted Subsidiary; provided, however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of "Restricted Subsidiary." "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the Issuance Date. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest, accreted value, or principal prior to the date originally scheduled for the payment or accretion thereof. "Stratosphere" means that certain hotel, casino and tower located on approximately 31 acres at 2000 Las Vegas Boulevard South, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Subordinated Indebtedness" means any Indebtedness that by its terms is expressly subordinated in right of payment in any respect (either in the payment of principal or interest) to the payment of principal, Liquidated Damages or interest on the notes. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total Voting Stock is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and 155 (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Tax Allocation Agreement" means that certain tax allocation agreement to be entered into between American Entertainment Properties Corp., ACEP and the Subsidiaries of ACEP. "Unrestricted Subsidiary" means any Subsidiary of ACEP (other than any Subsidiary that owns Project Assets) that is designated by the Board of Directors of ACEP as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) except as permitted by the covenant described above under the caption " -- Certain Covenants -- Transactions with Affiliates," is not party to any agreement, contract, arrangement or understanding with ACEP or any Restricted Subsidiary of ACEP unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to ACEP or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of ACEP; (3) is a Person with respect to which neither ACEP nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of ACEP or any of its Restricted Subsidiaries. "Voting Stock" means, with respect to any Person that is a corporation, any class or series of capital stock of such Person that is ordinarily entitled to vote in the election of directors thereof at a meeting of stockholders called for such purpose, without the occurrence of any additional event or contingency and with respect to any other Person that is a limited liability company, membership interests entitled to manage the operations or business of the limited liability company. "Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the number of years (calculated to the nearest one-twelfth) obtained by dividing (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal or liquidation preference, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one- twelfth) that will elapse between such date and the making of such payment, by (2) the then outstanding principal amount or liquidation preference, as applicable, of such Indebtedness or Disqualified Stock, as the case may be. "Wholly-Owned Restricted Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. 156 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The following general discussion summarizes certain material United States federal income tax consequences that apply to beneficial owners of the old notes who: (1) acquired the old notes at their original issue price for cash, (2) exchange the old notes for new notes in this exchange offer, and (3) held the old note, and hold the new notes, as a "capital asset" (generally, for investment) as defined in the Internal Revenue Code of 1986, as amended, which we refer to as the Code. This summary, however, does not consider state, local or foreign tax laws. In addition, special United States federal income tax rules not discussed here may apply to you if you are: - A broker-dealer, a dealer in securities or a financial institution; - An S corporation; - A bank; - A thrift; - An insurance company; - A tax-exempt organization; - A partnership or other pass-through entity; - Subject to the alternative minimum tax provisions of the Code; - Holding the old notes or the new notes as part of a hedge, straddle or other risk reduction or constructive sale transaction; - A person with a "functional currency" other than the U.S. dollar; or - A United States expatriate. If you are a partner in a partnership which holds the new notes, you should consult your own tax advisor regarding special rules that may apply. This summary is based on the Code and applicable Treasury Regulations, rulings, administrative pronouncements and decisions as of the date hereof, all of which are subject to change or differing interpretations at any time with possible retroactive effect. We have not sought and will not seek any rulings from the Internal Revenue Service with respect to the statements made and the conclusions reached in this summary, and there can be no assurance that the Internal Revenue Service will agree with such statements and conclusions. EACH HOLDER IS URGED TO CONSULT HIS TAX ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF PARTICIPATING IN THIS EXCHANGE OFFER AND HOLDING THE NEW 157 NOTES. EXCHANGE OF OLD NOTES FOR NEW NOTES The exchange of the old notes for the new notes pursuant to this exchange offer should not be a taxable event for U.S. federal income tax purposes. Accordingly, holders participating in this exchange offer should not recognize any income, gain or loss in connection with the exchange. In addition, immediately after the exchange, any such holder should have the same adjusted tax basis and holding period in the new notes as it had in the old notes, immediately before the exchange. CONSEQUENCES OF HOLDING THE NEW NOTES UNITED STATES HOLDERS If you are a "United States Holder," as defined below, this section applies to you. Otherwise, the section "Non-United States Holders," applies to you. DEFINITION OF UNITED STATES HOLDER You are a "United States Holder" if you are the beneficial owner of a new note and you are, for United States federal income tax purposes: - a citizen or resident of the United States; - a corporation organized under the laws of the United States or any political subdivision thereof; - an estate the income of which is subject to U.S. federal income tax regardless of its sources; or - a trust if a court within the United States can exercise primary supervision over the administration of the trust and one or more U.S. persons has authority to control all substantial decisions of the trust, or if the trust was in existence on August 20, 1996, and treated as a domestic trust on August 19, 1996, and it has elected to continue to be treated as a domestic trust. TAXATION OF STATED INTEREST Generally, you must include the interest on the new notes in income as ordinary income: - when it accrues, if you use the accrual method of accounting for United States federal income tax purposes; or - when you receive it, if you use the cash method of accounting for United States federal income tax purposes. SALE OR OTHER TAXABLE DISPOSITION OF THE NEW NOTES You will generally recognize taxable gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a new note. The amount of your gain or loss equals the difference between the amount you receive for the new note (in cash or other property, valued at fair market value), except to the extent amounts received are attributable to accrued interest on the note, and your adjusted tax basis in the new note. Your tax basis in the new note generally should equal the price you paid for the old note that was exchanged for the new note. 158 Your gain or loss will generally be long-term capital gain or loss if your holding period for the note is more than one year at the time of the sale, exchange, redemption, retirement or other taxable disposition. Otherwise, it will be short-term capital gain or loss. For this purpose, your holding period for the new note should include your holding period for the old note that was exchanged for the new note. Long-term capital gains recognized in years beginning before December 31, 2008 by certain non-corporate holders are generally taxed at a maximum rate of 15%. The use of capital losses is subject to limitations. Payments attributable to accrued interest which you have not yet included in income will be taxed as ordinary interest income. INFORMATION REPORTING AND BACKUP WITHHOLDING We will report to certain non-corporate holders of the new notes and to the IRS the amount of any interest paid on the new notes in each calendar year and the amounts of tax withheld, if any, with respect to such payments. You may be subject to a backup withholding tax when you receive interest payments on a new note or proceeds upon the sale or other disposition of the new note. Certain holders (including, among others, corporations, financial institutions and certain tax-exempt organizations) are generally not subject to information reporting or backup withholding. In addition, the backup withholding tax will not apply to you if you provide to us or our paying agent your correct social security or other taxpayer identification number, or TIN, in the prescribed manner unless: - the IRS notifies us or our paying agent that the TIN you provided is incorrect; - you underreport interest and dividend payments that you receive on your tax return and the IRS notifies us or our paying agent that withholding is required; or - you fail to certify under penalties of perjury that you are not subject to backup withholding. The backup withholding tax rate is currently 28%. Any amounts withheld from a payment to you under the backup withholding rules may be credited against your United States federal income tax liability, and may entitle you to a refund. You should consult your tax advisor as to your qualification for exemption from backup withholding and the procedures for obtaining such exemption. NON-UNITED STATES HOLDERS The following general discussion is limited to the United States federal income tax consequences relevant to a "Non-United States Holder." A "Non-United States Holder" is any beneficial owner of a new note if such owner is, for United States federal income tax purposes, a nonresident alien, or a corporation, estate, or trust that is not a United States Holder. INTEREST Portfolio Interest Exemption. You will generally not be subject to United States federal income tax or withholding tax on interest paid or accrued on the new notes if: - you do not own, actually or constructively, 10% or more of the total combined voting power of all classes of the capital stock entitled to vote of American Entertainment Properties Corp., our parent corporation; - you are not a controlled foreign corporation with respect to which American Entertainment 159 Properties Corp., our parent corporation, is a "related person" within the meaning of Section 864(d)(4) of the Code; - you are not a bank receiving interest described in Section 881(c)(3)(A) of the Code; - such interest is not effectively connected with the conduct by you of a trade or business in the United States; and - either (i) you represent that you are not a United States person for United States federal income tax purposes and you provide your name and address to us or our paying agent on a properly executed IRS Form W-8BEN (or a suitable substitute form) signed under penalties of perjury, or (ii) a securities clearing organization, bank, or other financial institution that holds customers' securities in the ordinary course of its business holds the new note on your behalf, certifies to us or our paying agent under penalties of perjury that it has received IRS Form W-8BEN (or a suitable substitute form) from you or from another qualifying financial institution intermediary, and provides a copy of the Form W-8BEN (or a suitable substitute form) to us or our paying agent. United States Federal Income or Withholding Tax If Interest Is Not Portfolio Interest. If you do not claim, or do not qualify for, the benefit of the portfolio interest exemption described above, you may be subject to a 30% withholding tax on the gross amount of interest payments, unless reduced or eliminated by an applicable income tax treaty. However, income from payments or accruals of interest that is effectively connected with the conduct by you of a trade or business in the United States will be subject to United States federal income tax on a net basis at a rate applicable to United States persons generally (and, if paid to corporate holders, may also be subject to a 30% branch profits tax). If payments are subject to United States federal income tax on a net basis in accordance with the rules described in the preceding sentence, such payments will not be subject to United States withholding tax so long as you provide us or our paying agent with a properly executed IRS Form W-8ECI. Non-United States Holders should consult any applicable income tax treaties, which may provide for a lower rate of withholding tax, exemption from or reduction of the branch profits tax, or other rules different from those described above. Generally, in order to claim any treaty benefits you must submit a properly executed IRS Form W-8BEN. SALE OR OTHER DISPOSITION OF NEW NOTES You will generally not be subject to United States federal income tax or withholding tax on gain recognized on a sale, exchange, redemption, retirement, or other disposition of a new note unless such gain is effectively connected with the conduct by you of a trade or business within the United States. Any gain that is effectively connected with the conduct by you of a trade or business within the United States will be subject to United States federal income tax on a net basis at the rates applicable to United States persons generally. BACKUP WITHHOLDING AND INFORMATION REPORTING Payments From United States Office. If you receive payment of interest or principal directly from us or through the United States office of a custodian, nominee, agent or broker, you may be subject to both backup withholding and information reporting. With respect to interest payments made on the new notes, however, backup withholding and information reporting will not apply if you certify, generally on a Form W-8BEN (or Form W-8ECI) or 160 suitable substitute form, that you are not a United States person in the manner described above under the heading " -- Non-United States Holders -- Interest." Moreover, with respect to proceeds received on the sale, exchange, redemption, or other disposition of a new note, backup withholding or information reporting generally will not apply if you properly provide, generally on Form W-8BEN (or Form W-8ECI) or a suitable substitute form, a statement that you are an "exempt foreign person" for purposes of the broker reporting rules, and other required information. If you are not subject to United States federal income or withholding tax on the sale or other disposition of a new note, as described above under the heading " -- Non-United States Holders-Interest -- Sale or Other Disposition of New Notes," you will generally qualify as an "exempt foreign person" for purposes of the broker reporting rules. Payments From Foreign Office. If payments of principal and interest are made to you outside the United States by or through the foreign office of your foreign custodian, nominee or other agent, or if you receive the proceeds of the sale of a new note through a foreign office of a "broker," as defined in the pertinent United States Treasury Regulations, you will generally not be subject to backup withholding or information reporting. You will however, be subject to backup withholding and information reporting if the foreign custodian, nominee, agent or broker has actual knowledge or reason to know that you are a United States person. You will also be subject to information reporting, but not backup withholding, if the payment is made by a foreign office of a custodian, nominee, agent or broker that has certain relationships to the United States unless the broker has in its records documentary evidence that you are a Non-United States Holder and certain other conditions are met. Refunds. Any amounts withheld from a payment to you under the backup withholding rules may be credited against your United States federal income tax liability, and may entitle you to a refund. The information reporting requirements may apply regardless of whether withholding is required. Copies of the information returns reporting interest and withholding also may be made available to the tax authorities in the country in which a Non-United States Holder is a resident under the provisions of an applicable income tax treaty or other agreement. THE SUMMARY DOES NOT COMPLETELY DESCRIBE THE WITHHOLDING REGULATIONS. PLEASE CONSULT YOUR TAX ADVISOR TO DETERMINE HOW THE WITHHOLDING REGULATIONS APPLY TO YOUR PARTICULAR CIRCUMSTANCES. 161 PLAN OF DISTRIBUTION Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. We and the guarantors have agreed that, starting on the expiration date and ending on the close of business 270 days after the expiration date (or such shorter period during which participating broker-dealers are required by law to deliver such prospectus), we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , all dealers effecting transactions in the new notes may be required to deliver a prospectus. We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of new notes and any commissions or concessions received any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver, and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Furthermore, any broker-dealer that acquired any of its old notes directly from us: - may not rely on the applicable interpretation of the staff of the Commission's position contained in Exxon Capital Holdings Corp., SEC no-action letter (May 13, 1988), Morgan, Stanley & Co. Inc., SEC no-action letter (June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2, 1983); and - must also be named as a selling noteholder in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. For a period of 270 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holder of the old notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the old notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 162 LEGAL MATTERS The validity of the notes offered by this prospectus and certain legal matters in connection with the exchange offer will be passed upon for us by Piper Rudnick LLP, New York, New York. Certain legal matters with respect to Nevada law will be passed upon for us by Schreck Brignone, Las Vegas, Nevada. EXPERTS The combined financial statements of American Casino & Entertainment Properties LLC as of December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 has been included in this prospectus, in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting. On April 1, 2004, KPMG LLP advised our indirect parent, American Real Estate Partners, L.P., or AREP, that it would not seek re-election as AREP's independent auditor for 2004, and that the client-auditor relationship between AREP and KPMG had ceased and, therefore, our relationship with KPMG has also ceased. None of KPMG's reports on our combined financial statements for the years ended December 31, 2002 or 2003 contained an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years and the interim period preceding receipt of KPMG's letter, there was no (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its report or (2) "reportable events" as such term is defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of 1934. Effective as of April 26, 2004, AREP's audit committee engaged Grant Thornton LLP as its independent public accountant and, therefore, our independent public accountant. During the years ended December 31, 2002 and 2003, and from January 1, 2004 through April 26, 2004 (the date Grant Thornton LLP was appointed), neither we, AREP nor AREP's audit committee consulted Grant Thornton LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed; or any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-4, together with any amendments thereto, with the SEC under the Securities Act of 1933, as amended, with respect to the new notes. This prospectus, which constitutes a part of the registration statement, omits certain information contained in the registration statement and reference is made to the registration statement and the exhibits and schedules thereto for further information with respect to us and the new notes offered hereby. Upon effectiveness of the registration statement, we will be subject to the informational reporting requirements of the Securities Act of 1934, as amended, and we will file annual, quarterly and current reports and other information with the SEC. These reports do not constitute a part of this prospectus, and we are not incorporating by reference into this prospectus any of the reports we file with the SEC. We have agreed that, whether or not required to do so by the rules and regulations of the SEC (and within the time periods that are or would be prescribed thereby), for so long as any of the notes remain outstanding, we will furnish to the holders of the notes and file with the Commission (unless the SEC will not accept such a filing because, for example, we are no longer subject to the reporting requirements of the Exchange Act and are filing such reports on a voluntary basis): (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if we were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on our consolidated financial statements by an independent registered public accounting firm and (2) all reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports. In addition, for so long as any of the notes remain outstanding, we have agreed to make available, upon request, to any prospective purchaser or beneficial owner of the notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act. The registration statement (including the exhibits and schedules thereto) and the periodic reports and other information we will file following effectiveness of the registration statement may be inspected and copied at the public reference facilities of the SEC, located at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of such material can also be obtained from the SEC by mail at prescribed rates. In addition, the SEC maintains a website (http://www.sec.gov) that contains such reports and other information that we have filed. 163 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm............................................. F-2 Consolidated Balance Sheets as of December 31, 2002 and 2003 and as of June 30, 2004 (unaudited)... F-3 Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 (unaudited)............................................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 (unaudited)........................................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2002 and 2003 and for the six month period ended June 30, 2004 (unaudited)......................................... F-6 Notes to Consolidated Financial Statements........................................................... F-7
F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Member American Casino & Entertainment Properties LLC We have audited the accompanying combined balance sheets of American Casino & Entertainment Properties LLC (the "Company") as of December 31, 2002 and 2003, and the related combined statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of American Casino & Entertainment Properties LLC as of December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. March 5, 2004 Los Angeles, California F-2 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, ------------------------ ----------- (In thousands) 2002 2003 2004 ---------- ---------- ----------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents $ 59,343 $ 77,258 $ 49,231 Cash and cash equivalents-restricted 1,926 - 447 Marketable securities 4,200 4,200 - Investments-restricted 2,683 2,973 2,921 Accounts receivable, net (note 2) 4,298 4,051 4,549 Related party receivables 32 233 189 Deferred income taxes (note 8) 372 2,982 3,232 Other current assets (note 3) 7,993 9,213 10,677 ---------- ---------- ----------- Total Current Assets 80,847 100,910 71,246 ---------- ---------- ----------- Property and Equipment, at cost (note 4) 313,210 324,548 321,989 ---------- ---------- ----------- Other Assets: Debt issuance and deferred financing costs, net 610 272 7,532 Lessee incentive 767 567 467 Other receivable 2,401 84 - Deferred income taxes (note 8) - 54,357 60,738 ---------- ---------- ----------- Total Other Assets 3,778 55,280 68,737 ---------- ---------- ----------- TOTAL ASSETS $ 397,835 $ 480,738 $ 461,972 ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable-trade $ 3,674 $ 5,048 $ 2,166 Accounts payable-construction 805 805 805 Accrued expenses (note 5) 17,338 17,801 22,482 Accrued payroll and related expenses 10,267 12,395 10,185 Current portion of capital lease obligation (note 6) 55 436 439 Current portion of notes payable to related party (note 9) 15,421 14,796 - ---------- ---------- ----------- Total Current Liabilities 47,560 51,281 36,077 ---------- ---------- ----------- Long-Term Liabilities: Notes payable to related party (note 9) 85,230 86,456 - Notes payable - - 215,000 Accrued lessee incentive 818 568 568 Capital lease obligations, less current portion (note 6) 949 3,555 3,527 Deferred income taxes (note 8) 3,325 5,134 - Other - 3,399 5,257 ---------- ---------- ----------- Total Long-Term Liabilities 90,322 99,112 224,352 ---------- ---------- ----------- TOTAL LIABILITIES 137,882 150,393 260,429 ---------- ---------- ----------- Commitments and Contingencies (notes 11 and 12) Stockholders' Equity (note 7): Common stock 10 10 - Additional paid-in-capital 243,750 293,460 171,396 Retained earnings 16,193 36,875 30,147 ---------- ---------- ----------- Total Stockholders' Equity 259,953 330,345 201,543 ---------- ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 397,835 $ 480,738 $ 461,972 ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------- -------------------- (In thousands) 2001 2002 2003 2003 2004 --------- --------- --------- --------- --------- (UNAUDITED) REVENUES: Casino $ 142,919 $ 143,057 $ 147,888 $ 73,998 $ 82,391 Hotel 38,326 44,263 47,259 23,572 27,723 Food and beverage 55,453 56,349 59,583 29,847 33,420 Tower, retail and other income 29,512 28,247 30,336 14,540 16,580 --------- --------- --------- --------- --------- Gross Revenues 266,210 271,916 285,066 141,957 160,114 Less promotional allowances 23,737 21,893 22,255 11,404 11,745 --------- --------- --------- --------- --------- NET REVENUES 242,473 250,023 262,811 130,553 148,369 --------- --------- --------- --------- --------- COSTS AND EXPENSES: Casino 60,026 59,879 61,284 30,620 31,182 Hotel 17,190 20,142 22,074 10,565 11,536 Food and beverage 42,806 43,393 44,990 22,133 23,664 Other operating expenses 15,640 14,934 14,008 7,291 6,566 Selling, general and administrative 78,692 80,019 74,985 37,787 37,327 Depreciation and amortization 17,209 20,209 20,222 10,272 12,314 --------- --------- --------- --------- --------- Total Costs and Expenses 231,563 238,576 237,563 118,668 122,589 --------- --------- --------- --------- --------- INCOME FROM OPERATIONS 10,910 11,447 25,248 11,885 25,780 --------- --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest income 1,640 667 426 270 955 Interest expense (5,971) (5,990) (5,389) (2,755) (9,747) Gain (Loss) on sale of assets 23 (354) (1,401) 85 144 --------- --------- --------- --------- --------- Total Other Expense, net (4,308) (5,677) (6,364) (2,400) (8,648) --------- --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 6,602 5,770 18,884 9,485 17,132 Provision (benefit) for Income Taxes (note 8) 4,908 4,907 (1,798) 4,394 5,944 --------- --------- --------- --------- --------- NET INCOME $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, --------------------------------------- ------------------------ (In thousands) 2001 2002 2003 2003 2004 --------- --------- --------- --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,694 $ 863 $ 20,682 $ 5,091 $ 11,188 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,209 20,209 20,222 10,272 12,314 (Gain) Loss on sale or disposal of assets (23) 354 1,401 (85) (144) Provision benefit for deferred income taxes 1,237 1,804 (5,448) - 2,830 Changes in operating assets and liabilities: Restricted Cash - - 1,926 173 (447) Accounts receivable, net (1,119) (108) 247 415 (498) Other current assets 1,613 1,750 1,653 1,218 (678) Accounts payable - trade (277) (403) 1,374 (494) (2,882) Accrued expenses 783 5,766 2,341 5,613 2,455 Other - - 3,399 - - --------- --------- --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 21,117 30,235 47,797 22,203 24,138 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase (decrease) in investments - restricted 161 (1,623) (290) (1,000) 52 Sale of marketable securities 259 - - - 4,200 Acquisition of property and equipment (50,631) (22,085) (30,423) (3,837) (9,925) Payments for CIP (5,345) (793) - - - Related party receivables (411) 373 (201) (45) 44 Cash proceeds from sale of property and equipment - 1 521 85 398 --------- --------- --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (55,967) (24,127) (30,393) (4,797) (5,231) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Debt issuance and deferred financing costs - (855) (90) - (1,060) Proceeds from related part note payable 45,750 17,220 7,780 - - Proceeds from notes payable - - - - 215,000 Member contribution 5,150 598 - 28,219 Proceeds from capital lease obligations 1,004 - - Capital distribution - - - - (187,816) Payments of related party notes payable (10,696) (9,277) (7,179) (2,138) (101,252) Payments of long term debt (3,369) (38) - - - Payments on capital lease obligation (2,759) (3,280) - - (25) Cash acquired from subsidiary contributed by parent - 280 - - - --------- --------- --------- --------- --------- NET CASH (PROVIDED BY) USED IN FINANCING ACTIVITIES 35,080 4,648 511 (2,138) (46,934) --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 230 10,756 17,915 15,268 (28,027) Cash and cash equivalents - beginning of period 48,357 48,587 59,343 59,343 77,258 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 48,587 $ 59,343 $ 77,258 $ 74,611 $ 49,231 ========= ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 5,058 $ 5,790 $ 5,422 $ 3,295 $ 2,342 ========= ========= ========= ========= ========= NON-CASH INVESTING AND FINANCING ACTIVITIES: Capitalized lease obligation incurred in the acquisition of property and equipment $ - $ - $ 3,042 $ - $ - Net assets contributed by parent $ - $ 233 $ - $ - $ 6,886 Change in tax asset related to acquisition $ - $ - $ - $ - $ 12,721 Change in deferred tax asset valuation allowance related to book-tax differences existing at time of bankruptcy $ 628 $ 2,412 $ 49,710 $ - $ - Cancellation of common stock shares pursuant to the plan of merger $ - $ 20 $ - $ - $ - ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL COMMON ADDITIONAL RETAINED STOCKHOLDERS' --------- --------------- --------- ------------- STOCK PAID-IN-CAPITAL EARNINGS EQUITY --------- --------------- --------- ------------- BALANCES AT DECEMBER 31, 2000 $ 30 $ 234,709 $ 13,636 $248,375 CHANGE IN DEFERRED TAX ASSET VALUATION ALLOWANCE RELATED TO BOOK-TAX DIFFERENCES EXISTING AT TIME BANKRUPTCY - 628 - 628 MEMBER CONTRIBUTIONS - 5,150 - 5,150 NET INCOME - - 1,694 1,694 --------- --------- --------- -------- BALANCES AT DECEMBER 31, 2001 $ 30 $ 240,487 $ 15,330 $255,847 CHANGE IN DEFERRED TAX ASSET VALUATION ALLOWANCE RELATED TO BOOK-TAX DIFFERENCES EXISTING AT TIME BANKRUPTCY - 2,412 - 2,412 NET ASSETS CONTRIBUTED BY PARENT - 233 - 233 MEMBER CONTRIBUTIONS - 598 - 598 CANCELLATION OF COMMON SHARES (20) 20 - - NET INCOME - - 863 863 BALANCES AT DECEMBER 31, 2002 $ 10 $ 243,750 $ 16,193 $259,953 CHANGE IN DEFERRED TAX ASSET VALUATION ALLOWANCE RELATED TO BOOK-TAX DIFFERENCES EXISTING AT TIME BANKRUPTCY - 49,710 - 49,710 NET INCOME - - 20,682 20,682 --------- --------- --------- -------- BALANCES AT DECEMBER 31, 2003 $ 10 $ 293,460 $ 36,875 $330,345 CANCELLATION OF COMMON SHARES (UNAUDITED) (10) 10 - - CHANGE IN DEFERRED TAX ASSET RELATED TO ACQUISITION - 12,721 - 12,721 CONTRIBUTIONS (UNAUDITED) - 35,105 35,105 DISTRIBUTIONS (UNAUDITED) (169,900) (17,916) (187,816) NET INCOME (UNAUDITED) - - 11,188 11,188 --------- --------- --------- -------- BALANCES AT JUNE 30, 2004 (UNAUDITED) $ - $ 171,396 $ 30,147 $201,543 ========= ========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001, 2002 AND 2003 AND JUNE 30, 2003 (UNAUDITED) AND 2004 (UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY American Casino & Entertainment Properties LLC (ACEP) was formed in Delaware on December 29, 2003. ACEP is comprised of American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., Stratosphere Corporation and its wholly-owned subsidiaries, Stratosphere Gaming Corporation, Stratosphere Land Corporation, Stratosphere Advertising Agency, Stratosphere Leasing, LLC, and Stratosphere Development, LLC, an entity controlled by Stratosphere Corporation; Arizona Charlie's, LLC, and its wholly owned subsidiary, Jetset Tours, LLC; and Fresca, LLC (collectively the "Company"). The Company operates integrated casinos, hotels, a retail and entertainment facility and a 1,149 foot, free-standing observation tower located in Las Vegas, Nevada. All significant intercompany balances and transactions have been eliminated in consolidation. ACEP owns and operates three gaming and entertainment properties in Las Vegas; Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. ACEP entered into a membership interest purchase agreement with Starfire Holding Corporation, which is wholly-owned by Mr. Icahn, in which ACEP agreed to purchase all of the membership interests in Charlie's Holding LLC, a newly-formed entity that owns Arizona Charlie's Decatur and Arizona Charlie's Boulder. The closing of this acquisition was approved by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and was completed on May 26, 2004. The purchase price was $125.9 million. Additionally, ACEP entered into a contribution agreement with its direct parent, American Entertainment Properties Corp., and its direct parent, American Real Estate Holdings Limited Partnership, or AREH, in which AREH agreed to contribute 100% of the outstanding capital stock of Stratosphere Corporation, which was approved by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board. These transactions represent a merger of entities under the common control of Carl C. Icahn. Accordingly, the historical cost basis of the underlying net assets was retained in the combination for all dates prior to May 26, 2004. These statements were presented on a combined basis. As a result of obtaining the formal approval from the gaming commission, the legal presentation now requires consolidation. Accordingly, the financial statements are referred to as consolidated On January 29, 2004, the Company issued $215,000,000 in aggregate principal amount of 7.85% Senior Secured Notes due 2012. The net proceeds from the sale of the notes have been used in connection with the acquisition of three Las Vegas, Nevada gaming and entertainment properties from affiliated parties described above, to repay intercompany debt and for distributions. The notes have a fixed annual interest rate of 7.85%, which will be paid every six months on February 1 and August 1, commencing August 1, 2004. Pending consummation of the acquisitions, the perfection of security interests in the assets of the properties acquired, the receipt of all necessary approvals of the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and certain other events, the net proceeds of the offering, together with an additional amount sufficient to fund a special redemption obligation, were held in escrow in a note proceeds account. The consolidated financial statements as of June 30, 2004 and for the six months ended June 30, 2003 and 2004 are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the respective interim periods. All such adjustments are of a normal recurring nature. CASINO REVENUES AND PROMOTIONAL ALLOWANCES During the first quarter, 2001, the Emerging Issues Task Force reached a consensus on the portion of Issue 00-22, "Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for F-7 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Free Products or Services to be Delivered in the Future," which addressed the income statement classification of the value of the points redeemable for cash awarded under point programs similar to the Company's Player's Club and Guaranteed Refund programs. The consensus states the cost of these programs should be reported as a reduction of casino revenue, rather than an expense and is retroactive to January 1, 2001, with prior year restatement required. The Company has adopted the current consensus recommendations on Issue 00-22. Prior to the release of the new consensus, the Company historically reported the costs of such points as an expense. In accordance with the consensus, the Company recorded these costs of $6.7 million, $5.0 million and $12.8 million for the fiscal years ended December 31, 2001, 2002 and 2003, respectively, and $5.5 million (unaudited) and $10.3 million (unaudited) for the six months ended June 30, 2003 and 2004 as a reduction of casino revenues in the consolidated Statements of Income. The Company recognizes revenues in accordance with industry practice. Casino revenue is the net win from gaming activities (the difference between gaming wins and losses). Casino revenues are net of accruals for anticipated payouts of progressive and certain other slot machine jackpots. Revenues include the retail value of rooms, food and beverage and other items that are provided to customers on a complimentary basis. A corresponding amount is deducted as promotional allowances. The cost of such complimentaries included as casino expenses is as follows (in thousands):
DECEMBER 31, JUNE 30, ------------------------ --------------- 2001 2002 2003 2003 2004 ------ ------ ------ ------ ------ (UNAUDITED) Food and Beverage $7,367 $6,858 $6,879 $3,420 $3,707 Rooms 229 104 76 40 16 Other 66 53 32 22 19 ------ ------ ------ ------ ------ $7,662 $7,015 $6,987 $3,482 $3,742 ====== ====== ====== ====== ======
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and in banks, interest bearing deposits, money market funds and debt instruments purchased with an original maturity of 90 days or less. Cash and cash equivalents-restricted at December 31, 2002 consist primarily of funds reserved for final settlement of unsecured claims pursuant to the Restated Second Amended Plan of Bankruptcy. In 2003, the unsecured claims were settled and the funds were disbursed. MARKETABLE SECURITIES The Company's marketable securities represent investments in Moody's AA2 rated Portland, Oregon and Moody's and Standard and Poor's AAA rated New York City bonds. These securities are currently reported at cost, which approximates fair market value, and are considered available-for-sale. The changes in fair values of these securities have historically been immaterial to the consolidated financial statements. INVESTMENTS RESTRICTED Investments-restricted consist primarily of funds pledged for Nevada sales and use tax, unpaid sports book tickets and workers' compensation benefits. F-8 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INVENTORIES Inventories, consisting primarily of food and beverage, retail merchandise and operating supplies, are stated at the lower of cost or market and included in other current assets. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment purchased are stated at cost. Capitalized lease assets are stated at the lower of the present value of the future minimum lease payments or fair value at the inception of the lease (see Notes 4 and 6). Expenditures for additions, renewals and improvements are capitalized and depreciated over their useful lives. Costs of repairs and maintenance are expensed when incurred. Leasehold acquisition costs are amortized over the shorter of their estimated useful lives or the term of the respective leases once the assets are placed in service. Depreciation and amortization of property and equipment are computed using the straight-line method over the following useful lives: Buildings and improvements.......................... 36-39 years Furniture, fixtures and equipment................... 3-15 years Land improvements................................... 15 years
The Company's policy is to capitalize interest incurred on debt during the course of qualifying construction projects. Such costs are added to the asset base and amortized over the related assets' estimated useful lives. The Company capitalized interest of $1,857,200 for 2001. There was no capitalized interest during fiscal year 2002 and 2003 and the six months ended June 30, 2004. RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS The Company adopted SFAS No. 144 on January 1, 2002. SFAS No. 144 requires the Company to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company deems an asset to be impaired if a forecast of undiscounted future operating cash flows directly related to the asset, including disposal value if any, is less than its carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds fair value. The Company generally estimates fair value by discounting estimated cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. Prior to January 1, 2002, the Company utilized SFAS No. 121 to assess impairment of long-lived assets. SALES, ADVERTISING AND PROMOTION Sales, advertising and promotion costs are expensed as incurred and totaled $20.4 million, $18.1 million and $22.9 million for the years ended December 31, 2001, 2002 and 2003, respectively, and $10.9 million (unaudited) and $14.6 million (unaudited) for the six months ended June 30, 2003 and 2004, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of income. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions. F-9 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEGMENTS The Company has determined that it operates as one segment. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company also records a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is to be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company was required to adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain least modifications that have economic effects similar to sale-leaseback transactions. The provision of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of the Statement related to Statement No. 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. The adoption of SFAS No. 145 did not have a material effect on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of this Statement were effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 did not have a material effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation were applicable to guarantees issued or modified after December 31, 2002 and did not have a material effect on the Company's financial statements. The disclosure requirements were effective for financial statements of interim and annual periods ending after December 31, 2002. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures of the effect of the fair value method in both annual and interim financial statements. The Company adopted the disclosure provisions of this Statement on January 1, 2003 and includes the disclosure modifications in these consolidated financial statements as applicable. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which was then revised in December 2003. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation F-10 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For nonpublic enterprises, such as the Company, with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation is applied to the enterprise no later than the end of the first annual reporting period beginning after June 15, 2003. The application of this Interpretation is not expected to have a material effect on the Company's financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. The Company does not believe it has any variable interest entities and therefore expects the impact of this statement to have an immaterial impact on the consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that companies classify a financial instrument that is within its scope as a liability (or an asset in some circumstance). Many of those instruments were previously classified as equity. The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003. The impact of this Statement did not have a significant effect on the Company's financial statements. RECLASSIFICATIONS Certain reclassifications have been made to the prior years consolidated financial statements to conform to the current fiscal year presentation. (2) ACCOUNTS RECEIVABLE Accounts receivable consists of the following (in thousands):
DECEMBER 31, JUNE 30, --------------- -------- 2002 2003 2004 ------ ------ ------ (UNAUDITED) Hotel and related $2,535 $3,030 $3,669 Gaming 575 523 504 Other 2,018 971 822 ------ ------ ------ 5,128 4,524 4,995 Less allowance for doubtful accounts 830 473 446 ------ ------ ------ $4,298 $4,051 $4,549 ====== ====== ======
The Company recorded bad debt expense and allowance for doubtful accounts for the years ended December 31, 2001, 2002 and 2003 and the six months ended June 30, 2003 and 2004 as follows:
DECEMBER 31, JUNE 30, ----------------------------------- ------------------ 2001 2002 2003 2003 2004 ---- ---- ---- ---- ---- (UNAUDITED) Balance at beginning of period $ 409 $ 499 $ 830 $ 830 $ 473 Bad debt expense 134 524 395 149 269 Deductions and write-offs (44) (193) (752) (451) (296) --------- -------- --------- ---------- ------- Balance at end of period $ 499 $ 830 $ 473 $ 528 $ 446 ========= ======== ========= ========== =======
F-11 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) OTHER CURRENT ASSETS Other current assets consist of the following (in thousands):
DECEMBER 31, JUNE 30, ----------------------- ----------- 2002 2003 2004 -------- -------- ----------- (UNAUDITED) Inventories $ 2,397 $ 2,683 $ 2,425 Prepaid Expenses 4,989 4,435 6,154 Other 607 2,095 2,098 -------- -------- -------- $ 7,993 $ 9,213 $ 10,677 ======== ======== ========
(4) PROPERTY AND EQUIPMENT - NET Property and equipment consist of the following (in thousands):
DECEMBER 31, JUNE 30, ----------------------- ----------- 2002 2003 2004 -------- -------- ----------- (UNAUDITED) Land and improvements, including land held for development $ 50,239 $ 50,299 $ 50,299 Building and improvements 230,459 235,538 237,093 Furniture, fixtures and equipment 93,846 105,415 112,680 Construction in progress 361 7,724 7,249 -------- -------- -------- 374,905 398,976 407,321 Less accumulated depreciation and amortization 61,695 74,428 85,332 -------- -------- -------- $313,210 $324,548 $321,989 ======== ======== ========
Assets recorded under capital leases were $1.0 million and $4.0 million at December 31, 2002 and 2003, respectively, and $4.0 million (unaudited) at June 30, 2004. Accumulated depreciation and amortization at December 31, 2002 and 2003 includes amounts recorded for capital leases of $0.1 million and $0.1 million and at June 30, 2004 of $0.2 million (unaudited). In mid-1996, Stratosphere Corporation suspended construction of the 1,000-room hotel tower (the "Hotel Expansion"), which had reached a height of approximately 14 stories. In April 2000, construction was resumed to complete the unfinished hotel tower with a total construction budget of $65.0 million. In June 2001, the Company completed construction of the new hotel tower that includes 1,000 new guestrooms and amenities including a 67,000-square foot pool and recreation area with a new snack and cocktail bar, private cabanas and a large spa. "Lucky's Cafe" a 350-seat coffee shop, a new porte-cochere and valet parking entrance, gift shop and new tour bus entrance and lobby have also been completed. The Company refurbished and expanded the "Stratosphere Courtyard Buffet" as well as remodeled "Montana's Steak House" and converted it into the "Crazy Armadillo" featuring Tex-Mex cuisine and an oyster bar. F-12 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) OTHER ACCRUED EXPENSES Other accrued expenses consist of the following (in thousands):
DECEMBER 31, JUNE 30, ------------------- ----------- 2002 2003 2004 -------- -------- ----------- (UNAUDITED) Vacation packages $ 2,634 $ 2,478 $ 2,449 Accrued liabilities 6,298 9,135 5,658 Accrued restructuring costs 341 - - Cash reserve for unpaid bankruptcy claims 1,926 - - Accrued taxes 1,411 1,885 3,242 Accrued/unclaimed sports tickets/prizes 820 981 246 Accrued interest 445 2 7,121 Other 3,463 3,320 3,766 -------- -------- -------- $ 17,338 $ 17,801 $ 22,482 ======== ======== ========
(6) LEASES, INCOME AND CAPITAL LEASE OBLIGATIONS In connection with the purchase of the Master Lease from Strato-Retail, the Company assumed lessor responsibilities for various non-cancelable operating leases for certain retail space. The future minimum lease payments to be received under these leases for years subsequent to December 31, 2003 are as follows (in thousands):
Years ending December 31, - ------------------------- 2004 $ 3,138 2005 2,644 2006 1,853 2007 1,488 2008 708 Thereafter 1,616 -------- Total payments $ 11,447 ========
The Company is reimbursed by lessees for certain operating expenses. Future minimum lease payments under capital leases with initial or remaining terms of one year or more consist of the following at December 31, 2003 (in thousands):
Years ending December 31, - -------------------------------------------- 2004 $ 665 2005 665 2006 665 2007 665 2008 1,288 Thereafter 7,488 ------ Total minimum lease payments 11,436 Less: amount representing interest ranging from 5% to 10% 7,445 ------ Present value of net minimum lease payments 3,991 Less: current portion 436 ------ Long-term capital lease obligation $3,555 ======
The Company had no operating leases as of December 31, 2002 and 2003 and June 30, 2004. F-13 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) STOCKHOLDERS' EQUITY Common stock includes the capital stock issued and outstanding for Stratosphere Corporation and Arizona Charlie's, Inc. and is summarized as follows (in thousands):
AMOUNT ISSUED AND PAR VALUE AMOUNT AUTHORIZED OUTSTANDING --------- ----------------- ----------------- Stratosphere Corporation December 31, 2002 $0.01 $ 100 $ 100 December 31, 2003 0.01 100 100 June 30, 2004 (unaudited) 0.01 100 100 Arizona Charlie's, Inc. December 31, 2002 $0.01 $5,000,000 $1,000,000 December 31, 2003 0.01 5,000,000 1,000,000 June 30, 2004 (unaudited) - - -
Additional paid-in capital includes amounts related to members' equity for Fresca, LLC, Arizona Charlie's, LLC and ACEP and is summarized as follows (in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2003 JUNE 30, 2004 ----------------- ----------------- ------------- (UNAUDITED) Fresca, LLC $ 64,677 $ 64,677 $ 86,402 Arizona Charlie's, LLC - - 59,719 ACEP - - (75,175)
Fresca, LLC is a Nevada limited liability company that was formed on January 26, 2000. It was formed for the purpose of acquiring and operating certain property in Las Vegas, Nevada, including a casino, hotel, and recreational vehicle rental park, referred to as Arizona Charlie's Boulder. Hotel operations commenced on February 5, 2000 (date of inception) and gaming operations commenced on May 23, 2000. The members of Fresca, LLC are Mr. Icahn and Starfire Holding Corporation (a company controlled by Mr. Icahn). Earnings and losses are distributed based on the original capital contribution amounts. Members of an LLC are not personally liable for debts, obligations or liabilities of the Company beyond the amount of the member's capital contributions. The latest date on which Fresca, LLC is to dissolve is December 31, 2099. On October 4, 1999, AREH, a common-ownership related party, purchased 985,286 shares of the Stratosphere's common stock from entities owned or controlled by Mr. Icahn. On March 24, 2000, AREH purchased 50,000 shares of the Stratosphere's common stock from NYBOR, a company owned by Mr. Icahn. Upon completion of the transaction, Mr. Icahn controlled approximately 89.6% of the Company's Common Stock. AREH is the subsidiary limited partnership of American Real Estate Partners, L.P. ("AREP"), a master limited partnership whose units are traded on the New York Stock Exchange. Mr. Icahn currently owns over 86% of AREP's outstanding depository units and preferred units. On February 1, 2002, the Stratosphere announced that it entered into a merger agreement under which AREP, through an affiliate, would acquire the remaining shares of Stratosphere that AREP did not own. AREP owned approximately 51% of Stratosphere and Mr. Icahn owned approximately 38.6%. The initial determination to engage in the transaction at the prices set forth below was previously announced by AREP in September 2000. On December 19, 2002, the stockholders of Stratosphere Corporation approved the plan of merger dated February 1, 2002. Under the Merger Plan, AREP acquired the remaining 49% interest in Stratosphere. Under the agreement, the stockholders who were unaffiliated with AREP and Mr. Icahn received a cash price of $45.32 per share, and the Icahn-related stockholders (other than AREP) received a cash price of $44.33 per share. AREP paid an aggregate of approximately $44.3 million for the 49% of the shares of Stratosphere that it did not already own. Subsequent to the merger, all but 100 shares of Stratosphere were cancelled, and the par value of the cancelled shares transferred to additional paid in capital. F-14 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACEP entered into a membership interest purchase agreement with Starfire Holding Corporation, which is wholly-owned by Mr. Icahn, in which ACEP agreed to purchase all of the membership interests in Charlie's Holding LLC, a newly-formed entity that owns Arizona Charlie's Decatur and Arizona Charlie's Boulder. The closing of this acquisition was approved by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and was completed on May 26, 2004. The purchase price was $125.9 million. As a result of this transaction, Arizona Charlie's Inc. was reorganized as Arizona Charlie's LLC and all shares of common stock were cancelled. Charlie's Holding LLC became the sole member of both Fresca LLC and Arizona Charlie's LLC. Additionally, ACEP entered into a contribution agreement with its' direct parent, American Entertainment Properties Corp., and our indirect parent, AREH, in which AREH agreed to contribute 100% of the outstanding capital stock of Stratosphere Corporation, which was approved by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board. These transactions represent a merger of entities under the common control of Carl C. Icahn. The Company has not implemented a stock option plan. (8) INCOME TAXES The income tax provision (benefit) attributable to income from operations for the fiscal years ended December 31, 2002 and 2003 and for the six months ended June 30, 2003 and 2004 is comprised of the following (in thousands):
DECEMBER 31, JUNE 30, ----------------------------------------- ------------------------ 2001 2002 2003 2003 2004 ------- ------- -------- ------- ----------- (UNAUDITED) Current $ 3,176 $ 311 $ 3,650 $ 1,992 $ 3,114 Deferred 1,732 4,596 (5,448) 2,402 2,830 ------- ------- ------- ------- ------- $ 4,908 $ 4,907 $(1,798) $ 4,394 $ 5,944 ======= ======= ======= ======= =======
DEFERRED TAX ASSETS AND LIABILITIES The tax effect of significant temporary differences and carryforwards representing deferred tax assets and liabilities (the difference between financial statement carrying values and the tax basis of assets and liabilities) for the Company is as follows at December 31, 2002 and 2003 and June 30, 2004 (in thousands):
DECEMBER 31, JUNE 30, --------------------------- ---------- 2002 2003 2004 -------- -------- ---------- (UNAUDITED) TEMPORARY DIFFERENCES Current: $ 270 $ 126 $ 131 Allowance for doubtful accounts Gaming related 567 661 915 Accrued vacation and employee related 2,326 2,005 1,815 Outstanding chip and token liability 112 112 137 Deferred income 55 46 48 Other 228 10 (165) -------- -------- -------- 3,558 2,960 3,211 Long-term: Excess of tax over book basis of assets due primarily to write down of assets 62,834 39,859 50,897 -------- -------- -------- 66,392 42,819 50,897 -------- -------- -------- Carryforwards: Net Operating Loss (including Section 382 limitation) 12,942 9,984 8,423 Alternative minimum tax credit 450 521 623 Other credits 1,048 739 816 -------- -------- --------
F-15 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, JUNE 30, -------------------- -------- 2002 2003 2004 -------- -------- -------- (UNAUDITED) Total Carryforwards 14,440 11,244 9,862 -------- -------- -------- Total temporary differences and carryforwards 80,832 54,063 63,970 Valuation allowance (83,785) (1,858) - -------- -------- -------- Total deferred tax assets (liabilities) $ (2,953) $ 52,205 $ 63,970 ======== ======== ========
At December 31, 2003, the Company had net operating loss carryforwards available for federal income tax purposes of approximately $28.5 million which begin expiring in 2019. SFAS 109 requires a "more likely than not" criterion be applied when evaluating the realizability of a deferred tax asset. As of December 31, 2002, given the Company's history of losses for income tax purposes, the volatility of the industry within which the Company operates, and certain other factors, the Company has established a valuation allowance principally for the deductible temporary differences, including the excess of the tax basis of the Company's assets over the basis of such assets for financial purposes. However, during the year ended December 31, 2003, based on various factors including the current earnings trend and future taxable income projections, the Company determined that it was more likely than not that most of the deferred tax assets will be realized. Accordingly, the valuation allowance for these assets was reversed. In accordance with SFAS 109, the tax benefit of any deferred tax asset that existed on the effective date of a reorganization should be reported as a direct addition to contributed capital. The Company has deferred tax assets relating to both before and after the Company emerged from bankruptcy in September of 1998. The net decrease in the valuation allowance was $81,927,000, of which $49,710,000 was credited directly to additional paid-in-capital in accordance with SFAS 109 and the requirements for recording tax benefits associated with emergence from bankruptcy. Additionally, the Company's acquisition of Arizona Charlie's, Inc. and the entity reclassification of Fresca, LLC in May 2004 resulted in a net increase in the tax basis of assets in excess of book basis. As a result, the Company recognized an additional deferred tax asset of approximately $12.7 million from the transaction. Pursuant to SFAS 109, the benefit of the deferred tax asset from this transaction is credited directly to equity. The provision for income taxes differs from the amount computed at the federal statutory rate as a result of the following:
DECEMBER 31, JUNE 30, ---------------------- ------------- 2001 2002 2003 2003 2004 ---- ---- ----- ---- ---- (UNAUDITED) Federal statutory rate 35.0% 35.0% 35.0% 35.0% 35.0% Other -0.4% 5.4% 1.8% 0.0% 0.5% Permanent differences 1.6% 0.7% 0.5% 0.5% 0.3% Federal income tax credits -3.9% -3.5% -1.4% -1.4% -0.8% Tax deduction not given book benefit 0.0% 0.0% 18.0% 19.7% 0.0% Valuation allowance 2.1% -7.4% -74.3% -20.6% -0.5% Income not subject to taxation 40.0% 54.8% 10.9% 13.1% 0.2% ---- ---- ----- ----- ---- 74.4% 85.0% -9.5% 46.3% 34.7% ==== ==== ===== ===== ====
SECTION 382 LIMITATION As of December 31, 2002 and 2003 and June 30, 2004 (unaudited), the Company had a tax basis in its assets in excess of its basis for financial reporting purposes that will generate substantial tax deductions in future periods. As a F-16 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS result of a "change in ownership" under Internal Revenue Code Section 382, the Company's ability to utilize depreciation and other tax attributes was limited to approximately $6,400,000 per year commencing fiscal year 1998 and for the five subsequent years. This limitation is applied to all built-in losses which exist on the "change of ownership" date, including all items giving rise to a deferred tax asset. For the year ended December 31, 2001, a portion of the Company's depreciation and other tax attributes in the amounts of $1.6 million that existed on the "change of ownership" date was limited under Section 382. Pursuant to Section 382, the limited depreciation and other tax attributes are treated as a net operating loss, which the Company may utilize in subsequent years. (9) NOTES PAYABLE Related party debt consists of the following (in thousands):
DECEMBER 31, JUNE 30, ------------------- -------- 2002 2003 2004 -------- -------- -------- (UNAUDITED) Construction loan note payable (A) $ 68,757 $ 65,106 $ - Lease purchase note payable (B) 11,770 11,146 - Arnos loan note payable (C) 2,904 - - Starfire loan note payable (D) 17,220 25,000 - -------- -------- ------ 100,651 101,252 - Less current portion 15,421 14,796 - -------- -------- ------ Long-term debt-less current portion $ 85,230 $ 86,456 $ - ======== ======== ======
(A) On May 1, 2001, the Company delivered a $73.0 million promissory note for a construction loan to AREH, a common-ownership related party, in order to finance the construction of the 1,000-room hotel tower, Lucky's Cafe and new pool area (the "Hotel Expansion"). The promissory note is secured by a deed of trust on certain real property. Demand notes bearing interest at 9.5% per annum and totaling $48.0 million, as of April 18, 2001, were replaced by this note. During 2001 AREH provided additional advances of $25.0 million against the $73.0 million note. In November 2001 the Company began making principal payments on the loan in equal monthly installments based on a 20 year amortization schedule, with the remaining balance due and payable June 2002. Interest accrues at a variable rate per annum equal to the sum of (i) 300 basis points plus (ii) the 90 day London Interbank Offered Rate ("LIBOR"). This interest rate at December 31, 2002 was 4.66%. On July 3, 2002, the Company paid AREH one point or $730,000 to obtain a 24 month extension of the loan term. The extension fee is being amortized over the remaining term of the loan. On September 1, 2003 the term was extended to September 6, 2005. The note was repaid and the fees expensed to interest expense during May 2004 (unaudited). (B) On May 1, 2001, the Company delivered a $12.5 million promissory note to AREH to replace the $12.5 million demand note used to acquire the property under the Master Lease from Strato-Retail, LLC. The promissory note is secured by a deed of trust on certain real property. In November 2001 the Company began making principal payments on the loan in equal installments based on a 20 year amortization schedule with the remaining balance due and payable July 2002. Interest accrues at a variable rate per annum equal to the sum of (i) 350 basis points plus (ii) the 90 day LIBOR. This interest rate at December 31, 2002 was 5.16% per annum. On July 4, 2002 the Company paid AREH one point or $125,000 to obtain a 12 month extension of the loan term. The loan extension fee is being amortized over the remaining term of the loan. The term was extended to August 31, 2004. The note was repaid and the fees expensed during May 2004 (unaudited). (C) On September 24, 2001, Arizona Charlie's, Inc., refinanced the remaining principal balance of $7,904,000 on a prior note payable to Amos Corp., a company related through common ownership. The note bears interest at the prime rate plus 1.50% (5.75% per annum at December 31, 2002), with a maturity of June F-17 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004, and was collateralized by all assets of the Arizona Charlie's, Inc. The note was repaid during November 2003. (D) During fiscal year 2002, Fresca, LLC, entered into an unsecured line of credit in the amount of $25,000,000 with Starfire Holding Corporation (Starfire), a common-ownership related party. The outstanding balance, including accrued interest, was due and payable on January 2, 2007. As of December 31, 2003, Fresca, LLC, had $25,000,000 outstanding. The note bears interest on the unpaid principal balance from January 2, 2002 until maturity at the rate per annum equal to the prime rate, as established by Fleet Bank, from time to time, plus 2.75%. Interest is payable semi-annually in arrears on the first day of January and July, and at maturity. The note is guaranteed by Mr. Icahn. The note was repaid during May 2004 (unaudited). The future aggregate annual maturities of notes payable to related party at December 31, 2003 are as follows (in thousands):
Years ending December 31, - ------------ 2004 $ 14,796 2005 61,456 2006 - 2007 25,000 --------- Total $ 101,252 =========
OTHER NOTES PAYABLE On January 29, 2004, the Company issued $215,000,000 in aggregate principal amount of 7.85% Senior Secured Notes due 2012. The net proceeds from the sale of the notes have been used in connection with the acquisition of three Las Vegas, Nevada gaming and entertainment properties from affiliated parties described above, to repay intercompany debt described above and for distributions. The notes have a fixed annual interest rate of 7.85%, which will be paid every six months on February 1 and August 1, commencing August 1, 2004. A syndicate of lenders has provided a non-amortizing $20.0 million revolving credit facility. The commitments are available to the Company in the form of revolving loans, and include a letter of credit facility (subject to a $10.0 million sublimit). The proceeds of loans under the senior secured revolving credit facility will be available to provide working capital and other general corporate purposes. Loans made under the senior secured revolving facility will mature and the commitments under them will terminate on January 29, 2008. The payment obligations under the $215.0 million 7.85% Senior Secured Notes due 2012 issued by ACEP are fully and unconditionally guaranteed by all but one subsidiary of ACEP. In accordance with positions established by the Securities and Exchange Commission, separate information with respect to the parent, guarantor subsidiaries and non-guarantor subsidiaries is not required as the parent has no independent assets or operations, the guarantees are full and unconditional and joint and several, and the total assets, stockholders' equity, revenues, income from operations before income taxes and cash flows from operating activities of the non-guarantor subsidiary is less than 3% of ACEP's consolidated amounts. (10) EMPLOYEE BENEFIT PLAN Employees of the Company who are members of various unions are covered by union-sponsored, collectively bargained, multi-employer health and welfare and defined benefit pension plans. The Company recorded expenses for such plans of $4,921,851 and $6,517,487 and $7,619,495 for the years ended December 31, 2001, 2002 and 2003, and $3,534,726 (unaudited) and $4,085,565 (unaudited) for the six months ended June 30, 2003 and 2004, respectively. The Company has no obligation for funding the plan beyond payments made for hours worked. The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its non-union employees. The plan allows employees to defer, within prescribed limits, up to 15% of their income on a pre-tax basis through contributions to the plan. The Company currently matches, within prescribed limits, 50% of eligible employees' contributions up to 4% of their individual earnings. The Company recorded $813,000, $815,000 and $559,000 for matching contributions for the years ended December 31, 2001, 2002 and 2003, respectively, and $362,000 (unaudited) and $244,000 (unaudited) for the six months ended June 30, 2003 and 2004, respectively. F-18 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) COMMITMENTS The Company and Mr. Richard Brown, President and Chief Executive Officer of Stratosphere Corporation entered into a two-year employment agreement effective April 1, 2004 (the "Brown Agreement"). The Brown Agreement provides that Mr. Brown will be paid a base annual compensation of $500,000. The agreement also provides Mr. Brown receive an annual bonus of up to 50% of base compensation. The Brown Agreement further provides that if Mr. Brown is terminated without "Cause" (as defined in the Brown Agreement) or there is a "Change of Control" (as defined in the Brown Agreement), then Mr. Brown will receive an immediate severance payment in the amount equal to the then current Base Salary. Mr. Brown was paid a $20,000 bonus in 2003 and 2004 for the years ended December 31, 2002 and 2003, respectively. (12) CONTINGENCIES The Company filed a complaint for the avoidance of preferential transfers made to Grand Casinos, Inc. ("Grand"). Included in the complaint are approximately $5.9 million of payments made to Grand prior to the Company beginning bankruptcy proceedings. On December 31, 2002, the Bankruptcy Court entered its Memorandum of Decision; Findings of Facts and Conclusions of Law; and Judgment awarding the Stratosphere approximately $2.3 million. This amount was collected during May 2003. On January 31, 2001, the Company was named in an action styled Disabled Rights Action Committee v. Stratosphere Gaming Corp., Case No A430070, in the Eighth Judicial District Court of the State of Nevada. The complaint alleges a number of violations of the Americans with Disabilities Act ("ADA"), including inadequate room selection, door widths and other similar items. Simultaneously with the complaint, plaintiffs filed a Motion for Preliminary Injunction, seeking to have construction halted on the new hotel tower until the property fully complies with the ADA. The Company removed the action to the United States District Court in Nevada, and it is now styled Disabled Rights Action Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL). The federal district court held a hearing on plaintiffs' Motion for Preliminary Injunction and denied the motion, focusing upon what the Court believed to be the plaintiffs' lack of irreparable injury. The federal district court also granted the Company's Motion to Dismiss the plaintiffs' state law claims, leaving in place only the ADA claims. The Company and the Plaintiffs then filed Motions for Summary Judgment. The District Court granted and denied in part each of the parties' respective motions. The Court ordered that the Company must make certain renovations to 532 rooms that were opened in 1996. The renovations were completed by July, 2002 and cost $765,000. Tiffiny Decorating Company ("Tiffiny"), a subcontractor to Great Western Drywall ("Great Western"), filed a legal action against Stratosphere Corporation, Stratosphere Development, LLC, American Real Estate Holdings Limited Partnership (Stratosphere Corporation, Stratosphere Development, LLC and American Real Estate Holdings Limited Partnership are herein collectively referred to as the "Stratosphere Parties"), Great Western, Nevada Title and Safeco Insurance, Case No. A443926 in the Eighth Judicial District Court of the State of Nevada. The legal action asserts claims that include breach of contract, unjust enrichment and foreclosure of lien. The Stratosphere Parties have filed a cross-claim against Great Western in that action. Additionally, Great Western has filed a separate legal action against the Stratosphere Parties setting forth the same disputed issues. That separate action, Case No. A448299 in the Eighth Judicial Court of the State of Nevada has been consolidated with the case brought by Tiffiny. The initial complaint brought by Tiffiny asserts that Tiffiny performed certain services on construction at the Stratosphere and was not fully paid for those services. Tiffiny claims the sum of $521,562 against Great Western, the Stratosphere Parties, and the other defendants, which the Stratosphere Parties contend have been paid to Great Western for payment to Tiffiny. Great Western is alleging that it is owed payment from the Stratosphere Parties for work performed and for delay and disruption damages. Great Western is claiming damages in the sum of $3,935,438 plus interest, costs and legal fees from the Stratosphere Parties. This amount apparently includes the Tiffiny claim. The Stratosphere Parties have evaluated the project and have determined that the amount of $1,004,059, of which $195,953 and $371,973 were disbursed on October 29, 2002 to Tiffiny and Great Western, respectively, is properly F-19 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS due and payable to satisfy all claims for the work performed, including the claim by Tiffiny. The remaining amount has been segregated in a separate interest bearing account and is classified in Accounts Payable - Construction on the Consolidated Balance Sheet. As a result, the Great Western base claim has been reduced to $3,213,579, the Tiffiny base claim has been reduced to $327,434 and the escrow balance has been reduced to $443,579. The Early Case Conference in the Tiffiny case has already been concluded and initial documents and witnesses have been exchanged which has been the discovery to date, however, it is not possible to give an opinion as to probable outcome of the action. The case will proceed with discovery from this point forward until such time as a resolution is reached or the matter is brought to trial. The matter was preliminarily set for trial on April 14, 2003 but has been continued to February 25, 2005. The Stratosphere Parties intend to vigorously defend the action for claims in excess of $1,004,059. On May 3, 2001, the Company was named in an action brought by Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc. (collectively "Harrah's") alleging infringement of a purported patent covering a business method allegedly developed by Harrah's. The use of an allegedly similar business method by the Company in its advertising and promotions is said by plaintiff to infringe upon its patent rights. In January 2002, the parties entered into a sealed Consent Judgment resolving the dispute, which was the subject matter of this action. In December 2001, the Company paid Harrah's the settlement for this action. In addition, in the ordinary course of business, the Company is party to various legal actions. In management's opinion, the ultimate outcome of such legal actions will not have a material effect on the results of operations or the financial position of the Company. (13) SUBSEQUENT EVENTS (UNAUDITED) On May 26, 2004, upon closing of the acquisitions, perfection of such security interests, receipt of necessary approvals of the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board and certain other events, the funds held in escrow in the note proceeds account and additional cash on hand were used in connection with the acquisitions, to repay intercompany indebtedness, to fund distributions to ACEP's parent company and to pay related fees and expenses. F-20 Until, 2004, all dealers that effect transactions in these securities, whether or not participating in this exchange offer, may be required to deliver a prospectus. Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp. and the guarantors have agreed that, starting on the expiration date and ending on the close of business 270 days after the expiration date (or such shorter period during which participating broker-dealers are required by law to deliver such prospectus), they will make this prospectus available to any broker-dealer for use in connection with any such resale. PROSPECTUS AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AND AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. OFFER TO EXCHANGE OUR 7.85% SENIOR SECURED NOTES DUE 2012, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL OF OUR OUTSTANDING 7.85% SENIOR SECURED NOTES DUE 2012. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers. Indemnification Under the Delaware Limited Liability Company Act (the "Delaware Act") and the American Casino & Entertainment Properties LLC Limited Liability Company Agreement (the "Agreement") American Casino & Entertainment Properties LLC (the "Company") is a limited liability company organized under the laws of the State of Delaware. Section 18-108 of the Delaware Act provides that a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever, subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement. The Agreement provides that the Company shall indemnify American Entertainment Properties Corp., a Delaware corporation and sole member and manager of the Company, and each of its officers, directors, stockholders, employees and agents, whether or not then in office (and his or her executor, administrator or heirs) (each, an "Indemnified Person"), against all reasonable expenses actually and necessarily incurred, including, but not limited to, judgments, costs and counsel fees, in connection with the defense of any civil, criminal or administrative action, suit or proceeding to which it, he or she may have been or become a party because it, he or she is or was a member or officer of the Company or designated to act on behalf of the Company. It, he or she shall have no right to reimbursement, however, in relation to matters as to which it, he or she is adjudicated to have engaged in willful misconduct, bad faith or gross negligence. The right to indemnity for expenses shall also apply to expenses of actions that are compromised or settled. The foregoing right of indemnification shall be in addition to, and not exclusive of, all other rights to which any Indemnified Person may be entitled. Indemnification Under the Delaware General Corporation Law (the "DGCL") and the Amended and Restated Certificate of Incorporation and Bylaws of American Casino & Entertainment Properties Finance Corp. (the "Bylaws") American Casino & Entertainment Properties Finance Corp. ("ACEP Finance"), the co-issuer of the exchange notes, is a corporation incorporated under the laws of the State of Delaware. Section 102(b)(7) of the DGCL permits a corporation to include in its certificate of incorporation a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, which relates to the liability of directors for unlawful payment of dividends and unlawful stock purchases and redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. Section 145(a) of the DGCL provides that a corporation may indemnify any person who was or is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that he or she is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The corporation may include II-1 expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Section 145(g) of the DGCL further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising our of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him or her under Section 145 of the DGCL. The Bylaws of ACEP Finance further provide that ACEP Finance shall indemnify any director, officer, employee or agent (each, an "Indemnitee") who was or is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of ACEP Finance), by reason of the fact that he or she is or was an Indemnitee, or is or was serving at the request of the ACEP Finance as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The Bylaws also provide that the indemnification and advancement of expenses rights provided therein are not exclusive of any other rights to which an Indemnitee may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. 21. Exhibits and Financial Statement Schedules
EXHIBIT NO. DESCRIPTION - ------- --- ----------- 3.1 Second Amended and Restated Certificate of Formation of American Casino & Entertainment Properties LLC 3.2 Limited Liability Company Agreement of American Casino & Entertainment Properties LLC 3.3 Amended and Restated Certificate of Incorporation of American Casino & Entertainment Properties Finance Corp. 3.4 By-Laws of American Casino & Entertainment Properties Finance Corp. 4.1 Indenture, dated as of January 29, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., the guarantors from time to time party thereto and Wilmington Trust Company, as Trustee 4.2 Supplemental Indenture, dated as of May 26, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., certain subsidiaries of American Casino & Entertainment Properties LLC and Wilmington Trust Company, as Trustee. 4.3 Form of 7.85% Senior Secured Note due 2012 (included in Exhibit 4.1). 4.4 Registration Rights Agreement, dated as of January 29, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment
II-2 Properties Finance Corp., certain subsidiaries of American Casino & Entertainment Properties LLC and Bear, Stearns & Co. Inc. 5.1 Opinion of Piper Rudnick LLP(1) 5.2 Opinion of Schreck Brignone(1) 10.1 Credit Agreement, dated as of January 29, 2004, among American Casino & Entertainment Properties LLC, certain subsidiaries of American Casino & Entertainment Properties LLC, the several lenders from time to time parties thereto and Bear Stearns Corporate Lending Inc., as syndication agent and administrative agent. 10.2 Pledge and Security Agreement, dated as of May 26, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., certain subsidiaries of American Casino & Entertainment Properties LLC and Bear Stearns Corporate Lending Inc. 10.3 Deeds of Trust, Assignment of Rents and Leases, Security Agreement and Fixture filing dated as of May 26, 2004 made by Stratosphere Land Corporation, as Trustor, to Lawyers Title of Nevada, as Trustee, for the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee, for the benefit of the Secured Parties, as Beneficiary.(1) 10.4 Employment Agreement, effective as of April 1, 2004, by and between American Casino & Entertainment Properties LLC and Richard P. Brown. 10.5 Membership Interest Purchase Agreement, dated as of January 5, 2004, by and among American Casino & Entertainment Properties LLC, Starfire Holding Corporation and Carl C. Icahn (incorporated by reference to American Real Estate Partners, L.P.'s Exhibit 99.2 to Form 8-K (SEC File No. 1-9516), filed on January 5, 2004). 10.6 First Amendment to Credit Agreement, dated as of January 29, 2004 among American Casino & Entertainment Properties LLC, as the Borrower, certain subsidiaries of the Borrower, as Guarantors, The Several Lenders, Bear Stearns Corporate Lending Inc. as Syndication Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent, dated as of May 26, 2004, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner. 12.1 Statements re computation of ratio of earnings to fixed charges. 21.1 Subsidiaries 23.1 Consent of KPMG LLP 23.2 Consent of Piper Rudnick LLP (to be included in exhibit 5.1) 23.3 Consent of Schreck Brignone (to be included in exhibit 5.2) 24.1 Power of Attorney (included on signature pages to this registration statement) 25.1 Statement of Eligibility of Trustee 99.1 Letter of Transmittal(1) 99.2 Notice of Guaranteed Delivery(1) 99.3 Letter to Clients(1)
II-3 99.4 Letter to Brokers(1) 99.5 Form of Exchange Agent Agreement by and between American Casino & Entertainment Properties LLC and Wilmington Trust Company(1)
- ------------------ (1)To be filed by amendment. Item 22. Undertakings The undersigned registrant hereby undertakes: (a)(1) To file during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: American Entertainment Properties Corp., its sole member By: /s/ Richard P. Brown -------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities indicated with respect to the Board of Directors of American Entertainment Properties Corp., the sole member of American Casino & Entertainment Properties LLC, and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton /s/ Jack G. Wasserman Director August 11, 2004 - ---------------------------------------- Jack G. Wasserman /s/ William A. Leidesdorf Director August 11, 2004 - ---------------------------------------- William A. Leidesdorf /s/ James L. Nelson - ---------------------------------------- Director August 11, 2004 James L. Nelson /s/ Keith A. Meister Director August 11, 2004 - ---------------------------------------- Keith A. Meister
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: /s/ Richard P. Brown ------------------------------------ Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton /s/ Jack G. Wasserman Director August 11, 2004 - ---------------------------------------- Jack G. Wasserman /s/ William A. Leidesdorf Director August 11, 2004 - ---------------------------------------- William A. Leidesdorf /s/ James L. Nelson - ---------------------------------------- Director August 11, 2004 James L. Nelson /s/ Keith A. Meister Director August 11, 2004 - ---------------------------------------- Keith A. Meister
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. STRATOSPHERE CORPORATION By: /s/ Richard P. Brown ------------------------------------ Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton /s/ Jack G. Wasserman Director August 11, 2004 - ---------------------------------------- Jack G. Wasserman /s/ William A. Leidesdorf Director August 11, 2004 - ---------------------------------------- William A. Leidesdorf /s/ James L. Nelson Director August 11, 2004 - ---------------------------------------- James L. Nelson /s/ Keith A. Meister Director August 11, 2004 - ---------------------------------------- Keith A. Meister
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. STRATOSPHERE GAMING CORP. By: /s/ Richard P. Brown ------------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton /s/ James L. Nelson Director August 11, 2004 - ---------------------------------------- James L. Nelson /s/ Keith A. Meister Director August 11, 2004 - ---------------------------------------- Keith A. Meister
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. STRATOSPHERE ADVERTISING AGENCY By: /s/ Richard P. Brown ------------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton /s/ Jack G. Wasserman Director August 11, 2004 - ---------------------------------------- Jack G. Wasserman /s/ William A. Leidesdorf Director August 11, 2004 - ---------------------------------------- William A. Leidesdorf /s/ James L. Nelson Director August 11, 2004 - ---------------------------------------- James L. Nelson /s/ Keith A. Meister Director August 11, 2004 - ---------------------------------------- Keith A. Meister
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. STRATOSPHERE LAND CORPORATION By:/s/ Richard P. Brown -------------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton /s/ Jack G. Wasserman Director August 11, 2004 - ---------------------------------------- Jack G. Wasserman /s/ William A. Leidesdorf Director August 11, 2004 - ---------------------------------------- William A. Leidesdorf /s/ James L. Nelson Director August 11, 2004 - ---------------------------------------- James L. Nelson /s/ Keith A. Meister Director August 11, 2004 - ---------------------------------------- Keith A. Meister
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. CHARLIE'S HOLDING LLC By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown ------------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ---------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ---------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. STRATOSPHERE DEVELOPMENT LLC By: Stratosphere Corporation, member Arizona Charlie's, LLC, member Fresca, LLC, member By: /s/ Richard P. Brown ---------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby and constitutes appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. STRATOSPHERE LEASING, LLC By: Stratosphere Corporation, its sole member By: /s/ Richard P. Brown ------------------------------------ Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. ARIZONA CHARLIE'S, LLC By: Charlie's Holding LLC, its sole member By: /s/ Richard P. Brown -------------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes abd appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ------------------------------------- and Secretary (Principal Financial and Accounting Officer) August 11, 2004 Denise Barton
SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Las Vegas, Nevada on August 11, 2004. FRESCA, LLC By: Charlie's Holding LLC, its sole member By: /s/ Richard P. Brown -------------------------------------- Richard P. Brown President and Chief Executive Officer KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature appears below hereby constitutes and appoints Richard P. Brown and Denise Barton, and each of them acting singly, as his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to act, without the other, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do an perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, their substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ Richard P. Brown President, Chief Executive Officer and Director - ------------------------------------- (Principal Executive Officer) August 11, 2004 Richard P. Brown /s/ Denise Barton Senior Vice President, Chief Financial Officer, Treasurer - ------------------------------------- and Secretary (Principal Financial and Accounting Officer August 11, 2004 Denise Barton
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Second Amended and Restated Certificate of Formation of American Casino & Entertainment Properties LLC 3.2 Limited Liability Company Agreement of American Casino & Entertainment Properties LLC 3.3 Amended and Restated Certificate of Incorporation of American Casino & Entertainment Properties Finance Corp. 3.4 By-Laws of American Casino & Entertainment Properties Finance Corp. 4.1 Indenture, dated as of January 29, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., the guarantors from time to time party thereto and Wilmington Trust Company, as Trustee. 4.2 Supplemental Indenture, dated as of May 26, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., certain subsidiaries of American Casino & Entertainment Properties LLC and Wilmington Trust Company, as Trustee. 4.3 Form of 7.85% Senior Secured Note due 2012 (included in Exhibit 4.1). 4.4 Registration Rights Agreement, dated as of January 29, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., certain subsidiaries of American Casino & Entertainment Properties LLC and Bear, Stearns & Co. Inc. 5.1 Opinion of Piper Rudnick LLP(1) 5.2 Opinion of Schreck Brignone(1) 10.1 Credit Agreement, dated as of January 29, 2004, among American Casino & Entertainment Properties LLC, certain subsidiaries of American Casino & Entertainment Properties LLC, the several lenders from time to time parties thereto and Bear Stearns Corporate Lending Inc., as syndication agent and administrative agent. 10.2 Pledge and Security Agreement, dated as of May 26, 2004, among American Casino & Entertainment Properties LLC, American Casino & Entertainment Properties Finance Corp., certain subsidiaries of American Casino & Entertainment Properties LLC and Bear Stearns Corporate Lending, Inc. 10.3 Deeds of Trust, Assignment of Rents and Leases, Security Agreement and Fixture filing dated as of May 26, 2004 made by Stratosphere Land Corporation, as Trustor, to Lawyers Title of Nevada, as Trustee, for the benefit of Wilmington Trust Company, in its capacity as Indenture Trustee, for the benefit of the Secured Parties, as Beneficiary. (1) 10.4 Employment Agreement, effective as of April 1, 2004, by and between American Casino & Entertainment Properties LLC and Richard P. Brown. 10.5 Membership Interest Purchase Agreement, dated as of January 5, 2004, by and among American Casino & Entertainment Properties LLC, Starfire Holding Corporation and Carl C. Icahn (incorporated by reference to American Real Estate Partners, L.P.'s Exhibit 99.2 to Form 8-K (SEC File No. 1-9516), filed on January 5, 2004).
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.6 First Amendment to Credit Agreement, dated as of January 29, 2004 among American Casino & Entertainment Properties LLC, as the Borrower, certain subsidiaries of the Borrower, as Guarantors, The Several Lenders, Bear Stearns Corporate Lending Inc. as Syndication Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent, dated as of May 26, 2004, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner. 12.1 Statements re computation of ratio of earnings to fixed charges. 21.1 Subsidiaries 23.1 Consent of KPMG LLP 23.2 Consent of Piper Rudnick LLP (to be included in exhibit 5.1) 23.3 Consent of Schreck Brignone (to be included in exhibit 5.2) 24.1 Power of Attorney (included on signature pages to this registration statement) 25.1 Statement of Eligibility of Trustee 99.1 Letter of Transmittal(1) 99.2 Notice of Guaranteed Delivery(1) 99.3 Letter to Clients(1) 99.4 Letter to Brokers(1) 99.5 Form of Exchange Agent Agreement by and between American Casino & Entertainment Properties LLC and Wilmington Trust Company(1)
- ------------------ (1) To be filed by amendment. EX-3.1 2 y99320exv3w1.txt SECOND AMENDED AND RESTATED CERTIFICATE OF FORMATION EXHIBIT 3.1 SECOND AMENDED AND RESTATED CERTIFICATE OF FORMATION OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC (Under Sections 18-202 and 18-208 of the Delaware Limited Liability Company Act) The undersigned hereby amends and restates the certificate of formation of American Casino & Entertainment Properties LLC under the Delaware Limited Liability Company Act (the "LLC Act") and hereby certifies: First: The name of the limited liability company is AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC (the "Company"). Second: The address of the registered office of the Company in Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The registered agent of the Company in Delaware for service of process is Corporation Service Company, whose address is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. Third: Purpose. The character and general nature of the business to be conducted by the Company is to own an indirect interest in entities that will operate, manage and conduct gaming in gaming facilities on or within each of the following premises known as "The Stratosphere Casino Hotel and Tower," located at 2000 Las Vegas Boulevard South, Las Vegas, Nevada; "Arizona Charlie's Decatur," located at 740 South Decatur Boulevard, Las Vegas, Nevada and "Arizona Charlie's Boulder," located at 4575 Boulder Highway, Las Vegas, Nevada. The Company may also engage in any other lawful act or activity for which limited liability companies may be formed under the laws of the State of Delaware. Fourth: Transfer of Interest in the Company. Notwithstanding anything to the contrary expressed or implied in the Certificate of Formation of the Company, the sale, assignment, transfer, pledge or other disposition of any interest in the Company is ineffective unless approved in advance by the Nevada Gaming Commission (the "Commission"). If at any time the Commission finds that a member that owns any such interest is unsuitable to hold that interest, the Commission shall immediately notify the Company of that fact. The Company shall, within ten (10) days from the date that it receives the notice from the Commission, return to the unsuitable member the amount of his or her capital account as reflected on the books of the Company. Beginning on the date when the Commission serves notice of a determination of unsuitability, pursuant to the preceding sentence, upon the Company, it is unlawful for the unsuitable member: (a) to receive any share of the distribution of profits or cash or any other property of, or payments upon dissolution of, the Company, other than a return of capital as required above; (b) to exercise directly or through a trustee or nominee, any voting right conferred by such interest; (c) to participate in the management of the business and affairs of the Company; or (d) to receive any remuneration in any form from the Company, for services rendered or otherwise. Fifth: Determination of Unsuitability. Any member that is found unsuitable by the Commission shall return all evidence of any ownership in the Company to the Company. At that time the Company shall, within ten (10) days from the date that the Company receives notice from the Commission, return to the member in cash or cash equivalents, the amount of his or her capital account as reflected on the books of the Company, and the unsuitable member shall no longer have any direct or indirect interest in the Company. Sixth: Redemption of Interest. Notwithstanding the foregoing, if a member is found by the Commission to be unsuitable, to the extent permitted by applicable law and the Commission, the Company shall have the right to redeem such member's interest in the Company as provided in the Company's operating agreement. This amended and restated certificate of formation has been duly executed and is being filed in accordance with Section 18-208 of the LLC Act. In Witness Whereof, the undersigned, the member within the meaning of Sections 18-202, 18-204 and 18-208 of the LLC Act, has signed this Second Amended and Restated Certificate of Formation on January 22, 2004. SOLE MEMBER: AMERICAN ENTERTAINMEMT PROPERTIES CORP. By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer EX-3.2 3 y99320exv3w2.txt LIMITED LIABILITY COMPANY AGREEMENT EXHIBIT 3.2 LIMITED LIABILITY COMPANY AGREEMENT OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, A LIMITED LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE Dated as of December 29, 2003 TABLE OF CONTENTS
PAGE ---- I. DEFINITIONS ............................................................ 1 1.1. Certain Definitions ........................................... 1 II. FORMATION ............................................................. 1 2.1. Formation ..................................................... 1 2.2. Name .......................................................... 2 2.3. Purposes ...................................................... 2 2.4. Term .......................................................... 2 2.5. Amendments to the Certificate, Qualification in Other States .. 2 2.6. Principal Office .............................................. 2 2.7. Registered Agent and Office ................................... 2 III. CAPITAL CONTRIBUTIONS AND LIABILITY .................................. 3 3.1. Member Capital Contributions .................................. 3 3.2. Member's Liability ............................................ 3 IV. TITLE TO PROPERTY ..................................................... 3 4.1. Title to Property ............................................. 3 V. MANAGEMENT OF COMPANY .................................................. 3 5.1. Management .................................................... 3 5.2. Officers ...................................................... 3 VI. PROFITS AND LOSSES AND DISTRIBUTIONS .................................. 6 6.1. Profits and Losses ............................................ 6 VII. GOVERNING LAW ........................................................ 6 7.1. Governing Law ................................................. 6 VIII. miscellaneous ....................................................... 6 8.1. Gaming Restrictions ........................................... 6 8.2. Amendments .................................................... 6 8.3. Captions, Exhibits ............................................ 6 8.4. Severability .................................................. 6
THIS LIMITED LIABILITY COMPANY AGREEMENT OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC (the "Company"), is made effective for all purposes as of December 29, 2003 (the "Operating Agreement"), by American Entertainment Properties Corp., a Delaware corporation, as the sole member and manager of the Company ("Member"). W I T N E S S E T H: WHEREAS, the Company was formed on December 29, 2003 under the Delaware Limited Liability Company Act (the "Act"), pursuant to a Certificate of Formation filed with the Secretary of State of the State of Delaware on December 29, 2003, and the Member hereby adopts and ratifies the Certificate of Formation and all acts taken by the sole organizer in connection therewith; NOW, THEREFORE, for and in consideration of the premises and the agreements herein contained, the Member agrees as follows: I. DEFINITIONS 1.1. Certain Definitions. Capitalized words and phrases used and not otherwise defined shall have the following meanings: "Delaware Act" shall mean the Delaware Limited Liability Company Act, 6 Del.C.Section 18-101 et seq., as amended and as may be amended , and any successor to such statute. "Gaming and Entertainment Properties" shall mean the properties owned by the entities which are the subject of the Membership Interest Purchase Agreement and the Contribution Agreement. "Membership Interest Purchase Agreement" shall mean the Membership Interest Purchase Agreement, dated as of January 5, 2004, by and among American Casino & Entertainment Properties LLC, a Delaware limited liability company, Starfire Holding Corporation, a Delaware corporation, and Carl C. Icahn, an individual. "Contribution Agreement" shall mean the Contribution Agreement, dated as of January 5, 2004, by and among American Real Estate Holdings Limited Partnership, a Delaware limited partnership, American Entertainment Properties, Corp., a Delaware corporation, American Casino & Entertainment Properties LLC, a Delaware limited liability company, and Stratosphere Corporation, a Delaware corporation. II. FORMATION 2.1. Formation: The Member has formed the Company as a limited liability company under the Delaware Act, upon the terms of and subject to the conditions set forth in this Agreement, as amended from time to time, and further agrees that the rights, duties and liabilities of the Member shall be set forth in the Delaware Act, except as otherwise provided herein. 2.2. Name. The name of the Company is "American Casino & Entertainment Properties LLC." All business and affairs of the Company shall be conducted solely under such name and all assets of the Company shall be held solely by the Company in such name. 2.3. Purposes. The Company was formed for the object and purpose of acquiring, owning and operating the Gaming and Entertainment Properties and engaging in any and all activities necessary, advisable, convenient or incidental thereto, including the establishment, acquisition and operation of other gaming and entertainment properties. 2.4. Term. The term of the Company commenced as of the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware and shall thereafter exist in perpetuity, unless earlier dissolved in accordance with the Delaware Act or this Agreement. 2.5. Amendments to the Certificate, Qualification in Other States. The Member, or anyone designated by the Member is hereby authorized to execute any amendments and/or restatements of the Certificate in accordance with the Delaware Act and cause the same to be filed in the office of the Secretary of State of the State of Delaware. The Member shall promptly execute and duly file with the proper offices in each state in which the Company may conduct the activities hereinafter authorized, one or more certificates as required by the laws of each state in order that the Company may lawfully conduct the business, purposes and activities herein authorized in each state and take any other action or measures necessary in such state or states for the Company to conduct such activities. 2.6. Principal Office. The principal office of the Company shall be at 2000 Las Vegas Boulevard South, Las Vegas, Nevada 89104 or at such other place or places as may be designated by the Member. 2.7. Registered Agent and Office. The name and address of the registered agent of the Company for service of process on the Company in the State of the Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The registered agent and the registered office of the Company may be changed from time to time by the Member. III. CAPITAL CONTRIBUTIONS AND LIABILITY 3.1. Member Capital Contributions. The Member shall contribute $1.00 in exchange for 100 membership interests in the Company at a price of $.01 per membership interest. The Member shall not be required to make any additional capital contributions to the Company. 3.2. Member's Liability. The liability of the Member, as such, shall be limited to the amount of capital contributions that it has made. The provisions of this Agreement are not intended to be for the benefit of any creditor or other person to whom any debts, liabilities, or obligations are owed by (or who otherwise has any claim against) the Company or the Member; and no such creditor or other person shall obtain any benefit from such provisions or shall, by reason of any such foregoing provision, make any claim in respect of any debt, liability, or obligation against the company or the Member. -2- IV. TITLE TO PROPERTY 4.1. Title to Property. Title to any property, real or personal or tangible or intangible, owned by or leased to the Company shall be held in the name of the Company, or in the name of any nominee the Member may in its discretion designate. V. MANAGEMENT OF COMPANY 5.1. Management. The business and affairs of the Company shall be conducted and managed solely by the Member. The Member has delegated its authority to manage the day-to-day business affairs of the Company to the officers and key employees of the Company as provided in Section 5.2 hereof. 5.2. Officers. (a) The officers of the Company shall be chosen by the Member. There shall be a President and Chief Executive Officer, one or more Vice Presidents, a Secretary and a Treasurer, and there may be one or more Assistant Secretaries, and one or more Assistant Treasurers, as the may elect. Any number of offices may be held by the same person. Each officer of the Company shall hold office until his or her successor is chosen and qualified, or until his or her earlier resignation or removal. Any officer may be removed at any time with or without cause by the Member. The officers of the Company shall have the powers, duties and responsibilities set forth below, and may have such other powers, duties and responsibilities as may be set forth from time to time in one or more resolutions of the Member: (i) President and Chief Executive Officer. The President and Chief Executive Officer (the "President") of the Company shall have all the duties of governing the Company. He or she shall, subject to the direction of the Member, have general charge and supervision of the business of the Company and shall perform such other duties as are incident to the office. Without limiting the generality of the foregoing, the President may sign and execute in the name of the Company all contracts, instruments, consents and other documents authorized by the Member. (ii) Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Member or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Member) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Member may assign to any Vice President the title of Executive Vice President, Senior Vice President, Assistant Vice President or any other title selected by the Member. Without limiting the generality of the foregoing, any Vice President may sign and execute in the name of the Company all contracts, instruments, consents and other documents authorized by the Member. (iii) Chief Financial Officer and Treasurer. The Chief Financial Officer and Treasurer (the "Treasurer") of the Company shall take care and custody of the funds -3- and securities of the Company; keep the books and accounts of the Company; render statements of the condition of the financing of the Company; and in general perform all the duties incident to the office of Treasurer, and such other duties as from time to time may be assigned by the Member. Unless such authority is limited by resolution of the Member, the Treasurer shall have the authority to sign and execute in the name of the Company all contracts, instruments, consents and other documents authorized by the Member. (iv) Secretary. The Secretary shall give notice of all meetings of Members; keep true records of all actions taken and of all other proceedings; attest to such records after every meeting by his or her signature; and perform all duties incident to the office of Secretary, and such other duties as from time to time may be assigned to him or her by the Member. The Member may also, by vote taken at a meeting or in a written consent in lieu of a meeting, designate and authorize any other employee or agent of the Company to sign and execute in the name of the Company any contracts, instruments, consents or other documents authorized by the Member. The initial officers of the Company shall be as follows: Richard P. Brown President and Chie Executive Officer Denise Barton Senior Vive President, Chief Financial Officer, Treasurer and Secretary The initial key employees of the Company shall be as follows: Ronald Lurie General Manager - Arizona Charlie's Decatur Bobby Ray Harris General Manager - Stratosphere Operations Mark Majetich General Manager - Arizona Charlie's Boulder (b) The Company shall indemnify the Member (and each of its officers, directors, stockholders, employees and agents), each officer and any other employee or agent designated pursuant to the last sentence of Section 5.2(e), whether or not then in office (and his or her executor, administrator, and heirs), against all reasonable expenses actually and necessarily incurred, including but not limited to judgments, costs, and counsel fees, in connection with the defense of any civil, criminal, or administrative action, suit, or proceeding to which it, he or she may have been or become a party because it, he or she is or was a Member or an officer of the Company or designated to action on behalf of the Company pursuant to Section 5.2(a). It, he or she shall have no right to reimbursement, however, in relation to matters as to which it, he or she is adjudicated to have engaged in willful misconduct, bad faith or gross negligence. The right to indemnity for expenses shall also apply to expenses of actions that are compromised or settled. The foregoing right of indemnification shall be in addition to, and not exclusive of, all other rights to which the Member, an officer or designated employee or agent may be entitled. -4- (c) Every agreement, instrument, certificate or other document executed by an officer or employee or agent designated pursuant to Section 5.2(a) of the Company on behalf of the Company shall be conclusive evidence in favor of every person relying thereon or claiming thereunder that, at the time of delivery thereof, (i) the Company was in existence, (ii) this Agreement had not been terminated or canceled or amended in any manner so as to restrict such authority, and (iii) the execution and delivery of such agreement, instrument, certificate or other document were duly authorized under this Agreement. Any person dealing with the Company may rely conclusively on the power and authority of the officers of the Company as set forth in this Agreement or in any designation made pursuant to Section 5.2(a). Any person dealing with the Company may rely conclusively on a certificate signed by any officer of the Company as to: (i) who are the Members and officers of the Company; (ii) the existence or nonexistence of any fact or facts which constitute conditions precedent to acts by the Member or in any other manner germane to the affairs of the Company; (iii) who is authorized to execute and deliver any instrument or document on behalf of the Company; (iv) the authenticity of any copy of this Agreement and amendments hereto; and/or (v) any act or failure to act by the Company or as to any other matter whatsoever involving the Company or its assets and properties. VI. PROFITS AND LOSSES AND DISTRIBUTIONS 6.1. Profits and Losses. All profits and losses of the Company shall be allocated to the Member and all cash which the Member, in its sole and absolute discretion, determines is available for distribution shall be distributed to the Member. VII. GOVERNING LAW. 7.1. Governing Law. This Agreement and the rights of the parties hereto shall be interpreted in accordance with the laws of the State of Delaware without giving effect to principles of conflict of laws. VIII. MISCELLANEOUS. 8.1. Gaming Restrictions. The provisions of this Agreement are subject to applicable gaming laws and regulations. No membership interest in the Company may be issued or transferred, or person appointed or retained as a manager or officer of the Company, except in compliance with all applicable gaming laws and regulations. The Member shall not take any action, nor permit any manager or officer of the Company to take any action, under this -5- Agreement which would require the prior approval of or notice to any gaming authorities without obtaining such approval or giving such notice. 8.2. Amendments. Any amendment or supplement to this Agreement or the Certificate shall only be effective if in writing and signed by the Member. 8.3. Captions, Exhibits. Article, section and other titles or captions contained in this Agreement are inserted only as a matter of convenience and for reference, and shall not be construed in any way to define, limit, extend or describe the scope of this Agreement or the intention of the provisions thereof. All exhibits annexed hereto are herewith expressly made a part of this Agreement, as fully as though completely set forth herein. 8.4. Severability. Any provision of this Agreement which is invalid, illegal or unenforceable in any respect in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality, or unenforceability without in any way affecting the validity, legality, or enforceability of the remaining provisions hereof, and any such invalidity, illegality or unenforceability in any jurisdiction shall not invalidate or in any way affect the validity, legality, or enforceability of such provisions in any other jurisdiction. [Remainder of page intentionally left blank.] -6- IN WITNESS WHEREOF, the undersigned has executed Limited Liability Company Agreement of AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC as of the date and year first above written: THE MEMBER: AMERICAN ENTERTAINMENT PROPERTIES CORP. By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer -7- EX-3.3 4 y99320exv3w3.txt AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of the Corporation. AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY: A. The name of the corporation is American Casino & Entertainment Properties Finance Corp. (the "Corporation"). B. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 29, 2003. C. Pursuant to Sections 242 and 245 of the DGCL, this Amended and Restated Certificate of Incorporation of the Corporation has been proposed by the Board of Directors (the "Board") and adopted by the sole stockholder of the Corporation and further amends and restates in its entirety the Certificate of Incorporation, as in effect, as follows: 1. Name. The name of the corporation is American Casino & Entertainment Properties Finance Corp. (the "Corporation"). 2. Address; Registered Agent. The address of the Corporation's registered office is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808, and its registered agent at such address is Corporation Service Company. 3. Nature of Business; Purposes. The nature of the business and purposes to be conducted or promoted by the Corporation are to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. 4. Number of Shares. The total number of shares of stock which the Corporation shall have authority to issue is one thousand (1,000) shares of Common Stock, $.01 par value. 5. Name and Address of Incorporator. The name and address of the incorporator are as follows: Name Address Daniel Goldberg Piper Rudnick LLP 1251 Avenue of the Americas New York, New York 10020-1104 6. Election of Directors. Members of the Board of Directors may be elected either by written ballot or by voice vote. 7. Adoption, Amendment and/or Repeal of Bylaws. In furtherance and not in limitation of the powers conferred by the General Corporation Law of the State of Delaware, the Board of Directors may from time to time make, alter or repeal the bylaws of the Corporation; provided, however, that the Board of Directors shall not make, alter or repeal any bylaw pertaining to the number of stockholders or directors required to constitute a quorum at meetings of stockholders or directors. 8. Compromise or Arrangement. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 9. Section 203 Opt Out. The Corporation hereby elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware as from time to time in effect or any successor provision thereto. 10. Books of Corporation. The books of the Corporation may be kept (subject to any provision contained in the General Corporation Law of the State of Delaware) outside the State of Delaware at such place as may be designated from time to time by the Board of Directors or the bylaws of the Corporation. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the DGCL. In lieu of a meeting and vote thereat of the stockholders, the sole stockholder of the Corporation adopted this Certificate of Incorporation by written consent pursuant to Section 228 of the DGCL, and as such written consent was unanimous, no notice was required to be given, and none was given, under Section 228 of the DGCL. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated Certificate of Incorporation on this 13th day of January, 2004. AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: /s/ Richard P. Brown ------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer EX-3.4 5 y99320exv3w4.txt BY-LAWS EXHIBIT 3.4 BY-LAWS OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. ARTICLE I. OFFICES Section 1. Registered Office. The registered office of the above-named corporation shall be located at 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II. MEETINGS OF STOCKHOLDERS Section 1. Time and Place. All meetings of the stockholders for any purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication in accordance with Section 12 of this Article. Section 2. Annual Meeting. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors. At the annual meeting, holders of the corporation's voting stock, shall elect, by a plurality vote, subject to the certificate of incorporation and any agreement by and among the stockholders, a Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. Notice of Annual Meeting. Written notice of the annual meeting, stating the place, date and time 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 4. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least five (5) 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 five (5) 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 5. Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, by the certificate of incorporation or by an agreement by and among the stockholders, may be called by the President and shall be called by the President or the Secretary at the request in writing of two (2) members of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Notice of Special Meetings. Written notice of a special meeting, stating the place, date and time 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. Section 7. Limit on Business at Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. Quorums. 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 stockholders for the transaction of business, except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders 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 of the time and place of such adjourned meeting, until a quorum shall be present in person or represented by proxy. At any adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. 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, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. Voting at Meetings. 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 statutory provision, provision of the certificate of incorporation or provision of an agreement by and among the stockholders a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Voting Power. Unless otherwise provided in the certificate of incorporation or an agreement by and among the stockholders, each stockholder shall at every 2 meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on or after three (3) years from its date, unless the proxy provides for a longer period. Section 11. Written Consent Without Meeting. Unless otherwise provided in the certificate of incorporation or an agreement by and among the stockholders, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be 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. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 12. Meeting by Remote Communication. The Board of Directors, in its sole discretion and subject to such guidelines and procedures as the Board of Directors may adopt, may permit stockholders and proxyholders not physically present at a meeting of stockholders, by means of remote communication: (a) to participate in a meeting of stockholders; and (b) to be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation. ARTICLE III. DIRECTORS Section 1. General Powers. The business of the corporation shall be managed by, or under the direction of, its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, the certificate of incorporation, these by-laws or an agreement by and among the stockholders directed or required to be exercised or done by the stockholders. 3 Section 2. Election and Tenure. The number of directors which shall constitute the whole board shall be a minimum of three. The first board shall consist of five (5) directors. Thereafter the number of directors shall be determined by the Board of Directors or by the stockholders at any meeting or in an agreement by and among the stockholders subject to any restrictions set forth in the certificate of incorporation or any agreement with any shareholder. Except as provided in Section 3 of this Article III or in an agreement by and among the stockholders, each director shall hold office until his successor or successors are elected and shall qualify or until his earlier resignation or removal. Section 3. Vacancies and Newly Created Directorships. Subject to any restrictions set forth in the certificate of incorporation or any agreement with any shareholder vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director and the directors so chosen shall hold office for the remainder of the term of the directors whom they replaced and for newly created directors until the next annual meeting and until their successors are duly elected and qualified, or until their earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute or by an agreement by and among the stockholders. Section 4. Place of Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held immediately after 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. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held with one (1) day's notice to each director, either personally, by mail, by telegram, by telex or by facsimile transmission at such time and at such place as shall from time to time be determined by the board. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the President on two (2) days' notice to each director, either personally, by mail, by telegram, by telex or by facsimile transmission; special meetings shall be called by the President in like manner and on like notice upon the written request of two (2) of the directors then in office. Any notice may be given by the Secretary and need not state the purpose or purposes of the meeting unless otherwise required by these by-laws. Section 8. Quorum and Adjournments. At all meetings of the board, a majority of the 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, by the certificate of incorporation or by an agreement by and among the stockholders. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the 4 meeting from time to time without notice other than announcement at the meeting until a quorum shall be present. Section 9. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing is filed with the minutes of the proceedings of the board or committee. Section 10. Meetings by Telephone or Similar Communications Equipment. Members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or any committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Compensation. Unless otherwise restricted by the certificate of incorporation, these by-laws or by an agreement by and among the stockholders, 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. Section 12. Removal of Directors. Unless otherwise restricted by statute, by the certificate of incorporation or by an agreement by and among the stockholders, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. Section 13. Resignation of Directors. Any director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the corporation. Unless otherwise specified in such notice, a resignation shall take effect upon the delivery thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. ARTICLE IV. COMMITTEES Section 1. Designation. Except as restricted by the provisions of the statutes, the certificate of incorporation or any agreement by and among the stockholders, the Board of Directors may, by resolution passed by a majority of the whole board, designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the corporation, and 5 the board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except as restricted by the provisions of the statutes, the certificate of incorporation or any agreement by and among the stockholders in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Section 2. Powers. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (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 as provided in Section 151(a) of the State of Delaware General Corporation Law, fix 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), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution or amending these by-laws; and, unless the resolution or the certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 3. Minutes and Reports. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. ARTICLE V. NOTICES Section 1. Form and Delivery. Whenever, under the provisions of statutes, the certificate of incorporation or these by-laws, 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 three (3) days after the time of mailing. Notice to directors may also be given by telegram, 6 telex or facsimile transmission at such director's address as it appears in the corporation's records. Section 2. Waiver. Whenever any notice is required to be given under the provisions of statutes, the certificate of incorporation or these by-laws, 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 to receipt of the notice. Section 3. Attendance at Meetings as Waiver of Notice. Any stockholder who attends a meeting of stockholders in person or is represented at that meeting by proxy without protesting, at the commencement of the meeting, the lack of notice to him or any director who attends a meeting of the Board of Directors without protesting, at the commencement of the meeting, the lack of notice to him shall, in each case, be conclusively deemed to have waived notice of that meeting. ARTICLE VI. OFFICERS Section 1. Designation. Subject to the terms of any agreement by and among the stockholders, the officers of the corporation shall be chosen by the Board of Directors and shall be a Chairman, a President, a Treasurer and a Secretary. The Board of Directors may also choose one or more Vice Presidents and one or more Assistant Treasurers and Assistant Secretaries. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. Election. Subject to the terms of any agreement by and among the stockholders, the Board of Directors at its annual meeting shall choose a President, a Treasurer and a Secretary and may choose such other officers as it deems appropriate. Section 3. Powers and Other Duties. The officers shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. Salaries. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. Term of, and Removal from, Office. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. Section 6. The Chairman. The Chairman shall be the Chairman of the Board of Directors. The Chairman shall have such powers and perform such duties as usually pertain to 7 the office of the Chairman as may from time to time be assigned by the Board of Directors. The Chairman shall preside at all meetings of the stockholders and the Board of Directors. Section 7. The President. The President shall be the chief executive officer of the corporation and shall have general supervision and control over, and responsibility for, the day-to-day operations of the corporation, subject to the general policy directions of the Chairman of the Board and/or the Board of Directors itself, shall see that all orders and resolutions of the Board of Directors are carried into effect and shall have such other powers and shall perform such other duties as may from time to time be assigned to him by the Chairman and/or the Board of Directors. The President shall, under the seal of the corporation, execute bonds, mortgages and other contracts requiring a seal 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 8. The 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. The Treasurer 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 the Treasurer's transactions and of the financial condition of the corporation. If required by the Board of Directors, the Treasurer shall give the corporation a bond (which shall be renewed every six (6) years) 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 the Treasurer's office and for the restoration to the corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under the Treasurer's control belonging to the corporation. Section 9. Vice Presidents. The Vice Presidents, if any, shall perform such duties and have such powers as the Board of Directors may from time to time prescribe. Section 10. The 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 Board of Directors and of the stockholders in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary 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 the President, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the corporation and the Secretary or an Assistant Secretary shall have authority 8 to affix the same to any instrument requiring it and when so affixed, it may be attested by the Secretary's 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 the Secretary's signature. Section 11. The Assistant Treasurers and Secretaries. The Assistant Treasurer and Assistant Secretary (or, if there is more than one, the Assistant Treasurers and Assistant Secretaries in the order designated by the Board of Directors or, if there be no such designation, then in the order of their election) shall, in the absence of the Treasurer or Secretary, or in the event of the Treasurer's or Secretary's inability or refusal to act, perform the duties and exercise the powers of the Treasurer or Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VII. CERTIFICATES FOR SHARES Section 1. Form and Signatures. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the President and the Treasurer or Secretary or an Assistant Treasurer or Assistant Secretary of the corporation. Upon the face or back of each stock certificate issued to represent any partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, shall be set forth the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. If the corporation shall be authorized to issue more than one (1) class of stock or more than one (1) 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 qualification, 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 provided in Section 202 of the State of Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or faces 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 or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the State of Delaware General Corporation Law or a statement that the corporation will furnish 9 without charge to each stockholder who so requests 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. Section 2. Signature on Certificates. Any or all of the signatures on a 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 3. Lost Certificates. The Board of Directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Board of Directors may require the owner or his legal representative to give the corporation a bond in such sum as it may direct as indemnity against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 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, assignation 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. Upon receipt of proper transfer instruments from the registered owner of uncertificated shares, such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. Section 5. 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, to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, 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. Section 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 statute. 10 ARTICLE VIII. INDEMNIFICATION AND INSURANCE Section 1. Indemnification. (a) The corporation shall indemnify any director or officer of the corporation and may indemnify any employee or agent of the corporation 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 he 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 expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he 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 conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, 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 he 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 reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any director or officer of the corporation and may indemnify any employee or agent of the corporation 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 he 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 expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State 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 which the Court of Chancery or such other court shall deem proper. (c) Any indemnification under Section 1(a) and (b) of this Article VIII (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 he has met the applicable standard of conduct set forth in Section 1(a) and (b). Such determination shall be made (i) by the Board by a majority vote of a quorum consisting 11 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 of the corporation. (d) Expenses (including attorneys' fees) incurred by an officer, director, employee or agent in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation pursuant to this Article VIII. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. (e) The indemnification and advancement of expenses provided by, or granted pursuant to, other Sections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, 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 2. Insurance for Indemnification. 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 him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Section 145 of the General Corporation Law. ARTICLE IX. GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding capital stock of the corporation, subject to the provisions of the statutes, the certificate of incorporation or any agreement by and among or with any stockholders, may be declared by the Board of Directors at any regular or special meeting of directors and dividends may be paid in cash, property or in shares of the capital stock. Section 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 from 12 time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, for equalizing dividends, 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 3. Annual Statement. The Board of Directors shall present at each annual meeting or 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 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 5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 6. Corporate Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. ARTICLE X. AMENDMENTS These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new by-laws is contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. 13 EX-4.1 6 y99320exv4w1.txt INDENTURE EXHIBIT 4.1 EXECUTION COPY - -------------------------------------------------------------------------------- AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. AND EACH OF THE GUARANTORS PARTY HERETO 7.85% SENIOR SECURED NOTES DUE 2012 -------------------------- INDENTURE Dated as of January 29, 2004 -------------------------- WILMINGTON TRUST COMPANY Trustee - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310(a)(1)............................. 7.10 (a)(2)............................. 7.10 (a)(3)............................. N.A. (a)(4)............................. N.A. (a)(5)............................. 7.10 (b)................................ 7.10 (c)................................ N.A. 311(a) 7.11 (b)................................ 7.11 (c)................................ N.A. 312(a) 2.05 (b)................................ 13.03 (c)................................ 13.03 313(a) 7.06 (b)(1)............................. 10.03 (b)(2)............................. 7.06; 7.07 (c)................................ 7.06; 10.03; 13.02 (d)................................ 7.06 314(a) 4.03;13.02; 13.05 (b)................................ 10.02 (c)(1)............................. 13.04 (c)(2)............................. 13.04 (c)(3)............................. N.A. (d)................................ 10.03, 10.04, 10.05 (e)................................ 13.05 (f)................................ N.A. 315(a) 7.01 (b)................................ 7.05,13.02 (c)................................ 7.01 (d)................................ 7.01 (e)................................ 6.11 316(a) (last sentence)................ 2.09 (a)(1)(A).......................... 6.05 (a)(1)(B).......................... 6.04 (a)(2)............................. N.A. (b)................................ 6.07 (c)................................ 2.12 317(a)(1)............................. 6.08 (a)(2)............................. 6.09 (b)................................ 2.04 318(a) 13.01 (b)................................ N.A. (c)................................ 13.01
N.A. means not applicable. * This Cross Reference Table is not part of the Indenture. TABLE OF CONTENTS
Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions.................................................................................... 1 Section 1.02 Other Definitions.............................................................................. 25 Section 1.03 Incorporation by Reference of Trust Indenture Act.............................................. 26 Section 1.04 Rules of Construction.......................................................................... 26 ARTICLE 2. THE NOTES Section 2.01 Form and Dating................................................................................ 27 Section 2.02 Execution and Authentication................................................................... 28 Section 2.03 Registrar and Paying Agent..................................................................... 28 Section 2.04 Paying Agent to Hold Money in Trust............................................................ 29 Section 2.05 Holder Lists................................................................................... 29 Section 2.06 Transfer and Exchange.......................................................................... 29 Section 2.07 Replacement Notes.............................................................................. 41 Section 2.08 Outstanding Notes.............................................................................. 42 Section 2.09 Treasury Notes................................................................................. 42 Section 2.10 Temporary Notes................................................................................ 42 Section 2.11 Cancellation................................................................................... 42 Section 2.12 Defaulted Interest............................................................................. 43 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee............................................................................. 43 Section 3.02 Selection of Notes to Be Redeemed or Purchased................................................. 43 Section 3.03 Notice of Redemption........................................................................... 44 Section 3.04 Effect of Notice of Redemption................................................................. 45 Section 3.05 Deposit of Redemption or Purchase Price........................................................ 45 Section 3.06 Notes Redeemed or Purchased in Part............................................................ 45 Section 3.07 Optional Redemption............................................................................ 45 Section 3.08 Redemption Pursuant to Gaming Laws............................................................. 46 Section 3.09 Special Mandatory Redemption................................................................... 47 Section 3.10 Mandatory Redemption........................................................................... 47 Section 3.11 Offer to Purchase by Application of Excess Proceeds............................................ 48 Section 3.12 Offer to Purchase by Application of Excess Loss Proceeds....................................... 49 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes............................................................................... 51 Section 4.02 Maintenance of Office or Agency................................................................ 51 Section 4.03 Reports........................................................................................ 52 Section 4.04 Compliance Certificate......................................................................... 53 Section 4.05 Taxes.......................................................................................... 53 Section 4.06 Stay, Extension and Usury Laws................................................................. 53
i Section 4.07 Restricted Payments............................................................................ 54 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries................................. 57 Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock..................................... 58 Section 4.10 Asset Sales.................................................................................... 61 Section 4.11 Transactions with Affiliates................................................................... 63 Section 4.12 Liens.......................................................................................... 64 Section 4.13 Business Activities............................................................................ 64 Section 4.14 Corporate Existence............................................................................ 64 Section 4.15 Offer to Repurchase Upon Change of Control..................................................... 65 Section 4.16 Events of Loss................................................................................. 66 Section 4.17 Sale and Leaseback Transactions................................................................ 67 Section 4.18 Insurance...................................................................................... 68 Section 4.19 Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries.................. 68 Section 4.20 Additional Note Guarantees..................................................................... 68 Section 4.21 Restrictions on Leasing and Dedication of Property............................................. 68 Section 4.22 Designation of Restricted and Unrestricted Subsidiaries........................................ 70 Section 4.23 Further Assurances............................................................................. 70 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets....................................................... 71 Section 5.02 Successor Corporation Substituted.............................................................. 72 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default.............................................................................. 72 Section 6.02 Acceleration................................................................................... 74 Section 6.03 Other Remedies................................................................................. 75 Section 6.04 Waiver of Past Defaults........................................................................ 75 Section 6.05 Control by Majority............................................................................ 76 Section 6.06 Limitation on Suits............................................................................ 76 Section 6.07 Rights of Holders of Notes to Receive Payment.................................................. 76 Section 6.08 Collection Suit by Trustee..................................................................... 77 Section 6.09 Trustee May File Proofs of Claim............................................................... 77 Section 6.10 Priorities..................................................................................... 77 Section 6.11 Undertaking for Costs.......................................................................... 78 ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee.............................................................................. 78 Section 7.02 Rights of Trustee.............................................................................. 79 Section 7.03 Individual Rights of Trustee................................................................... 79 Section 7.04 Trustee's Disclaimer........................................................................... 80 Section 7.05 Notice of Defaults............................................................................. 80 Section 7.06 Reports by Trustee to Holders of the Notes..................................................... 80 Section 7.07 Compensation and Indemnity..................................................................... 80 Section 7.08 Replacement of Trustee......................................................................... 81 Section 7.09 Successor Trustee by Merger, etc............................................................... 82 Section 7.10 Eligibility; Disqualification.................................................................. 82 Section 7.11 Preferential Collection of Claims Against Company.............................................. 82
ii ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance....................................... 83 Section 8.02 Legal Defeasance and Discharge................................................................. 83 Section 8.03 Covenant Defeasance............................................................................ 83 Section 8.04 Conditions to Legal or Covenant Defeasance..................................................... 84 Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.. 85 Section 8.06 Repayment to Company........................................................................... 85 Section 8.07 Reinstatement.................................................................................. 86 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes............................................................ 86 Section 9.02 With Consent of Holders of Notes............................................................... 87 Section 9.03 Compliance with Trust Indenture Act............................................................ 89 Section 9.04 Revocation and Effect of Consents.............................................................. 89 Section 9.05 Notation on or Exchange of Notes............................................................... 89 Section 9.06 Trustee to Sign Amendments, etc................................................................ 89 ARTICLE 10. NOTE COLLATERAL AND SECURITY Section 10.01 Collateral Documents........................................................................... 89 Section 10.02 Recording and Opinions......................................................................... 90 Section 10.03 Release of Note Collateral..................................................................... 91 Section 10.04 Certificates of the Company.................................................................... 92 Section 10.05 Certificates of the Trustee.................................................................... 92 Section 10.06 Authorization of Actions to Be Taken by the Trustee Under the Collateral Documents............. 93 Section 10.07 Authorization of Receipt of Funds by the Trustee Under the Collateral Documents................ 93 Section 10.08 Termination of Security Interest............................................................... 93 ARTICLE 11. NOTE GUARANTEES Section 11.01 Guarantee...................................................................................... 94 Section 11.02 Limitation on Guarantor Liability.............................................................. 95 Section 11.03 Execution and Delivery of Note Guarantee....................................................... 95 Section 11.04 Guarantors May Consolidate, etc., on Certain Terms............................................. 96 Section 11.05 Releases....................................................................................... 97 ARTICLE 12. SATISFACTION AND DISCHARGE Section 12.01 Satisfaction and Discharge..................................................................... 97 Section 12.02 Application of Trust Money..................................................................... 98 ARTICLE 13. MISCELLANEOUS Section 13.01 Trust Indenture Act Controls................................................................... 99 Section 13.02 Notices........................................................................................ 99 Section 13.03 Communication by Holders of Notes with Other Holders of Notes.................................. 100 Section 13.04 Certificate and Opinion as to Conditions Precedent............................................. 100
iii Section 13.05 Statements Required in Certificate or Opinion.................................................. 100 Section 13.06 Rules by Trustee and Agents.................................................................... 101 Section 13.07 No Personal Liability of Directors, Officers, Employees and Stockholders....................... 101 Section 13.08 Governing Law.................................................................................. 101 Section 13.09 No Adverse Interpretation of Other Agreements.................................................. 101 Section 13.10 Successors..................................................................................... 101 Section 13.11 Severability................................................................................... 101 Section 13.12 Counterpart Originals.......................................................................... 101 Section 13.13 Table of Contents, Headings, etc............................................................... 102
EXHIBITS Exhibit A1 FORM OF NOTE Exhibit A2 FORM OF AFFILIATED SUBORDINATED NOTE Exhibit A3 FORM OF REGULATIONS TEMPORARY GLOBAL NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTE GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE iv INDENTURE dated as of January 29, 2004 among American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP"), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", and together with ACEP, the "Company"), the Guarantors (as defined) and Wilmington Trust Company, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 7.85% Senior Secured Notes due 2012 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "144A Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "ACEP" means American Casino & Entertainment Properties LLC, and any and all successors thereto. "ACEP Finance" means American Casino & Entertainment Properties Finance Corp., and any and all successors thereto. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Acquired Subsidiaries" means Arizona Charlie's, LLC (f/k/a Arizona Charlie's, Inc.), a Nevada limited liability company, Charlie's Holding LLC, a Delaware limited liability company, Fresca, LLC, a Nevada limited liability company, Stratosphere Advertising Agency, a Nevada corporation, Stratosphere Corporation, a Delaware corporation, Stratosphere Development, LLC, a Delaware limited liability company, Stratosphere Gaming Corp., a Nevada corporation, Stratosphere Land Corporation, a Nevada corporation and Stratosphere Leasing, LLC, a Delaware limited liability company. "Acquisitions" means the acquisitions of the Properties by ACEP pursuant to the Acquisition Agreements. "Acquisition Agreements" means, that certain membership interest purchase agreement, dated as of January 5, 2004, by and among ACEP, Starfire Holding Corporation and Carl C. Icahn, and that certain contribution agreement, dated as of January 5, 2004, by and among ACEP, AREH, American Entertainment Properties Corp. and Stratosphere Corporation. 1 "Acquisition Date" means the date and time of the consummation of the Acquisitions pursuant to the Acquisition Agreements. "Additional Notes" means additional Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange. "AREH" means American Real Estate Holdings Limited Partnership. "AREP" means American Real Estate Partners, L.P. "Arizona Charlie's Boulder" means that certain hotel and casino located on approximately 24 acres at 4575 Boulder Highway, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Arizona Charlie's Decatur" means that certain hotel and casino located on approximately 17 acres at 740 S. Decatur Boulevard, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of ACEP and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 and/or Section 5.01 and not by Section 4.10; and (2) the issuance of Equity Interests in any of ACEP's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries by ACEP or a Restricted Subsidiary. Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $1.0 million; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries; 2 (3) an issuance of Equity Interests by a Restricted Subsidiary of ACEP to ACEP or to a Restricted Subsidiary of ACEP; (4) the sale or lease of products, services, equipment or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment that does not violate Section 4.07 or a Permitted Investment; (7) any Event of Loss; (8) any Lease Transaction or any grant of easement or Permitted Liens or Hedging Obligations permitted hereunder; (9) any dedication permitted pursuant to Section 4.21; (10) any licensing of trade names or trademarks in the ordinary course of business by any of ACEP or the Restricted Subsidiaries; and (11) the provision of accounting, financial management and information technology and other ancillary services to Affiliates provided in accordance Section 4.11. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation." "Bank Credit Facility" means that certain credit agreement, dated as of the date hereof, among ACEP, as borrower, certain of ACEP's Subsidiaries, as guarantors, the lenders listed therein and Bear Stearns Corporate Lending Inc., as syndication agent and administrative agent together with all related agreements, instruments and documents executed or delivered pursuant thereto at any time (including, all notes, mortgages, guarantees, security agreements and all other collateral and security documents), in each case as such agreements, instruments and documents may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the aggregate principal amount that may be borrowed thereunder) all or any portion of the Indebtedness and other obligations under such agreement or agreements or any successor or replacement agreement or agreements, and whether by the same or any other agent, lender, debt holder or group of lenders or debt holders. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that 3 term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof or the Board of Directors of the managing member; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day which banking institutions located in such jurisdictions are authorized or required by law or other governmental action to close. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing (i) any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock and (ii) Financing Participations. "Cash Equivalents" means: (1) United States dollars; 4 (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Facilities or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and, in each case, maturing within one year after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of ACEP and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act) other than the Principal or a Related Party; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any "person" (as defined above), other than the Principal or the Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of ACEP, measured by voting power rather than number of shares; or (4) after an initial public offering of ACEP or any direct or indirect parent of ACEP (in either case, the "public company"), the first day on which a majority of the members of the Board of Directors of the public company are not Continuing Directors. For purposes of this definition, any holding company whose only significant asset is the Capital Stock of ACEP shall be disregarded and the beneficial ownership of such holding company shall be attributed to ACEP and any Person which has entered into an agreement to acquire any Capital Stock of ACEP shall not be deemed to have any beneficial ownership of such Capital Stock until the closing of such acquisition. "Clearstream" means Clearstream Banking, S.A. "Collateral Agent" shall have the meaning set forth in the Pledge and Security Agreement. 5 "Collateral Documents" means, collectively, the Pledge and Security Agreement, the Deeds of Trust and any other agreements, instruments, financing statements or other documents that evidence, set forth or limit the Lien of the Trustee in the Note Collateral. "Company" means, collectively, ACEP and ACEP Finance, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the cumulative effect of a change in accounting principles will be excluded; and (4) notwithstanding clause (1) above, the Net Income of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. 6 "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of a public company who: (1) was a member of such Board of Directors on the date of this Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of the Principal or any of the Related Parties or with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Corporate Trust Office of the Trustee" will be at the address of the Trustee specified in Section 13.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means, one or more debt facilities (including, without limitation, the Bank Credit Facility) or commercial paper facilities, in each case with banks or other lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Deeds of Trust" means each mortgage made by each of Stratosphere Corporation, Stratosphere Land Corporation, Arizona Charlie's, LLC and Fresca, LLC covering the land upon which each of their respective Properties will be located, as amended, modified or revised in accordance with its terms. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require ACEP to repurchase such Capital Stock upon the occurrence of a change of control, event of loss, an asset sale or other special redemption event shall not constitute Disqualified Stock if the terms of such Capital Stock provide that ACEP may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or 7 redemption complies with Section 4.07 hereof or where the funds to pay for such repurchase was from the cash net proceeds of such Capital Stock and such net cash proceeds was set aside in a separate account to fund such repurchase. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that ACEP and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Domestic Subsidiary" means any Subsidiary of the Company that was formed under the laws of the United States or any state of the United States or the District of Columbia. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offer and sale of Capital Stock (other than Disqualified Stock) of ACEP (other than an offer and sale relating to equity securities issuable under any employee benefit plan of ACEP) or a capital contribution in respect of Capital Stock (other than Disqualified Stock) of ACEP. "Escrow Agent" means Fleet National Bank. "Escrow Agreement" means the Escrow and Security Agreement, dated as of the dated hereof, by and among the Company, AREH, the Trustee and the Escrow Agent. "Euroclear" means Euroclear Bank, S.A./N.V., as operator of the Euroclear system. "Event of Loss" means, with respect to any property or asset (tangible or intangible, real or personal) of any of the Properties, any of the following: (1) any loss, destruction or damage of such property or asset; (2) any actual condemnation, seizure or taking by exercise of the power of eminent domain or otherwise of such property or asset, or confiscation of such property or asset or the requisition of the use of such property or asset; or (3) any settlement in lieu of clause (2) above. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means up to $3.9 million in aggregate principal amount of Indebtedness of ACEP and its Subsidiaries (other than Indebtedness under the Bank Credit Facility) in existence on the Acquisition Date, until such amounts are repaid. "Fair Market Value" means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of ACEP (unless otherwise provided herein). "Financing Participations" means a participation in the revenues generated by specified equipment or a specified amenity that was financed, in whole or in part, by the person receiving the participation. 8 "First Lien Obligations" means, at any time, the obligations under any Indebtedness (including Guarantees and the Bank Credit Facility) of ACEP or any Restricted Subsidiary permitted pursuant to Section 4.09 that is secured by a Lien on any of the Note Collateral that ranks senior in priority to the Lien securing the obligations under the Notes and the Note Guarantees; provided that the holder of the Indebtedness secured by such Lien has executed the Intercreditor Agreement or an intercreditor agreement having substantially similar terms as the Intercreditor Agreement. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. For the purpose of calculating the Fixed Charge Coverage Ratio (or any component thereof) at any time prior to the completion of the fourth full fiscal quarter after the Acquisition Date (and the availability of internal financial statements for such period), the Fixed Charge Coverage Ratio (and each component thereof) shall be calculated as if the Acquisitions had occurred at a date prior to the beginning of the fourth full fiscal quarter prior to the date of determination and shall be based upon the historical combined financial statements for such period as reflected in the historical combined financial statements included in the Offering Memorandum; provided that such calculation shall give pro forma effect to the offering of the Notes and the related interest, fees and expenses incurred in connection with the Notes. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect (in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; 9 (5) any Person that is not a Restricted Subsidiary on the Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates (excluding any accrued interest or interest paid in kind in respect of Permitted Affiliate Subordinated Indebtedness); plus (2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period (excluding any capitalized interest in respect of Permitted Affiliate Subordinated Indebtedness); plus (3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on preferred stock payable solely in Equity Interests of ACEP (other than Disqualified Stock) or to ACEP or a Restricted Subsidiary of ACEP, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP. "Foreign Subsidiary" means any Subsidiary of the Company that is not a Domestic Subsidiary. "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 or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issuance Date. For purposes of this Indenture, the term "consolidated" with respect to any Person shall mean such Person consolidated with its Restricted Subsidiaries and shall not include any Unrestricted Subsidiary. "Gaming Authority" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States or other national government, any state, province or any city or other political subdivision, including without limitation, the State of Nevada, whether now or hereafter existing, or any officer or official thereof and any other agency with authority thereof to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Principal, its Related Parties, the Company or any of their respective Subsidiaries or Affiliates. 10 "Gaming Law" means any gaming law or regulation of any jurisdiction or jurisdictions to which the Company or any of their Subsidiaries is, or may at any time after the issue date be, subject. "Gaming License" means every license, franchise or other authorization required to own, lease, operate or otherwise conduct activities of the Company or any of the Restricted Subsidiaries, including without limitation, all such licenses granted under Nevada law, and the regulations promulgated in connection therewith, and other applicable national, provincial, or local laws. "Global Note Legend" means the legend set forth in Section 2.06(g)(2), which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes deposited with or on behalf of and registered in the name of the Depository or its nominee, substantially in the form of Exhibit A1 hereto and that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f) hereof. "Government Instrumentality" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, court, tribunal, commission, bureau or entity or any arbitrator with authority to bind a party at law. "Government Securities" means securities that are (1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of ACEP thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Guarantor" means any Subsidiary of the Company that executes a Note Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; 11 (2) other agreements or arrangements designed to manage interest rates or interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (a) the accreted value thereof, in the case of any Indebtedness with original issue discount, and (b) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. Notwithstanding anything in this Indenture to the contrary, Indebtedness of ACEP and the Restricted Subsidiaries shall not include any Indebtedness that has been either satisfied and discharged or defeased through covenant defeasance or legal defeasance. "Indenture" means this Indenture, as amended or supplemented from time to time. "Independent Financial Advisor" means an accounting, appraisal or investment banking or financial advisory firm of internationally recognized standing that is not an Affiliate of the Company, the Principal or its Related Parties. 12 "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means the first $215,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Initial Purchaser" means Bear, Stearns & Co. Inc. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Intercreditor Agreement" means the Intercreditor Agreement, dated as of the date hereof, among the Collateral Agent, if any, Bear Stearns Corporate Lending Inc., as agent acting on behalf of the other lenders pursuant to the Bank Credit Facility and the Trustee, acting on behalf of the Holders of the Notes, as amended, revised, modified or restated from time to time in accordance with its terms. "Interest Top-Off Failure" means the failure to maintain funds in the Note Proceeds Account sufficient to pay the Special Redemption Price in full at an assumed redemption date that is 32 days following any date (but not later than September 2, 2004). "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and excluding accounts receivables created or acquired in the ordinary course of business), purchases or other acquisitions, for cash or property, of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; notwithstanding the foregoing, the right of any Person to receive payment based upon Financing Participations to the extent made in the ordinary course of business shall not be deemed to be an Investment. If ACEP or any Subsidiary of ACEP sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of ACEP such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of ACEP, ACEP shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of ACEP's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.07(d). The acquisition by ACEP or any Subsidiary of ACEP of a Person that holds an Investment in a third Person will be deemed to be an Investment by ACEP or such Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in Section 4.07(d). Except as otherwise provided in this Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Issuance Date" means the closing date for the sale and original issuance of the Notes. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Lenders" means any of the lenders under the Bank Credit Facility. 13 "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Material Gaming License" means any Gaming License that the loss, suspension, revocation, termination or material impairment of which, individually or in the aggregate, would materially adversely affect any Property and such Property is the principal asset of a Significant Subsidiary or if such Property (considered separately) would constitute a Significant Subsidiary if it were the only asset in a Significant Subsidiary. "Net Asset Sale Proceeds" means the aggregate cash proceeds received by ACEP or any of the Restricted Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and expenses, consent fees, employee severance and termination costs, any trade payables or similar liabilities related to the assets sold and required to be paid by the seller as a result thereof and sales, finder's or broker's commissions), and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (including, without limitation, any taxes paid or payable by an owner of ACEP or any Restricted Subsidiary), amounts required to be applied to the repayment of Indebtedness secured by a Lien that ranks prior to the Lien securing the Notes on the asset or assets that are the subject of such Asset Sale, all distributions and other payments required to be made to minority interest holders in a subsidiary or joint venture as a result of the Asset Sale, any reserve for adjustment in respect of the sale price of such asset or assets or any liabilities associated with the asset disposed of in such Asset Sale and the deduction of appropriate amounts provided by the seller as a reserve in accordance with GAAP against any liabilities associated with the assets disposed of in the Asset Sale and retained by ACEP or any Restricted Subsidiary after that Asset Sale. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss); 14 (3) any interest expense from Permitted Affiliate Subordinated Indebtedness, whether paid or accrued; and (4) any payments pursuant to the Tax Allocation Agreement. "Net Loss Proceeds" means the aggregate cash proceeds received by ACEP or any of the Restricted Subsidiaries in respect of any Event of Loss, including, without limitation, insurance proceeds, condemnation awards or damages awarded by any judgment, net of the direct costs in recovery of such Net Loss Proceeds (including, without limitation, legal, accounting, appraisal and insurance adjuster fees and expenses), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Event of Loss and any taxes paid or payable as a result thereof (including, without limitation, any taxes paid or payable by an owner of ACEP or any Restricted Subsidiary). "Nevada Gaming Authorities" means the Nevada State Gaming Control Board, the Nevada Gaming Commission, Clark County, Nevada and the City of Las Vegas, Nevada. "Non-Recourse Debt" means Indebtedness or Disqualified Stock, as the case may be, or that portion of Indebtedness or Disqualified Stock, as the case may be: (1) as to which neither ACEP nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable as a guarantor or otherwise; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of ACEP or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of ACEP or any of its Restricted Subsidiaries. "Non-Recourse Financing" means Indebtedness incurred in connection with the construction, purchase or lease of personal or real property or equipment (1) as to which the lender upon default may seek recourse or payment against ACEP or any Restricted Subsidiary only through the return or foreclosure or sale of the property or equipment so constructed, purchased or leased and to any proceeds of such property and Indebtedness and the related collateral account in which such proceeds are held and (2) may not otherwise assert a valid claim for payment on such Indebtedness against ACEP or any Restricted Subsidiary or any other property of ACEP or any Restricted Subsidiary except in each case in the case of fraud and other customary non-recourse exceptions. "Non-U.S. Person" means a Person who is not a U.S. Person. "Note Collateral" means all assets, now owned or hereafter acquired, of ACEP or any Guarantor, defined as Collateral in the Collateral Documents. "Note Guarantee" means the Guarantee of the Notes by a Guarantor. "Note Proceeds Account" means the Account (as defined in the Escrow Agreement). 15 "Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes, the Exchange Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes, the Exchange Notes and any Additional Notes. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering Memorandum" means the Company's offering memorandum, dated January 15, 2004, relating to the issuance of the Notes. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of ACEP, ACEP Finance or a Guarantor, as the case may be, by two Officers (or if a limited liability company, two Officers of the managing member of such limited liability company) of ACEP, ACEP Finance or a Guarantor, as the case may be, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of ACEP, ACEP Finance or a Guarantor, as the case may be, that meets the requirements of Section 13.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Other Liquidated Damages" means liquidated damages arising from a registration default under a registration rights agreement with respect to the registration of subordinated Indebtedness permitted pursuant to the terms of this Indenture. "Parent" means AREP, AREH and/or American Entertainment Properties Corp. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). "Permitted Affiliate Subordinated Indebtedness" means any Indebtedness of ACEP or any of the Restricted Subsidiaries to an Affiliate of ACEP other than a Subsidiary of ACEP (1) for which no installment of principal or installment of interest may be made if a Default or Event of Default exists or is continuing (except that interest may accrue on Permitted Affiliate Subordinated Indebtedness or be paid in the form of additional Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified Stock), (2) for which no installment of principal matures earlier than the date that is three months after the final maturity date of the Notes, (3) for which the payment of principal and interest is subordinated in right of payment to the Notes or any Note at least to the extent set forth in Appendix A-2 hereto and (4) under which no interest, premium or penalty is due or payable (other than interest, premium and penalty payable in the form of additional Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified Stock and except that interest may accrue on Permitted Affiliate Subordinated Indebtedness) unless such amount may be paid as a Restricted Payment. 16 "Permitted Investments" means: (1) any Investments in ACEP, or any Guarantor or in any Restricted Subsidiary that is not a Guarantor if the Investments in such Restricted Subsidiary that is not a Guarantor from ACEP, any Guarantor or any of the other Restricted Subsidiaries aggregate less than $1.0 million; (2) any Investments in Cash Equivalents; (3) Investments by ACEP or any Restricted Subsidiary of ACEP in a Person, if as a result of such Investment (a) such Person becomes a Guarantor or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, one of ACEP or a Guarantor; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale or an Event of Loss that was made pursuant to and in compliance with Section 4.10 or Section 4.16, as applicable; (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of ACEP; (6) receivables owing to ACEP or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as ACEP or any such Restricted Subsidiary deems reasonable under the circumstances; (7) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (8) loans or advances to employees, former employees or directors of ACEP or the Restricted Subsidiaries (a) to fund the exercise price of options granted under the employment agreements or ACEP's stock option plans or agreements, in each case, as approved by ACEP's Board of Directors or (b) for any other purpose not to exceed $2.0 million in the aggregate at any one time outstanding under this clause (b); (9) Investments received (a) in settlement of debts created in the ordinary course of business and owing to ACEP and any Restricted Subsidiary (including gaming debts in the ordinary course of business owed by a patron or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer), (b) in satisfaction of judgments or (c) settlement of litigation, arbitrations or other disputes; (10) Investments in any person engaged in the Principal Business which Investment is made by the issuance of Equity Interests (other than Disqualified Stock) of ACEP; (11) any Investments having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) since the Issuance Date not to exceed the sum of $20.0 million, plus the amount of cash repaid on any loan made pursuant to this clause (11) not to exceed the respective original principal amounts of such loans; 17 (12) any grant to any Subsidiary of ACEP of gaming or other rights derivative of any Material Gaming License; (13) Investments represented by Hedging Obligations; (14) any Investments or loans made to third parties in connection with such third parties' build out and development of property located at any of the Properties not to exceed $10.0 million in the aggregate at any one time outstanding; (15) repurchases of the Notes; and (16) Investments existing on the Issuance Date and any Investments of the funds in the Note Proceeds Account in accordance with the investment limitations in the Escrow Agreement. "Permitted Liens" means: (1) Liens in favor of the Company or any Guarantor; provided that if such Liens are on any Note Collateral, that such Liens are either collaterally assigned to the Trustee or a Collateral Agent for the Trustee or subordinate to the Lien in favor of the Trustee securing the Notes or any Note Guarantee; (2) Liens on property of a Person existing at the time such Person became a Restricted Subsidiary, is merged into or consolidated with or into, or wound up into, one of ACEP or any Restricted Subsidiary of ACEP; provided, that such Liens were in existence prior to the consummation of, and were not entered into in contemplation of, such merger or consolidation or winding up and do not extend to any other assets other than those of the Person acquired by, merged into or consolidated with one of ACEP or such Restricted Subsidiary; (3) Liens on property existing at the time of acquisition thereof by ACEP or any Restricted Subsidiary of ACEP; provided that such Liens were in existence prior to the consummation of, and were not entered into in contemplation of, such acquisition; (4) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business and in the improvement or repair of any of the Properties and which obligations are not expressly prohibited by this Indenture; or if such Lien arises in the ordinary course of business and in the improvement or repair of any of the Properties, which ACEP shall have bonded within a reasonable time after becoming aware of the existence of such Lien subject to customary rights of set off upon deposit of cash in favor of a bank or other depositary institution in which such cash is maintained in the ordinary course of business; (5) Liens securing obligations in respect of this Indenture, the Notes, including Additional Notes, and any Note Guarantee; (6) Liens on assets that are not part of the Note Collateral to secure Indebtedness (including Guarantees) permitted pursuant to Section 4.09; provided, that such Indebtedness is not contractually subordinated in right of payment to the Notes; (7) (a) Liens for taxes, assessments or governmental charges or claims or (b) statutory Liens of landlords, and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Liens arising in the ordinary course of business or in the improvement or repair of any of the Properties, in the case of each of (a) and (b), with respect to amounts that either (i) are not yet delinquent or (ii) are 18 being contested in good faith by appropriate proceedings as to which appropriate reserves or other provisions have been made in accordance with GAAP; (8) easements, rights-of-way, aviational or navigational servitudes, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of ACEP and the Restricted Subsidiaries; (9) leases or a leasehold mortgage in favor of a party financing the lease of space, including, without limitation, construction or improvements thereto within a Property; provided that (a) such lease or the lease affected by such leasehold mortgage is permitted pursuant to Section 4.21, (b) neither ACEP nor any Restricted Subsidiary is liable for the payment of any principal of, or interest or premium on, such financing and (c) the affected lease and leasehold mortgage are expressly made subject and subordinate to the Lien of the Deed of Trust, subject to Section 4.21(c); (10) Liens securing all Obligations under the Credit Facilities incurred pursuant to clause (1) or (15) of Section 4.09(b), which Liens may be senior in right of payment to the Liens securing the obligations under the Notes pursuant to the terms of the Intercreditor Agreement; (11) Liens incurred in connection with Hedging Obligations permitted to be incurred under this Indenture, including first-priority Liens on the Note Collateral if the underlying obligations subject to the Hedging Obligations are secured by a first-priority Lien on the Note Collateral or second-priority Liens on the Note Collateral if the underlying obligations subject to the Hedging Obligations are secured by second-priority Liens on the Note Collateral; (12) licenses of patents, trademarks and other intellectual property rights granted by ACEP or any Restricted Subsidiary of ACEP in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of such ACEP or such Restricted Subsidiary; (13) any judgment attachment or judgment Lien not constituting an Event of Default; (14) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (15) Liens incurred or deposits made in connection with workers' compensation, unemployment insurance and other types of social security, or to secure performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, trade contracts performance and return of money bonds and other obligation of a like nature incurred in the ordinary course; (16) Liens arising from filing financing statements or other instruments or documents relating to leases; (17) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (18) Liens on the assets of ACEP or any of the Restricted Subsidiaries incidental to the conduct of their respective businesses or the ownership of their respective Properties which were not created in connection with the incurrence of Indebtedness or the obtaining of advances or credit and which do not in the aggregate materially detract from the value or saleability of their respective Properties or materially impair the use thereof in the operation of their respective businesses; 19 (19) Liens to secure Indebtedness permitted pursuant to Section 4.09(b)(11) and extending only to the personal or real property as purchased or leased; provided, however, that, such Lien does not extend over the real property secured under the Deeds of Trust; (20) Liens to secure Indebtedness permitted pursuant to Section 4.09(b)(13) and Section 4.09(b)(15); provided that the Notes will be secured equally and ratably by a pari passu Lien ranking equally in priority on any collateral subject to the Liens permitted by this clause (20); (21) Liens to secure any Permitted Refinancing Indebtedness permitted by the terms of this Indenture; provided, however, that: (a) the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof) and the priority of the new Lien with respect to the Lien securing the obligations under the Notes is no greater than the priority of the Lien securing the Indebtedness so refinanced; (b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge; and (c) the Indebtedness secured by the new Lien is subject to and bound by the Intercreditor Agreement; (22) Liens to secure a deposit or deposits in connection with workers' compensation obligations or requirements, provided that such deposit or deposits do not exceed $1.0 million in the aggregate; and (23) Liens incurred in the ordinary course of business of ACEP or any Subsidiary of ACEP with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Payments to Parent" means, without duplication as to amounts: (1) payments to the Parent not to exceed $100,000 per annum; and (2) payments pursuant to the Tax Allocation Agreement. "Permitted Refinancing Indebtedness" means any Indebtedness of ACEP or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of ACEP or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, and Other Liquidated Damages, incurred in connection therewith); (2) in the case of Indebtedness other than First Lien Obligations or Notes redeemed in accordance with Section 3.08, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted 20 Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (4) such Indebtedness is incurred either by ACEP or by the Restricted Subsidiary who is the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (5) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged are First Lien Obligations and secured by any part of the Note Collateral, such Permitted Refinancing Indebtedness may be First Lien Obligations or Indebtedness secured by a Lien ranking equally and ratably with the Lien securing the Notes, provided that such Permitted Refinancing Indebtedness is subject to and bound by the appropriate Intercreditor Agreement, or shall be unsecured Indebtedness; (6) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is Indebtedness secured by a Lien ranking equally and ratably with the Lien securing the Notes and secured by any part of the Note Collateral, such Permitted Refinancing Indebtedness may be secured by a Lien ranking equally and ratably with the Lien securing the Notes, provided that such Permitted Refinancing Indebtedness is subject to and bound by the appropriate Intercreditor Agreement, or shall be unsecured Indebtedness; and (7) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is Indebtedness secured by a Permitted Lien on collateral that is not Note Collateral, then such Permitted Refinancing Indebtedness may be secured by a Lien on such other collateral. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Pledge and Security Agreement" means the Pledge and Security Agreement, to be dated as of the Acquisition Date, as such agreement may be amended, modified or supplemented from time to time. "Preferred Stock" means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution, or winding up. "Principal" means AREP. "Principal Business" means the casino gaming, hotel, retail, conference center and entertainment mall and resort business (including, without limitation, the business contemplated by the Properties in the Offering Memorandum) and any activity or business incidental, directly related or similar thereto (including owning interests in Subsidiaries, operating a conference center and meeting facilities and owning and operating or licensing the operation of a retail and entertainment facilities), or any business or activity that is a reasonable extension, development or expansion thereof or ancillary thereto. "Private Placement Legend" means the legend set forth in Section 2.06(g)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. 21 "Project Assets" means, at any time, all of the assets then in use on the Properties including any real estate assets, any buildings or improvements thereon, and all equipment, furnishings and fixtures, but excluding: (1) any obsolete property determined by ACEP's Board of Directors to be no longer useful or necessary to the operations or support of such Property and (2) any personal property leased from a third party in the ordinary course of business. "Properties" means the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder. A "Property" means any of the foregoing Properties and other properties that may be acquired. "Property Improvement" means any improvement to, or addition or acquisition or construction of, the property, plant or equipment of any of the Properties, or any other property for the benefit of any of the Properties, including any land acquisition costs, financing costs, planning or development costs, construction costs, ancillary costs, fees and expenses. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Indenture, among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements among the Company, the Guarantors and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes under the Securities Act. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent Global Note in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary Global Note in the form of Exhibit A3 hereto deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Parties" means (1) Carl Icahn, any spouse and any child, stepchild, sibling or descendant of Carl Icahn, (2) any estate of the Carl Icahn or any person under clause (1), (3) any person who receives a beneficial interest in the Principal from any estate under clause (2) to the extent of such interest, (4) any executor, personal administrator or trustee who holds such beneficial interest in ACEP for the benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to the extent of such interest, (5) any corporation, partnership, limited liability company, trust, or similar entity, directly or indirectly owned or controlled by Carl Icahn or any other person or persons identified in clauses (1) or (2). "Release Condition" means any of the conditions for the release of the funds from the Note Proceeds Account to the Company as set forth in Section 10(a) of the Escrow Agreement. 22 "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) 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 Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S. "Restricted Subsidiary" means, at any time, any direct or indirect Subsidiary of ACEP that is not then an Unrestricted Subsidiary; provided, however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of "Restricted Subsidiary." "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Intermediary" means Fleet National Bank, as securities intermediary under the Escrow Agreement. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Issuance Date. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest, accreted value or principal prior to the date originally scheduled for the payment or accretion thereof. "Stratosphere" means that certain hotel, casino and tower located on approximately 31 acres at 2000 Las Vegas Boulevard South, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. 23 "Subordinated Indebtedness" means any Indebtedness that by its terms is expressly subordinated in right of payment in any respect (either in the payment of principal or interest) to the payment of principal, Liquidated Damages or interest on the Notes. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total Voting Stock is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Tax Allocation Agreement" means that certain tax allocation agreement to be entered into among American Entertainment Properties Corp., ACEP and the Subsidiaries of ACEP. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified thereunder. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a Global Note that does not bear and is not required to bear the Private Placement Legend. "Unrestricted Definitive Note" means a Definitive Note that does not bear and is not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary of ACEP (other than any Subsidiary that owns Project Assets) that is designated by the Board of Directors of ACEP as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) except as permitted by Section 4.11 hereof, is not party to any agreement, contract, arrangement or understanding with ACEP or any Restricted Subsidiary of ACEP unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to ACEP or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of ACEP; (3) is a Person with respect to which neither ACEP nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. 24 "U.S. Person" means a U.S. Person as defined in Rule 902(k) promulgated under the Securities Act. "Voting Stock" means, with respect to any Person that is a corporation, any class or series of capital stock of such Person that is ordinarily entitled to vote in the election of directors thereof at a meeting of stockholders called for such purpose, without the occurrence of any additional event or contingency and with respect to any other Person that is a limited liability company, membership interests entitled to manage the operations or business of the limited liability company. "Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the number of years (calculated to the nearest one-twelfth) obtained by dividing: (1) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal or liquidation preference, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount or liquidation preference, as applicable, of such Indebtedness or Disqualified Stock, as the case may be. "Wholly-Owned Restricted Subsidiary" of any specified Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person Section 1.02 Other Definitions.
Defined in Term Section - ---- ------- "Affiliate Transaction"....................... 4.11 "Application Date" ........................... 3.08 "Asset Sale Offer"............................ 3.11 "Authentication Order"........................ 2.02 "Calculation Date" ........................... 1.01 "Change of Control Offer"..................... 4.15 "Change of Control Payment"................... 4.15 "Change of Control Payment Date".............. 4.15 "Covenant Defeasance"......................... 8.03 "DTC"......................................... 2.03 "Escrow Break Date"........................... 3.09 "Event of Default"............................ 6.01 "Event of Loss Offer" ........................ 4.16 "Event of Loss Offer Amount" ................. 3.12 "Event of Loss Offer Period" ................. 3.12 "Event of Loss Purchase Date" ................ 3.12 "Excess Loss Proceeds" ....................... 4.16 "Excess Proceeds"............................. 4.10 "incur"....................................... 4.09 "Lease Transaction" .......................... 4.21
25
Defined in Term Section - ---- ------- "Legal Defeasance"............................ 8.02 "Offer Amount"................................ 3.11 "Offer Period"................................ 3.11 "Paying Agent"................................ 2.03 "Permitted Debt".............................. 4.09 "Payment Default" ............................ 6.01 "Purchase Date"............................... 3.11 "Redemption Date" ............................ 3.07 "Registrar"................................... 2.03 "Restricted Payments"......................... 4.07 "Special Redemption Price".................... 3.09 "Subject Property" ........................... 4.16
Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Note Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "will" shall be interpreted to express a command; 26 (6) provisions apply to successive events and transactions; and (7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form will be substantially in the form of Exhibits A1 or A3 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period will be terminated upon the receipt by the Trustee of: (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b) hereof); and 27 (2) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note will be exchanged for beneficial interests in Regulation S Permanent Global Note pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Note, the Trustee will cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (3) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Note that are held by Participants through Euroclear or Clearsteam. Section 2.02 Execution and Authentication. At least one Officer must sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid. A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee will, upon receipt of a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated set forth in such Authentication Order. The aggregate principal amount of Notes outstanding at any time may not exceed the aggregate amount of Notes authenticated for original issue pursuant to all Authentication Orders issued by the Company except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. 28 The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Company will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) will have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee will serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company will furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or (2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged 29 or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either: (A) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and (ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or (B) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and (ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be 30 registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any Holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(2) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; 31 (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; 32 (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial 33 interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) will not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial 34 interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution 35 of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly 36 endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (ii) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an 37 Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate: (1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company; and (2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company will execute and the Trustee will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (1) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS 38 HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF American Casino & Entertainment Properties LLC THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) IN THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a) (1), (2), (3) OR (7) OF THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF American Casino & Entertainment Properties LLC SO REQUESTS), (2) TO American Casino & Entertainment Properties LLC OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF AT ANY TIME THE NEVADA GAMING COMMISSION FINDS THAT A HOLDER OF THIS SECURITY IS UNSUITABLE TO CONTINUE TO OWN THE SECURITY, AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC SHALL HAVE THE RIGHT TO REQUIRE SUCH HOLDER TO DISPOSE OF SUCH SECURITY AS PROVIDED BY THE GAMING LAWS OF THE STATE OF NEVADA AND THE REGULATIONS PROMULGATED THEREUNDER. ALTERNATIVELY, AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC SHALL HAVE THE RIGHT TO REDEEM THE SECURITY FROM THE HOLDER AT A PRICE SPECIFIED IN THE INDENTURE GOVERNING THE SECURITY. NEVADA GAMING LAWS AND REGULATIONS RESTRICT THE RIGHT UNDER CERTAIN CIRCUMSTANCES: (A) TO PAY OR RECEIVE ANY INTEREST UPON SUCH SECURITY; (B) TO EXERCISE, DIRECTLY OR THROUGH ANY TRUSTEE OR NOMINEE, ANY VOTING RIGHT CONFERRED BY SUCH SECURITY; OR (C) TO RECEIVE ANY REMUNERATION IN ANY FORM FROM AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, FOR SERVICES RENDERED OR OTHERWISE." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2), (d)(3), (e)(2), (e)(3) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend. (2) Global Note Legend. Each Global Note will bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER 39 ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (3) Regulation S Temporary Global Note Legend. "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATES NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Company will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request. 40 (2) No service charge will be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.11, 4.10, 4.15 and 9.05 hereof). (3) The Registrar will not be required to register the transfer of or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (5) Neither the Registrar nor the Company will be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the 41 Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(a) or 9.02 hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or any Guarantor, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Guarantor, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded. Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes will be entitled to all of the benefits of this Indenture. Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for registration of 42 transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company will fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 15 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase as follows: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 15 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. 43 The Trustee will promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.11 hereof, at least 15 days but not more than 60 days before a redemption date, the Company will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 12 of this Indenture. The notice will identify the Notes to be redeemed and will state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee will give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. 44 Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05 Deposit of Redemption or Purchase Price. One Business Day prior to the redemption or purchase date, the Company will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Liquidated Damages, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Liquidated Damages, if any, on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time prior to February 1, 2007, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including Additional Notes) issued under this Indenture at a redemption price of 107.850% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings or from the proceeds of Permitted Affiliate Subordinated Debt of ACEP; provided that: (1) at least 65% of the aggregate principal amount of Notes originally issued under this Indenture (excluding Notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and (2) the redemption must occur within 60 days of the date of the closing of such Equity Offering or the issuance of Permitted Affiliate Subordinated Debt. 45 (b) On or after February 1, 2008, the Company may redeem all or a part of the Notes upon not less than 15 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on February 1 of the years indicated below, subject to the rights of Noteholders on the relevant record date to receive interest on the relevant interest payment date:
Year Percentage - ---- ---------- 2008................................. 103.925% 2009................................. 101.963% 2010 and thereafter.................. 100.000%
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08 Redemption Pursuant to Gaming Laws. (a) Notwithstanding any other provision of this Article 3, if any Gaming Authority requires that a holder or Beneficial Owner of Notes be licensed, qualified or found suitable under any applicable Gaming Law and such holder or Beneficial Owner: (1) fails to apply for a license, qualification or a finding of suitability within 30 days (or such shorter period as may be required by the applicable Gaming Authority) after being requested to do so by the Gaming Authority; or (2) is denied such license or qualification or not found suitable; ACEP shall then have the right, at its option: (1) to require each such holder or Beneficial Owner to dispose of its Notes within 30 days (or such earlier date as may be required by the applicable Gaming Authority) of the occurrence of the event described in clause (1) or (2) above, or (2) to redeem the Notes of each such holder or Beneficial Owner, in accordance with Rule 14e-1 of the Exchange Act, if applicable, at a redemption price equal to the lowest of: (a) the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the date 30 days' after such holder or Beneficial Owner is required to apply for a license, qualification or finding of suitability (or such shorter period that may be required by any applicable Gaming Authority) if such holder or Beneficial Owner fails to do so ("Application Date") or of the date of denial of license or qualification or of the finding of unsuitability by such Gaming Authority; (b) the price at which such holder or Beneficial Owner acquired the Notes, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the Application Date or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority; and (c) such other lesser amount as may be required by any Gaming Authority. 46 Immediately upon a determination by a Gaming Authority that a holder or Beneficial Owner of the Notes will not be licensed, qualified or found suitable and must dispose of the Notes, the holder or Beneficial Owner will, to the extent required by applicable Gaming Laws, have no further right: (1) to exercise, directly or indirectly, through any trustee or nominee or any other person or entity, any right conferred by the Notes, the Note Guarantees or this Indenture; or (2) to receive any interest, Liquidated Damages, dividend, economic interests or any other distributions or payments with respect to the Notes and the Note Guarantees or any remuneration in any form with respect to the Notes and the Note Guarantees from the Company, the Guarantors or the Trustee, except the redemption price referred to above. (b) ACEP shall notify the Trustee in writing of any such redemption as soon as practicable. Any Holder or Beneficial Owner that is required to apply for a license, qualification or a finding of suitability will be responsible for all fees and costs of applying for and obtaining the license, qualification or finding of suitability and of any investigation by the applicable Gaming Authorities and the Company shall not reimburse any Holder or Beneficial Owner for such expense. (c) In connection with any redemption pursuant to this Section 3.08, and except as may be required by a Gaming Authority, the Company shall be required to comply with Sections 3.01 through 3.06 hereof. Section 3.09 Special Mandatory Redemption. (a) The net proceeds of the Notes together with an amount sufficient to redeem the Notes on the date that is thirty-two (32) days after the date hereof at a redemption price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest to the date of redemption (the "Special Redemption Price") will be placed in the Note Proceeds Account pursuant to the terms and conditions of the Escrow Agreement. (b) In the event each of the Release Conditions shall not have been satisfied on or prior to the earlier of (A) August 31, 2004 and (B) an Interest Top-Off Failure (the earlier of (A) and (B) being the "Escrow Break Date"), ACEP shall redeem (a "Special Mandatory Redemption") all of the Notes, on the second Business Day immediately following the Escrow Break Date at the Special Redemption Price. (c) On or before the Escrow Break Date, if the Escrow Agent receives a certificate from the Company certifying that the Company has made a good faith determination that it will be unable to meet the Release Conditions by the Escrow Break Date, a Special Mandatory Redemption at the Special Redemption Price shall occur on the second Business Day immediately following the date such notice is delivered. (d) Other than as specifically provided in this Section 3.09 or in the Escrow Agreement, any Special Mandatory Redemption shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.10 Mandatory Redemption. Other than as set forth in Sections 3.08 and 3.09, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. 47 Section 3.11 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it will follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets. The Asset Sale Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Company will apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Liquidated Damages, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company will send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state: (1) that the Asset Sale Offer is being made pursuant to this Section 3.11 and Section 4.10 hereof and the length of time the Asset Sale Offer will remain open; (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have Notes purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" attached to the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; 48 (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the Offer Amount, the Trustee will select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased); and (9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.11. The Company, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company, will promptly issue a new Note, and the Trustee, upon written request from the Company will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.11, any purchase pursuant to this Section 3.11 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.12 Offer to Purchase by Application of Excess Loss Proceeds. In the event that, pursuant to Section 4.16 hereof, the Company is required to commence an Event of Loss Offer to all Holders to purchase Notes, it will follow the procedures specified below. The Event of Loss Offer (as defined in Section 4.16) shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture that require the Company to make an Event of Loss Offer. The Event of Loss Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Event of Loss Offer Period"). No later than three Business Days after the termination of the Event of Loss Offer Period (the "Event of Loss Purchase Date"), the Company will apply all Excess Loss Proceeds (the "Event of Loss Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Event of Loss Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Event of Loss Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made. If the Event of Loss Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Liquidated Damages, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Event of Loss Offer. 49 Upon the commencement of an Event of Loss Offer, the Company will send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Event of Loss Offer. The notice, which will govern the terms of the Event of Loss Offer, will state: (1) that the Event of Loss Offer is being made pursuant to this Section 3.12 and Section 4.16 hereof and the length of time the Event of Loss Offer will remain open; (2) the Event of Loss Offer Amount, the purchase price and the Event of Loss Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Event of Loss Offer will cease to accrue interest after the Event of Loss Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Event of Loss Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have Notes purchased pursuant to any Event of Loss Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" attached to the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Event of Loss Purchase Date; (7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Event of Loss Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the Event of Loss Offer Amount, the Trustee will select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased); and (9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Event of Loss Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Event of Loss Offer Amount of Notes or portions thereof tendered pursuant to the Event of Loss Offer, or if less than the Event of Loss Offer Amount has been tendered, all Notes tendered, and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.12. The Company, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five 50 days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company, will promptly issue a new Note, and the Trustee, upon written request from the Company will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Event of Loss Offer on the Event of Loss Purchase Date. Other than as specifically provided in this Section 3.12, any purchase pursuant to this Section 3.12 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01 Payment of Notes. The Company will pay or cause to be paid the principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Liquidated Damages, if any will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company will pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails 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. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, 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 of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. 51 Section 4.03 Reports. (a) Prior to the Acquisition Date, ACEP will furnish to all holders of the Notes and prospective purchasers of the Notes designated by the holders, promptly upon their request, the information required to be delivered under Rule 144A(d)(4) of the Securities Act. In addition, until consummation of the Acquisitions, ACEP will file with the Trustee, by the day that it would have been required to file the same with the SEC if ACEP had been subject to the periodic reporting requirements of the Exchange Act and excluding any time periods applicable to "accelerated filers" under the Exchange Act, quarterly and annual financial statements, including any notes thereto (and with respect to annual financial statements only, an auditors' report by a firm of established national reputation), and a "Management's Discussion and Analysis of Results of Operations and Financial Condition," both comparable to that which ACEP would have been required to include in a quarterly report on Form 10-Q or an annual report on Form 10-K if ACEP had been subject to those periodic reporting requirements and prepared as combined financial statements presenting the financial position, results of operations and cash flows of American Casino & Entertainment Properties which is comprised of Stratosphere Corporation and its wholly-owned subsidiaries, Stratosphere Gaming Corp., Stratosphere Land Corporation, Stratosphere Advertising Agency, Stratosphere Leasing, LLC, 2000 South Las Vegas Boulevard Retail Corporation and Stratosphere Development, LLC, Arizona Charlie's, Inc., and its wholly-owned subsidiary Jetset LLC; and Fresca, LLC, for applicable periods ended December 31, 2000 and thereafter. (b) Following the Acquisitions, whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes or cause the Trustee to furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. In addition, following the consummation of the Exchange Offer contemplated by the Registration Rights Agreement, whether or not required by the SEC, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and, if the SEC will not accept such a filing, will post the reports on its website within those time periods. The Company will not take any action for the purpose of causing the SEC not to accept any such filings. The Company will at all times comply with TIA Section 314(a). (c) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. 52 (d) For so long as any Notes remain outstanding, the Company and the Guarantors will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04 Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Collateral Documents, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the Collateral Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or the Collateral Documents (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company will deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05 Taxes. The Company will pay, and will cause each of its Subsidiaries to pay (including any payments required pursuant to the Tax Allocation Agreement) prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of 53 any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07 Restricted Payments. (a) ACEP will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of ACEP's or any Restricted Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving ACEP or any Restricted Subsidiary) or to the direct or indirect holders of ACEP's or any Restricted Subsidiary's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of ACEP or to ACEP or a Restricted Subsidiary of ACEP); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving ACEP) any Equity Interests of ACEP or any direct or indirect parent of ACEP; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of ACEP or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee (excluding any intercompany Indebtedness between or among ACEP and any of its Restricted Subsidiaries), except a payment of interest, Other Liquidated Damages or principal at the Stated Maturity on such subordinated Indebtedness that is not Permitted Affiliate Subordinated Indebtedness; (4) purchase, redeem, defease or otherwise retire for value or pay any interest, principal or other amount on any Permitted Affiliate Subordinated Indebtedness (other than payment of interest in the form of additional Permitted Affiliate Subordinated Indebtedness or Equity Interests in ACEP (other than Disqualified Stock) or accrual of interest on Permitted Affiliate Subordinated Indebtedness); or (5) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (5) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; (2) ACEP would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four-quarter period for which financial statements are available, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by ACEP and the Restricted Subsidiaries after the Issuance Date (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7), (8) and (9) of Section 4.07(b)) is less than the sum, without duplication, of: 54 (a) 50% of the Consolidated Net Income of ACEP for the period (taken as one accounting period) from the Acquisition Date to the end of ACEP's most recently ended fiscal quarter for which financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); provided, however, that to the extent any payments pursuant to the Tax Allocation Agreement were excluded from the calculation of Consolidated Net Income during the applicable period, for the purposes of this clause (a), such payments pursuant to the Tax Allocation Agreement will be deducted from Consolidated Net Income, plus (b) 100% of the aggregate net cash proceeds received by ACEP since the Issuance Date as a contribution to its common equity capital or received as cash proceeds of Permitted Affiliate Subordinated Debt of ACEP or from the issue or sale of Equity Interests of ACEP (excluding Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of ACEP that have been converted into or exchanged for such Equity Interests (other than Equity Interests or Disqualified Stock or debt securities) sold to a Subsidiary of ACEP, plus (c) 100% of the lesser of (1) the aggregate amount received in cash and the Fair Market Value of property received by means of (A) the sale or other disposition (other than to ACEP or a Restricted Subsidiary) of Restricted Investments made by ACEP or its Restricted Subsidiaries and repurchases and redemptions of such Restricted Investments from ACEP or its Restricted Subsidiaries and repayments of loans or advances which constitute Restricted Investments by ACEP or its Restricted Subsidiaries or (B) the sale (other than to ACEP or a Restricted Subsidiary) of the Capital Stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary (other than in each case to the extent the Investment in such Unrestricted Subsidiary was made by a Restricted Subsidiary pursuant to Section 4.07(b)(9) or to the extent such Investment constituted a Permitted Investment) or a dividend from an Unrestricted Subsidiary and (2) the aggregate amount of Restricted Payments made to make the Restricted Investment so sold or disposed of or in the Capital Stock of the Unrestricted Subsidiary so sold or disposed of (provided, however, that if the cash received in any transaction described in clause (A) or (B) of this clause (c) plus the cash received from the disposition of any property received in any such transaction is greater than the amount otherwise calculated under this clause (c), then such greater cash amount may be added to this clause (c) in lieu of such lesser amount), plus (d) in case, after the Issuance Date, any Unrestricted Subsidiary has been redesignated as a Restricted Subsidiary pursuant to the terms of this Indenture or has been merged, consolidated or amalgamated with or into, or transfers or conveys assets to, or is liquidated into ACEP or a Restricted Subsidiary, and no Default or Event of Default is then occurring or results therefrom, an amount equal to the lesser of (1) the Fair Market Value of the Investments owned by ACEP and the Restricted Subsidiaries in such Unrestricted Subsidiary at the time of the redesignation, combination, transfer or liquidation (or of the assets transferred or conveyed, as applicable) and (2) the aggregate amount of Restricted Payments made in such Unrestricted Subsidiary. (b) So long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of this Indenture; 55 (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of ACEP) of, Equity Interests (other than Disqualified Stock) or Permitted Affiliate Subordinated Debt of ACEP or from the substantially concurrent contribution of common equity capital to ACEP; provided, however, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from Section 4.07(a)(3)(b); (3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of ACEP or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of ACEP to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of ACEP, any parent of ACEP or any Restricted Subsidiary of ACEP held by any member of ACEP's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.0 million; (6) the redemption or repurchase of any Equity Interests or Indebtedness of ACEP or any of its Subsidiaries to the extent required by any Gaming Authority or, if determined in the good faith judgment of the Board of Directors of ACEP as evidenced by a resolution of the Board of Directors that has been delivered to the Trustee, required to prevent the loss or to secure the grant or establishment of any gaming license or other right to conduct lawful gaming operations in the United States; (7) Permitted Payments to Parent; (8) Restricted Payments pursuant to the terms of the Acquisition Agreements and the payment of the balance of the intercompany debt owed by Stratosphere Corporation to AREH; (9) the one-time payment of a distribution of Cash Equivalents and marketable securities to the Parent (the "Parent Distribution") to be paid within twenty days of the Acquisition Date such that, at the Acquisition Date after giving effect to the Parent Distribution, the purchase price of the Acquisition, the payment of the balance of the intercompany debt owed by Stratosphere Corporation to American Real Estate Holdings Limited Partnership and any unpaid fees and expenses relating to the offering of the Notes, ACEP and its Restricted Subsidiaries, on a combined basis, would have cash no less than the sum of (x) $25.0 million and (y) the amount of accrued interest on the Notes from the Issuance Date to, and including, the Acquisition Date; provided, that from the Issuance Date to the date of the Parent Distribution, except as disclosed in the Offering Memorandum and contemplated in the Acquisition Agreements, ACEP shall not take any actions and shall cause its Affiliates not to take any actions that would cause the business of the Properties to be conducted, in any material respect, other than in the ordinary course; and 56 (10) other Restricted Payments in an aggregate amount since the Issuance Date not to exceed $2.5 million. (c) For purposes of determining compliance with this Section 4.07, in the event that a proposed Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in clauses (1) through (10) above, or is permitted to be made pursuant to Section 4.07(a), ACEP shall, in its sole discretion, classify such Restricted Payment in any manner that complies with this Section 4.07. (d) The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the assets, property or securities proposed to be transferred or issued by ACEP or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) ACEP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to ACEP or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to ACEP or any of its Restricted Subsidiaries; (2) make loans or advances to ACEP or any of its Restricted Subsidiaries; or (3) sell, lease or transfer any of its properties or assets to ACEP or any of its Restricted Subsidiaries. However, the restrictions in Section 4.08(a) will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements in effect on the Acquisition Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided, however, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other restrictions than those contained in those agreements on the Acquisition Date; (2) this Indenture, the Notes, the Note Guarantees, the Credit Facilities and the Collateral Documents; (3) applicable law, rule or order of an applicable governmental body; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by ACEP or any Restricted Subsidiary as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred; 57 (5) customary non-assignment provisions in leases entered into in the ordinary course of business; (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in Section 4.08(a)(3); (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (8) Permitted Refinancing Indebtedness; provided, however, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 4.12; and (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) ACEP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of their Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Guarantors may incur Indebtedness (including Acquired Debt) or issue preferred stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) The provisions of Section 4.09(a) will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by ACEP and any Guarantor of Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of ACEP and its Restricted Subsidiaries thereunder) not to exceed $50.0 million less the aggregate amount of all Net Asset Sale Proceeds of Asset Sales applied by ACEP or any of its Restricted Subsidiaries since the Issuance Date to repay any term Indebtedness under a Credit Facility or to repay any revolving credit Indebtedness under a Credit Facility and effect a corresponding commitment reduction thereunder pursuant to Section 4.10(b)(1) hereof; (2) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the Issuance Date and the Exchange 58 Notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement; (3) the incurrence by ACEP and the Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of acquisition, construction or improvement of property, plant or equipment used or to be used in the business of ACEP or such Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (3), not to exceed $10.0 million at any time outstanding; (4) the incurrence by ACEP and the Guarantors of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under Section 4.09(a) or clauses (2), (3), (4), (10), (11) or (14) of this Section 4.09(b); (5) the incurrence by ACEP and its Restricted Subsidiaries of intercompany Indebtedness between or among ACEP and any of its Restricted Subsidiaries; provided, however, that: (a) if ACEP is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes; (b) if a Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of its Note Guarantee; and (c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than ACEP or a Restricted Subsidiary of ACEP and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either ACEP or a Restricted Subsidiary of ACEP shall be deemed, in each case, to constitute an incurrence of such Indebtedness by ACEP or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (5); provided that in the case of clauses (a) and (b), that no restriction on the payment of principal, interest or other obligations in connection with such intercompany Indebtedness shall be required by such subordinated terms except during the occurrence and continuation of a Default or Event of Default; (6) the incurrence by ACEP and any of its Restricted Subsidiaries of Hedging Obligations that are incurred in the normal course of business; (7) the Guarantee by ACEP or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of ACEP that was permitted to be incurred by another provision of this Section 4.09; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes, then the Guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; (8) the incurrence by ACEP or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, performance and surety bonds in the ordinary course of business; 59 (9) the incurrence by ACEP or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days; (10) the incurrence by ACEP and its Restricted Subsidiaries of the Existing Indebtedness; (11) the incurrence by ACEP or any of its Restricted Subsidiaries of Non-Recourse Financing used to finance the construction, purchase or lease of personal or real property used in the business of ACEP or such Restricted Subsidiary; provided, that the Indebtedness incurred pursuant to this clause (11) (including any refinancings thereof pursuant to clause (4) above) shall not exceed $15.0 million outstanding at any time; (12) Indebtedness arising from any agreement entered into by ACEP or any of its Restricted Subsidiaries providing for indemnification, purchase price adjustment or similar obligations, in each case, incurred or assumed in connection with an Asset Sale; (13) the incurrence by ACEP or any Restricted Subsidiary of Permitted Affiliate Subordinated Indebtedness; (14) the incurrence by ACEP of Additional Notes used for Property Improvements, in an aggregate principal amount not to exceed 2.0 times the net cash proceeds received by ACEP after the Acquisition Date from Equity Offerings and the issuance of Permitted Affiliate Subordinated Debt, the net cash proceeds of which Equity Offerings and the issuance of Permitted Affiliate Subordinated Debt are also used in Property Improvements; and (15) the incurrence by ACEP or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (15), not to exceed $10.0 million at any one time outstanding. The Company and their Restricted Subsidiaries will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or its Restricted Subsidiaries unless such Indebtedness is also contractually subordinated in right of payment to the Notes or the applicable Note Guarantee on substantially identical terms; provided, however, that no Indebtedness of the Company and its Restricted Subsidiaries shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company or its Restricted Subsidiaries for purposes of this paragraph solely by virtue of being unsecured or secured to a lesser extent or on a junior Lien basis. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above or is entitled to be incurred pursuant to Section 4.09(a), in each case, as of the date of incurrence thereof, the Company shall, in their sole discretion, classify (or later reclassify in whole or in part, in its sole discretion) such item of Indebtedness in any manner that complies with this Section 4.09 and such Indebtedness will be treated as having been incurred pursuant to such clauses or Section 4.09(a), as the case may be, designated by the Company. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the 60 reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.09; provided, that in each such case, that the amount thereof shall be included in Fixed Charges of ACEP as accrued (to the extent applicable under the definition of Fixed Charges). Notwithstanding any other provision of this Section 4.09, the maximum amount of Indebtedness that ACEP or any Restricted Subsidiary may incur pursuant to this Section 4.09 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (a) the Fair Market Value of such assets at the date of determination; and (b) the amount of the Indebtedness of the other Person. Upon entering into or refinancing or replacement of the Credit Facilities or any portion thereof with a lender that was not party to the Intercreditor Agreement or the incurrence of any Indebtedness permitted by this Indenture to be First Lien Obligations, the Trustee shall enter into an intercreditor agreement with such lender with terms that are no less favorable to the Trustee or the Holders of Notes than those contained in the Intercreditor Agreement. Section 4.10 Asset Sales. (a) ACEP will not, and will not permit any Restricted Subsidiary to, consummate an Asset Sale unless: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Asset Sale; (2) ACEP (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets sold, leased, transferred, conveyed or otherwise disposed of or Equity Interests issued or sold or otherwise disposed of; (3) with respect to any Asset Sale involving consideration or property in excess of $2.5 million, such Fair Market Value is evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee; (4) at least 75% of the consideration received in the Asset Sale by ACEP or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this clause (4), each of the following will be deemed to be cash: 61 (a) any liabilities, as shown on ACEP's or such Restricted Subsidiary's most recent balance sheet, of ACEP or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee which may be assumed only if such liabilities are deemed to be Restricted Payments and such Restricted Payment may then be made) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases ACEP or such Restricted Subsidiary from further liability; and (b) any securities, notes or other obligations received by ACEP or any such Restricted Subsidiary from such transferee that are converted by ACEP or such Restricted Subsidiary into cash within 30 days, to the extent of the cash received in that conversion; and (5) the Board of Directors has determined in good faith that the Asset Sale complies with the clauses (2), (3) and (4) of this Section 4.10. (b) Within one year after the receipt of any Net Asset Sale Proceeds, ACEP or the Restricted Subsidiary may apply those Net Asset Sale Proceeds at its option: (1) to repay First Lien Obligations or any other Indebtedness that is pari passu with the Notes, including any Notes and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Principal Business; (3) to make an Investment in or expenditures for acquiring or constructing properties and assets that replace the properties and assets that were the subject of the Asset Sale; or (4) to acquire, construct, repair or rebuild other assets or property, other than current assets, that are used or useful in a Principal Business; provided, however, that with respect to any assets that are acquired or constructed or Voting Stock that is acquired with such Net Asset Sale Proceeds, ACEP or the applicable Restricted Subsidiary, as the case may be, promptly grants to the Trustee, on behalf of the holders of the Notes, a second-priority security interest on any such assets or Voting Stock on the terms set forth in this Indenture and the Collateral Documents. Pending the final application of any Net Asset Sale Proceeds, ACEP or the applicable Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest the Net Asset Sale Proceeds in any manner that is not prohibited by this Indenture. (c) Any Net Asset Sale Proceeds that are not applied or invested as provided in Section 4.10(b) (or in the case of clauses (2), (3) or (4) of Section 4.10(b), contracted or committed to within one year; provided that such acquisition, investment, construction, repair or reconstruction is completed within two years of the date of such contract or commitment) will constitute "Excess Proceeds". Within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make an offer (an "Asset Sale Offer") to all holders of Notes to purchase the maximum principal amount of Notes and, if the Company is required to do so under the terms of any other Indebtedness that is pari passu with the Notes, such other Indebtedness on a pro rata basis with the Notes, that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of the purchase of all properly tendered and not withdrawn Notes pursuant to an Asset Sale Offer, ACEP may 62 use such remaining Excess Proceeds for any purpose not otherwise prohibited by this Indenture and the Collateral Documents. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer (together with any other pari passu Indebtedness expected to be repaid from such Excess Proceeds) exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other Indebtedness tendered (or otherwise expected to be repaid). Upon completion of any Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The Company may commence an Asset Sale Offer without having to wait for the expiration of the one year period. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Sections 3.11 or 4.10 of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under Section 3.11 or this Section 4.10 by virtue of such compliance. Section 4.11 Transactions with Affiliates. (a) ACEP will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, any Affiliate of ACEP (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are not materially less favorable to ACEP or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by ACEP or such Restricted Subsidiary with an unrelated Person as determined in good faith by the Board of Directors of ACEP; and (2) ACEP delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.0 million, a resolution of the Board of Directors of ACEP set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this Section 4.11 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of ACEP; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to ACEP or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of recognized standing. (b) The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 4.11(a): (1) any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by ACEP or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto; (2) transactions between or among ACEP and/or its Restricted Subsidiaries; 63 (3) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of ACEP; (4) any issuance of Equity Interests (other than Disqualified Stock) of ACEP to Affiliates of ACEP; (5) Restricted Payments that do not violate Section 4.07 hereof; (6) the transactions pursuant to the Acquisition Agreements and the transactions contemplated in the Offering Memorandum under the caption "Use of Proceeds;" (7) Permitted Affiliate Subordinated Indebtedness; (8) transactions between ACEP and/or any of its Restricted Subsidiaries, on the one hand, and other Affiliates, on the other hand, for the provision of goods or services in the ordinary course of business by such other Affiliates; provided that such other Affiliate is in the business of providing such goods or services in the ordinary course of business to unaffiliated third parties and the terms and pricing for such goods and services overall are not less favorable to ACEP and/or its Restricted Subsidiaries than the terms and pricing upon which such goods and services are provided to unaffiliated third parties; (9) loans or advances to employees in the ordinary course of business not to exceed $1.0 million in the aggregate at any one time outstanding; (10) the provision of accounting, financial, management, information technology and other ancillary services to Affiliates, provided that ACEP or its Restricted Subsidiaries are paid a fee equal to its out of pocket costs and allocated overhead (including a portion of salaries and benefits) as determined by ACEP in its reasonable judgment; provided further that this services under this clause shall not include providing complimentaries or other benefits to customers of an Affiliate; and (11) Permitted Payments to Parent. Section 4.12 Liens. ACEP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset, now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom, except Permitted Liens. Section 4.13 Business Activities. For so long as any Notes are outstanding, the Company shall not, and shall not permit any of the Restricted Subsidiaries to, engage in any business or activity other than the Principal Business, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. Section 4.14 Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: 64 (1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15 Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes repurchased, if any, to the date of purchase, subject to the rights of Noteholders on the relevant record date to receive interest due on the relevant interest payment date (the "Change of Control Payment"). Within thirty days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" attached to the Notes completed, or transfer by book-entry transfer, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. 65 The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Sections 3.11 or 4.15 of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under Section 3.11 or this Section 4.15 by virtue of such compliance. (b) On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered and not withdrawn pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The Paying Agent will promptly mail (but in any case not later than five days after the Change of Control Payment Date) to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that any new Note will be in a principal amount of $1,000 or an integral multiple of $1,000. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and Section 3.11 hereof and purchases all Notes validly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07 hereof, unless and until there is a default in payment of the applicable redemption price. Section 4.16 Events of Loss (a) Within one year (or two years in the case of clause (1) below) after (1) any Event of Loss with respect to any of the Properties, or any other assets or property, with a Fair Market Value (or replacement cost, if greater) in excess of $15.0 million, ACEP or the affected Restricted Subsidiary, as the case may be, may apply the Net Loss Proceeds from such Event of Loss in any manner permitted by clauses (1) through (4) of Section 4.10(b) for Net Asset Sale Proceeds from an Asset Sale or to the rebuilding or repair of the Subject Property, or (2) any other Event of Loss, ACEP or the affected Restricted Subsidiary, as the case may be, may apply the Net Loss Proceeds from such Event of Loss to repay First Lien Obligations or any indebtedness pari passu with the Notes, including any Notes, or to the rebuilding, repair, replacement or construction of improvements to the property affected by such Event of Loss (the "Subject Property"), with no concurrent obligation to make any purchase of any Notes; provided, however, that ACEP delivers to the Trustee: (1) within either (i) 150 days of such Event of Loss a written opinion from a reputable contractor that the Subject Property can be rebuilt, repaired, replaced or constructed in, 66 and operating in, substantially the same condition (or better) as existed prior to the Event of Loss within 24 months of the Event of Loss or (ii) 60 days of such Event of Loss a written opinion from a reputable contractor that the Subject Property can be rebuilt, repaired, replaced or constructed in, and operating in, substantially the same condition (or better) as existed prior to the Event of Loss within two years of the receipt of Net Loss Proceeds; and (2) an Officers' Certificate (delivered concurrently with the opinion specified in clause (i) or (ii) above) certifying that ACEP has available from Net Loss Proceeds or other sources sufficient funds to complete the rebuilding, repair, replacement or construction referred to in clause (1) above. (b) Any Net Loss Proceeds from any Event of Loss that are not applied or permitted to be reinvested as provided in Section 4.16(a) will constitute "Excess Loss Proceeds." When the aggregate amount of Excess Loss Proceeds exceeds $5.0 million, the Company will make an offer (an "Event of Loss Offer") to all holders of Notes to purchase the maximum principal amount of Notes and, if the Company is required to do so under the terms of any other Indebtedness that is pari passu with the Notes, such other Indebtedness on a pro rata basis with the Notes, that may be purchased out of the Excess Loss Proceeds. The offer price in any Event of Loss Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Loss Proceeds remain after consummation of the purchase of all properly tendered and not withdrawn Notes pursuant to an Event of Loss Offer, ACEP may use such remaining Excess Loss Proceeds for any purpose not otherwise prohibited by this Indenture and the Collateral Documents. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Event of Loss Offer (together with any pari passu Indebtedness expected to be repaid from such Event of Loss proceeds) exceeds the amount of Excess Loss Proceeds, the Trustee will select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other Indebtedness tendered (or expected to be repaid). Upon completion of any such Event of Loss Offer, the amount of Excess Loss Proceeds will be reset at zero. (c) In the event of an Event of Loss pursuant to clause (3) of the definition of "Event of Loss" with respect to any property or assets that have a Fair Market Value (or replacement cost, if greater) in excess of $5.0 million, ACEP or the affected Restricted Subsidiary, as the case may be, will be required to receive consideration and with respect to any Event of Loss of any portion of the hotel, casino or parking structure and other property comprising part of the Properties, at least 75% of which is in the form of cash or Cash Equivalents. Section 4.17 Sale and Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (1) the Company or that Restricted Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in Section 4.09(a) hereof and (b) incurred a Lien to secure such Indebtedness pursuant to the provisions of Section 4.12 hereof; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and 67 (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 hereof. Section 4.18 Insurance. ACEP from and after the Acquisition Date will, and will cause the Restricted Subsidiaries to, maintain the specified levels of insurance set forth in the Collateral Documents, which shall not be less than the levels required in any applicable Gaming License. Section 4.19 Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries. (a) ACEP will not, and will not permit any Restricted Subsidiary to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Restricted Subsidiary to any Person (other than to ACEP or to any Restricted Subsidiary), unless: (1) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Restricted Subsidiary; and (2) the Net Asset Sale Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof; provided, however, that this clause (a) will not apply to any pledge of Capital Stock of any Restricted Subsidiary securing First Lien Obligations, including the Credit Facilities, or any exercise of remedies in connection therewith; and (b) ACEP will not permit any Restricted Subsidiary to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares and shares of Capital Stock of foreign Subsidiaries issued to foreign nationals to the extent required under applicable law) to any Person other than ACEP or any Restricted Subsidiary. Section 4.20 Additional Note Guarantees. If the Company or any of its Restricted Subsidiaries acquires or creates another Restricted Subsidiary after the date of this Indenture and Investments in that Restricted Subsidiary exceed the amount described in clause (1) of the definition of "Permitted Investments", then the Company will cause that newly acquired or created Restricted Subsidiary (including, but not limited to, the Acquired Subsidiaries) to (1) execute and deliver to the Trustee a Note Guarantee pursuant to a supplemental indenture and supplemental Collateral Documents in form and substance reasonably satisfactory to the Trustee pursuant to which that Restricted Subsidiary will unconditionally Guarantee, all of the Company's obligations under the Notes, this Indenture and the Collateral Documents on the terms set forth in this Indenture and (2) deliver an Opinion of Counsel to the Trustee within ten Business Days of the date on which it was acquired or created to the effect that such supplemental indenture and supplemental Collateral Documents have been duly authorized, executed and delivered by that Restricted Subsidiary and constitute the valid and binding agreements of that Restricted Subsidiary, enforceable in accordance with its terms (subject to customary exceptions). The form of such Note Guarantee is attached as Exhibit E hereto. Section 4.21 Restrictions on Leasing and Dedication of Property. (a) ACEP will not, and will not permit any of the Restricted Subsidiaries to lease, sublease, or grant a license, concession or other agreement to occupy, manage or use, as lessor or sublessor, any 68 real or personal Project Assets owned or leased by ACEP or any Restricted Subsidiary for annual lease base rent, excluding common area maintenance and percentage rent, exceeding $2.0 million with respect to any individual transaction (each, a "Lease Transaction"), other than the following Lease Transactions: (1) ACEP or any Restricted Subsidiary may enter into a Lease Transaction with respect to any Project Assets, within or outside the Properties, or with any Person, provided that, in the reasonable opinion of ACEP, (a) such Lease Transaction will not materially interfere with, impair or detract from the operations of any of the Project Assets, and will in the reasonable judgment of ACEP enhance the value and operations of the Properties and (b) such Lease Transaction is at a fair market rent (in light of other similar or comparable prevailing commercial transactions or in the reasonable judgment of ACEP, otherwise enhances the value and operations of any of the Properties) and contains such other terms such that the Lease Transaction, taken as a whole, is commercially reasonable and fair to ACEP or such Restricted Subsidiary; (2) the transactions and agreements described under Section 4.11 to the extent such transactions or agreements constitute Lease Transactions; (3) ACEP or any Restricted Subsidiary may enter into a management or operating agreement with respect to any Project Asset, including any hotel with any Person (other than an Unrestricted Subsidiary or other Affiliate of the Principal (other than ACEP or any Restricted Subsidiary)); provided that (i) the manager or operator has experience in managing or operating similar operations or assets and (ii) such management or operating agreement is on commercially reasonable and fair terms to ACEP or such Restricted Subsidiary (in either case, in the reasonable judgment of ACEP); and (4) ACEP and any Restricted Subsidiary of ACEP may enter into a Lease Transaction with any of ACEP or any Restricted Subsidiary. (b) Notwithstanding Section 4.21(a), (1) no gaming or casino operations may be conducted on any Project Asset that is the subject of such Lease Transaction other than by ACEP or a Restricted Subsidiary; and (2) no Lease Transaction may provide that ACEP or any Restricted Subsidiary may subordinate its fee or leasehold interest to any lessee or any party providing financing to any lessee. (c) The Trustee shall at the request of ACEP or any Restricted Subsidiary enter into a commercially customary leasehold non-disturbance and attornment agreement with the lessee under any Lease Transaction permitted under this Section 4.21. Such agreement, among other things, shall provide that if the interests of ACEP (or in the case of a Lease Transaction being entered by a Restricted Subsidiary, the interests of the Restricted Subsidiary) in the Project Assets subject to the Lease Transaction are acquired by the Trustee (on behalf of the holders of the Notes), whether by purchase and sale, foreclosure, or deed in lieu of foreclosure or in any other way, or by a successor to the Trustee, including without limitation a purchaser at a foreclosure sale, then in each case subject to any applicable law or Gaming License, (1) the interests of the lessee in the Project Assets subject to the Lease Transaction shall continue in full force and effect and shall not be terminated or disturbed, except in accordance with the lease documentation applicable to the Lease Transaction, and (2) the lessee in the Lease Transaction shall attorn to and be bound to the Trustee (on behalf of the holders), its successors and assigns under all terms, covenants and conditions of the lease documentation applicable to the Lease Transaction. Such agreement shall also contain such other provisions that are commercially customary and that will not materially and adversely affect the Lien granted by the Collateral Documents (other than pursuant to the terms of the applicable non-disturbance agreement) as certified to the Trustee by an Officer of ACEP. 69 Section 4.22 Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors of ACEP may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event shall Project Assets of any of the Properties be transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by ACEP and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under Section 4.07 or under one or more clauses of the definition of Permitted Investments, as determined by ACEP. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of ACEP may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Any designation of a Subsidiary of ACEP as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of ACEP as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, ACEP will be in Default. The Board of Directors of ACEP may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of ACEP; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of ACEP of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under Section 4.09, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. Section 4.23 Further Assurances. ACEP shall (and shall cause each of the Restricted Subsidiaries to) execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as may be reasonably required from time to time in order: (1) to carry out more effectively the express purposes of the Collateral Documents; (2) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests required to be encumbered thereby and contemplated thereby; (3) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby and contemplated thereby; and (4) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Trustee any of the rights granted or now or hereafter intended by the parties thereto to be granted to the Trustee or under any other instrument executed in connection therewith or granted to ACEP under the Collateral Documents or under any other instrument executed in connection therewith. 70 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. Neither ACEP nor any Guarantor shall, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not ACEP or such Guarantor is the surviving corporation), or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of ACEP or any Guarantor taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (A) the ACEP or such Guarantor, as the case may be, is the surviving corporation; or (B) the Person formed by or surviving any such consolidation or merger (if other than ACEP or such Guarantor, as the case may be) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation, limited liability company or limited partnership entity organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than ACEP or such Guarantor, as the case may be) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the ACEP or such Guarantor, as the case may be, under the Notes, the Note Guarantees, this Indenture, the Registration Rights Agreement and the Collateral Documents, as applicable, pursuant to agreements reasonably satisfactory to the Trustee; (3) immediately after such transaction, no Default or Event of Default exists; (4) ACEP or such Guarantor, as the case may be, or the Person formed by or surviving any such consolidation or merger (if other than ACEP or such Guarantor, as the case may be), or to which such sale, assignment, transfer, conveyance or other disposition has been made has, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, a Fixed Charge Coverage Ratio not less than the Fixed Charge Coverage Ratio immediately preceding such transactions as such Fixed Charge Coverage Ratio test is set forth in Section 4.09(a) hereof; (5) such transaction would not result in the loss or suspension or material impairment of any of ACEP's or any Guarantor's Material Gaming Licenses, unless a comparable replacement Gaming License is effective prior to or simultaneously with such loss, suspension or material impairment; (6) such transaction would not require any Holder or Beneficial Owner of Notes in their capacity as such to obtain a Gaming License or be qualified or found suitable under the law of any applicable gaming jurisdiction; provided that such Holder or Beneficial Owner would not have been required to obtain a Gaming License or be qualified or found suitable under the laws of any applicable gaming jurisdiction in the absence of such transaction; and 71 (7) ACEP has delivered to the Trustee an Officers' Certificate and opinion of counsel, each stating that such transaction complies with the terms of this Indenture. ACEP will not have to comply with clause (4) above in connection with any merger or consolidation or the sale, assignment, transfer, conveyance or other disposition of all or substantially all of its properties or assets with an Affiliate that has no material assets or liabilities where the primary purpose of such transaction is to change ACEP into a corporation or other form of business entity and such transaction does not cause the realization of any material federal or state tax liability that will be paid by ACEP or any Restricted Subsidiary. For purposes of this paragraph, the term material refers to any assets, liabilities or tax liabilities that are greater than $1.0 million. In addition, the Company will not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. In the case of a lease of all or substantially all of the assets of ACEP, ACEP will not be released from its obligations under the Notes or this Indenture. (b) Section 5.01(a) will not apply to: (1) a merger of ACEP or ACEP Finance with an Affiliate solely for the purpose of reorganizing ACEP or ACEP Finance in another jurisdiction; or (2) any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among ACEP, ACEP Finance and the Restricted Subsidiaries or between or among Restricted Subsidiaries. Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), 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; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) the Company defaults for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes or under any Note Guarantee; 72 (2) the Company defaults in the payment when due and payable (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes or under any Note Guarantee; (3) the Company or any of its Restricted Subsidiaries fails to comply with the provisions of Sections 3.08, 3.09, 4.10, 4.15 or 4.16 hereof; (4) the Company or any of its Restricted Subsidiaries fails to comply with the provisions of Sections 4.07, 4.09 or 5.01 hereof for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (5) the Company or any of its Restricted Subsidiaries fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes, the Note Guarantees or the Collateral Documents for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (6) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by ACEP or any of the Restricted Subsidiaries or default on any Guarantee by ACEP or any of the Restricted Subsidiaries of Indebtedness of a third party, whether such Indebtedness or Guarantee now exists, or is created after the Issuance Date (other than any Non-Recourse Debt or any Guarantee related to Non-Recourse Debt), if that default: (A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness when due at final maturity, giving effect to any grace period or waiver provided in such Indebtedness (a "Payment Default"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case (other than a Payment Default or an acceleration of first-lien Indebtedness), the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default then exists or with respect to which the maturity thereof has been so accelerated or which has not been paid at maturity, aggregates $5.0 million or more; (7) failure of the Escrow Agreement, at any time, to be in full force and effect (unless the escrow funds are released by the Escrow Agent) or any contest by the Company or any of the Guarantors of the validity or enforceability of the Escrow Agreement; (8) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries, which judgment or judgments are not paid, discharged or stayed for a period of 60 days after such judgment becomes a final judgment; provided that the aggregate amount of all such undischarged judgments exceeds $5.0 million; (9) the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: 73 (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary in an involuntary case; (B) appoints a custodian of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary; or (C) orders the liquidation of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; (11) revocation, termination, suspension or other cessation of effectiveness of any Gaming License, which results in the cessation or suspension of gaming operations for a period of more than 90 consecutive days at any of the Properties (other than as a result of an Asset Sale) and such Property is the principal asset of a Significant Subsidiary or if such Property (considered separately) would constitute a Significant Subsidiary if it were the only asset in a Subsidiary; or (12) (a) except as permitted by this Indenture, any Note Guarantee or any Collateral Document or any material security interest granted thereby shall be held in any judicial proceeding to be unenforceable or invalid, or shall cease for any reason to be in full force and effect and such default continues for 10 days after written notice to ACEP or (b) ACEP or any Guarantor, or any Person acting on behalf of ACEP or any Guarantor, shall deny or disaffirm its obligations under any Note Guarantee or Collateral Document, in each of clauses (a) and (b), which would materially and adversely impair the benefits to the Trustee or the holders of the Notes thereunder. Section 6.02 Acceleration. Subject to the provisions of the Intercreditor Agreement, in the case of an Event of Default specified in clauses (9) or (10) of Section 6.01 hereof, with respect to the Company or any Guarantor that 74 is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Subject to the provisions of the Intercreditor Agreement, if any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare the principal, premium, if any, interest, Liquidated Damages, if any, and any other monetary obligations on all the Notes to be due and payable immediately The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of all of the Holders, rescind an acceleration or waive any existing Default or Event of Default and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium or Liquidated Damages, if any, that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after February 1, 2007 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to February 1, 2007 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on February 1 of the years set forth below, as set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence):
YEAR PERCENTAGE - ---- ---------- 2004........................................ 7.850% 2005........................................ 6.869% 2006........................................ 5.888% 2007........................................ 4.906%
Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium and Liquidated Damages, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the 75 payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06 Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder of a Note gives to the Trustee written notice that an Event of Default is continuing; (2) Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and, if requested, provide to the Trustee security or indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity, if requested; and (5) during such 60-day period the Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien. 76 Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and 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. Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and 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 the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian 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 to the Trustee any amount due to 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 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. 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 Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company, the Guarantors or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. 77 Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing of which a Responsible Officer of the Trustee has actual knowledge or of which written notice shall have been given to the Trustee in accordance with the terms of this Indenture, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default of which a Responsible Officer of the Trustee has actual knowledge or of which written notice shall have been given to the Trustee in accordance with the terms of this Indenture: (1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Collateral Documents to which the Trustee is a party and the Trustee need perform only those duties that are specifically set forth in this Indenture and the Collateral Documents to which the Trustee is a party and no others, and no implied covenants or obligations shall be read into this Indenture or the Collateral Documents to which the Trustee is a party against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee will examine the certificates and opinions to determine whether or not they conform on their face to the requirements of this Indenture but shall not verify the contents thereof. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not, and shall not be construed to, limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; 78 (3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof; and (4) the Trustee shall not be required to examine any of the reports, information or documents delivered to it under this Indenture to determine whether there has been any breach of the covenants of the Company contained herein, except that if any breach or default is expressly stated in any such reports, information or documents, the Trustee shall be deemed to have actual knowledge of such breach or default. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in any such document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its choice and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor will be sufficient if signed by an Officer of the Company or any Guarantor, as applicable. (f) The Trustee will 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 unless such Holders have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and, subject to TIA Section 310(b), may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights and duties. 79 Section 7.04 Trustee's Disclaimer. The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes or the Note Guarantees, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing of which a Responsible Officer of the Trustee has actual knowledge, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after such Responsible Officer has actual knowledge of such Default or Event of Default. Except in the case of a Default or Event of Default in payment of principal of, premium or Liquidated Damages, if any, or interest on, any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Notwithstanding anything to the contrary contained herein, the Trustee shall not be deemed to have knowledge of any Default or Event of Default until the Trustee shall have received notice thereof in accordance with Section 4.04 hereof, except in the case of an Event of Default with respect to the payment of principal or interest if the Trustee is the Paying Agent. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA Section 313(b)(2). The Trustee will also transmit by mail all reports as required by TIA Section 313(c). (b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company will promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Company and the Guarantors will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements, costs and expenses of the Trustee's agents, consultants and counsel (including the costs and expenses of collection on the Notes and the enforcement and administration of any right or remedy or observing any of its duties under this Indenture). 80 (b) The Company and the Guarantors will indemnify the Trustee and hold the Trustee harmless against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense is attributable to its negligence or bad faith. The Trustee will notify the Company and the Guarantors promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company and the Guarantors will not relieve the Company or any of the Guarantors of their obligations hereunder. The Company or such Guarantors will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Company will pay the reasonable fees and expenses of such counsel. Neither the Company nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld. (c) The obligations of the Company and the Guarantors under this Section 7.07 shall constitute additional Indebtedness hereunder and will survive the satisfaction and discharge of this Indenture. (d) To secure the Company's and the Guarantors' payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. (f) The Trustee will comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. 81 (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction, at the expense of the Company, for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof will continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee. Section 7.10 Eligibility; Disqualification. There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture will always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 82 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, and at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Note Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Note Guarantees), which will thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes, the Note Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof; (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith; and (4) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22 and 4.23 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "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 will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes will not be deemed outstanding for accounting purposes). For this purpose, Covenant 83 Defeasance means that, with respect to the outstanding Notes and Note Guarantees, the Company and the Guarantors may omit to comply with and will 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 will not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and Note Guarantees will be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(6), Section 6.01(11) and 6.01(12) hereof will not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm, or firm of independent public accountants, to pay the principal of, premium and Liquidated Damages, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date; (2) in the case of an election under Section 8.02 hereof, the Company must deliver to the Trustee an Opinion of Counsel confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal 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 Legal Defeasance had not occurred; (3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel confirming that the Holders of the outstanding Notes 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; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute 84 a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the Trustee an Opinion of Counsel, containing customary assumptions and exceptions, to the effect that upon and immediately following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally under any applicable law; (7) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (8) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and noncallable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and Liquidated Damages ,if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof 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 Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to Company. 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, premium or Liquidated Damages, if any, or interest on any Note 85 and remaining unclaimed for two years after such principal, premium or Liquidated Damages, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to 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, will 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 the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors' obligations under this Indenture and the Notes and the Note Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium or Liquidated Damages, if any, or interest on any Note following the reinstatement of its obligations, the Company will be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Note Guarantees or the Notes without the consent of any Holder of a Note: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (3) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 or Article 12 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; 86 (6) to conform the text of this Indenture, the Collateral Documents, the Note Guarantees or the Notes to any provision of the "Description of Notes" section of the Offering Memorandum, to the extent that such provision in that "Description of Notes" was intended to be a verbatim recitation of a provision of this Indenture, the Collateral Documents, the Notes or the Note Guarantees; (7) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (8) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.11, 4.10 and 4.15 hereof), the Note Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium or Liquidated Damages, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Notwithstanding the foregoing, without the consent of at least 75% in principal amount of the Notes (including Additional Notes, if any) then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, such Notes), no waiver or amendment to this Indenture may: (1) release all or substantially all of the Note Collateral from the Lien of this Indenture or the Collateral Documents (other than in accordance with this Indenture and the Collateral Documents); or (2) release any Guarantor from any of its obligations under its Note Guarantee of this Indenture (other than in accordance with this Indenture). Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture, the Notes, or the Note Guarantees. However, without 87 the consent of each Holder affected, an amendment, supplement or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.11, 4.10 and 4.15 hereof; (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) waive a Default or Event of Default in the payment of principal of or premium or Liquidated Damages, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the Notes; (7) waive a redemption payment with respect to any Note (other than a payment required by Sections 3.11, 4.10 or 4.15 hereof); or (8) make any change in this Article 9 relating to the amendment and waiver provisions. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Company and the Guarantors in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental Indenture. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. 88 Section 9.03 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes will be set forth in a amended or supplemental indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amended or supplemental indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. NOTE COLLATERAL AND SECURITY Section 10.01 Collateral Documents. The due and punctual payment of the principal of and interest and Liquidated Damages, if any, on the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest and Liquidated Damages (to the extent permitted by law), if any, on the Notes and the Note Guarantees and performance of all other obligations of the Company and the Guarantors to the Holders of Notes or the Trustee under this Indenture, the Notes and the Note Guarantees, according to the terms hereunder or thereunder, are secured as provided in the Collateral Documents which the Company and the Guarantors, as applicable, will enter into on the Acquisition Date. Each Holder of Notes, by its acceptance thereof, consents and agrees to the terms of the Collateral Documents (including, without limitation, the provisions providing for foreclosure and release of Note Collateral) as the same may be in 89 effect or may be amended from time to time in accordance with its terms and authorizes and directs the Trustee for the benefit of the Holders of the Notes and the Collateral Agent, as applicable, to enter into the Collateral Documents and to perform its respective obligations and exercise its respective rights thereunder in accordance therewith. The Company will deliver to the Trustee copies of all documents delivered to the Collateral Agent pursuant to the Collateral Documents, and will do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Collateral Documents, to assure and confirm to the Trustee and the Collateral Agent the security interest in the Note Collateral contemplated hereby, by the Collateral Documents or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes and Note Guarantees secured hereby, according to the intent and purposes herein expressed. The Company will take, and will cause its Subsidiaries to take, upon request of the Trustee or the Collateral Agent, any and all actions reasonably required to cause the Collateral Documents to create and maintain, as security for the Obligations of the Company hereunder, a valid and enforceable perfected second priority Lien in and on all the Note Collateral, in favor of the Trustee for the benefit of the Holders of Notes and the Collateral Agent, superior to and prior to the rights of all third Persons and subject to no other Liens other than First Lien Obligations and Permitted Liens. Section 10.02 Recording and Opinions. (a) At the Acquisition Date, the Company will furnish to the Trustee simultaneously with the release of the escrow funds pursuant to the Escrow Agreement, an Opinion of Counsel either: (1) stating that, in the opinion of such counsel, all action has been taken with respect to the recording, registering and filing of this Indenture, financing statements or other instruments necessary to make effective the Lien intended to be created by the Collateral Documents, and reciting with respect to the security interests in the Note Collateral, the details of such action; or (2) stating that, in the opinion of such counsel, no such action is necessary to make such Lien effective. (b) The Company will furnish to the Collateral Agent and the Trustee on February 1 in each year beginning with February 1, 2005, an Opinion of Counsel, dated as of such date, either: (1) (A) stating that, in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and re-filing of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of the Collateral Documents and reciting with respect to the security interests in the Note Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, and (B) stating that, in the opinion of such counsel, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding 12 months fully to preserve and protect, to the extent such protection and preservation are possible by filing, the rights of the Holders of Notes and the Collateral Agent and the Trustee hereunder and under the Collateral Documents with respect to the security interests in the Note Collateral; (2) stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien and assignment. (c) The Company will otherwise comply with the provisions of TIA Section 314(b). 90 Section 10.03 Release of Note Collateral. (a) Subject to the provisions of this Section 10.03, Note Collateral may be released from the Lien and security interest created by the Collateral Documents at any time or from time to time in accordance with the provisions of the Collateral Documents or as provided hereby. (b) Upon the request of the Company pursuant to an Officers' Certificate certifying that all conditions precedent hereunder have been met and stating whether or not such release is in connection with an Asset Sale and specifying (1) the identity of the Note Collateral to be released and (2) the provision of this Indenture which authorizes such release, the Collateral Agent, at the sole cost and expense of the Company, shall release: (1) all Note Collateral that is contributed, sold, leased, conveyed, transferred or otherwise disposed of in compliance with the provisions of this Indenture to any Person (other than the Company or any Restricted Subsidiary (including any Note Collateral that is contributed, sold, leased, conveyed, transferred or otherwise disposed of to an Unrestricted Subsidiary)); provided, that if such contribution, sale, lease, conveyance, transfer or other disposition constitutes an Asset Sale, the Company will apply the Net Proceeds in accordance with Section 4.10 hereof and that no Default or Event of Default has occurred and is continuing or would occur immediately following such release. Upon receipt of such Officers' Certificate the Collateral Agent shall execute, deliver or acknowledge any necessary or proper instruments of termination, satisfaction or release to evidence the release of any Note Collateral permitted to be released pursuant to this Indenture or the Collateral Documents. (2) Note Collateral that is condemned, seized or taken by the power of eminent domain or otherwise confiscated pursuant to an Event of Loss; provided that the Net Loss Proceeds, if any, from such Event of Loss are applied in accordance with Section 4.16 hereof; (3) all Note Collateral which may be released with the consent of Holders pursuant to Section 9.02 hereof; (4) all Note Collateral (except as provided in Article 8 and Article 12 hereof) upon discharge or defeasance in accordance with Article 8 and Article 12 hereof; (5) all Note Collateral upon the payment in full of all Obligations of the Company with respect to the Notes and the Guarantors with respect to the Note Guarantees; (6) Note Collateral of a Guarantor whose Note Guarantee is released in accordance with Section 11.05 hereof; (7) assets included in the Note Collateral with a Fair Market Value of up to $1.0 million in any calendar year, subject to cumulative carryover for any amount not used in any prior calendar year; and (8) all Note Collateral that constituted furnishings, fixtures or equipment that is financed with the proceeds of Indebtedness to any Person (including to the Company or an Affiliate of the Company in accordance with Section 4.11 hereof) financed or permitted to be incurred pursuant to Section 4.09(b)(3) hereof. (c) Upon receipt of such Officers' Certificate the Collateral Agent shall execute, deliver or acknowledge any necessary or proper instruments of termination, satisfaction or release to evidence the 91 release of any Note Collateral permitted to be released pursuant to this Indenture or the Collateral Documents. (d) No Note Collateral may be released from the Lien and security interest created by the Collateral Documents pursuant to the provisions of the Collateral Documents unless the certificate required by this Section 10.03 has been delivered to the Collateral Agent. (e) At any time when a Default or Event of Default has occurred and is continuing and the maturity of the Notes has been accelerated (whether by declaration or otherwise) and the Trustee has delivered a notice of acceleration to the Collateral Agent, no release of Note Collateral pursuant to the provisions of the Collateral Documents will be effective as against the Holders of Notes. (f) The release of any Note Collateral from the terms of this Indenture and the Collateral Documents will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Note Collateral is released pursuant to the terms of the Collateral Documents and this Indenture. To the extent applicable, the Company will cause TIA Section 313(b), relating to reports, and TIA Section 314(d), relating to the release of property or securities from the Lien and security interest of the Collateral Documents and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Collateral Documents, to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person will be an independent engineer, appraiser or other expert selected or approved by the Trustee and the Collateral Agent in the exercise of reasonable care. (g) The Trustee shall release at the sole cost and expense of the Company and the Guarantors the Lien securing any Note Collateral that also secures First Lien Obligations to the extent the Holders of the First Lien Obligations release their Liens on such Note Collateral; provided that, after giving effect to such release, the aggregate book value of all of the Note Collateral released does not exceed 10% of the Company's and the Guarantors' total combined assets as of the date hereof. Section 10.04 Certificates of the Company. The Company will furnish to the Trustee and the Collateral Agent, prior to each proposed release of Note Collateral pursuant to the Collateral Documents: (1) all documents required by TIA Section 314(d); and (2) an Opinion of Counsel, which may be rendered by internal counsel to the Company, to the effect that such accompanying documents constitute all documents required by TIA Section 314(d). The Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof, accept as conclusive evidence of compliance with the foregoing provisions the appropriate statements contained in such documents and such Opinion of Counsel. Section 10.05 Certificates of the Trustee. In the event that the Company wishes to release Note Collateral in accordance with the Collateral Documents and has delivered the certificates and documents required by the Collateral Documents and Sections 10.03 and 10.04 hereof, the Trustee will determine whether it has received all documentation required by TIA Section 314(d) in connection with such release and, based on such determination and the 92 Opinion of Counsel delivered pursuant to Section 10.04(2), will deliver a certificate to the Collateral Agent setting forth such determination. Section 10.06 Authorization of Actions to Be Taken by the Trustee Under the Collateral Documents. Subject to the provisions of Section 7.01 and 7.02 hereof, the Trustee may, in its sole discretion and without the consent of the Holders of Notes, direct, on behalf of the Holders of Notes, the Collateral Agent to, take all actions it deems necessary or appropriate in order to: (1) enforce any of the terms of the Collateral Documents; and (2) collect and receive any and all amounts payable in respect of the Obligations of the Company hereunder. The Trustee will have power to institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Note Collateral by any acts that may be unlawful or in violation of the Collateral Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders of Notes in the Note Collateral (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 hereunder or be prejudicial to the interests of the Holders of Notes or of the Trustee). Section 10.07 Authorization of Receipt of Funds by the Trustee Under the Collateral Documents. The Trustee is authorized to receive any funds for the benefit of the Holders of Notes distributed under the Collateral Documents, and to make further distributions of such funds to the Holders of Notes according to the provisions of this Indenture. Section 10.08 Termination of Security Interest. Upon the payment in full of all Obligations of the Company under this Indenture and the Notes, upon Legal Defeasance or upon the consent of at least 75% in principal amount of the Notes then outstanding as provided in Section 9.02 hereof, the Trustee will, at the request of the Company, deliver a certificate to the Collateral Agent stating that such Obligations have been paid in full, and instruct the Collateral Agent to release the Liens pursuant to this Indenture and the Collateral Documents. Section 10.09 After Acquired Property. (a) Upon the acquisition by the Company or any Guarantor of any assets or property that either (1) secures First Lien Obligations or (2) has a Fair Market Value in excess of $2.0 million individually or $10.0 million in a series of one or more related transactions, subject to the approval by Gaming Authorities or to the extent not prohibited by Gaming Law, the Company and such Guarantor shall: (1) in the case of personal property, execute and deliver to the Trustee for the benefit of the Holders such Uniform Commercial Code financing statements or take such other actions as shall be necessary or (in the opinion of the Trustee) desirable to perfect and protect the Trustee's security interest in such assets or property for the benefit of the Holders of Notes; 93 (2) in the case of real property, execute and deliver to the Trustee: (a) a deed of trust or a leasehold deed of trust, as appropriate, substantially in the form of the Deeds of Trust (with such modifications as necessary to comply with applicable law) that secure the Notes and the Note Guarantees; and (b) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property; and (3) promptly deliver to the Trustee such Opinion of Counsel, if any, as the Trustee may reasonably require with respect to the foregoing (including opinions as to enforceability and perfection of security interests; provided, however, that (1) the Company and the Guarantors shall not be required to provide a security interest in any assets or property that are permitted to secure certain other Obligations as provided for in this Indenture, and (2) no more than 65% of the Capital Stock of any Foreign Subsidiary shall be required to be pledged as Note Collateral. (b) If the granting of any security interest referred to in Section 10.09(a) requires the consent of a third party, the Company shall use all commercially reasonable efforts to obtain such consent. (c) Any future Foreign Subsidiary of the Company that is a direct borrower with respect to any Indebtedness referred to in Section 4.09(b)(1) may, to the extent otherwise permitted by this Indenture, grant a security interest in its property to the lenders therein with respect to such Indebtedness, or to an agent or trustee on behalf of such lenders, to secure Obligations with respect to such Indebtedness, without being required to provide a second-priority security interest upon such property as security for the Notes; provided, however, that no such security interest shall secure any Indebtedness of the Company, any Restricted Subsidiary or any Guarantor. ARTICLE 11. NOTE GUARANTEES Section 11.01 Guarantee. (a) Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note 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 Notes or the obligations of the Company hereunder or thereunder, that: (1) the principal of, premium and Liquidated Damages, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that 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. 94 Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. (b) The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Note Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. (c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect. (d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee. Section 11.02 Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. Section 11.03 Execution and Delivery of Note Guarantee. To evidence its Note Guarantee set forth in Section 11.01 hereof, each Guarantor hereby agrees that a notation of such Note Guarantee substantially in the form attached as Exhibit E hereto will be 95 endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers. Each Guarantor hereby agrees that its Note Guarantee set forth in Section 11.01 hereof will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. If an Officer whose signature is on this Indenture or on the Note Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Note Guarantee is endorsed, the Note Guarantee will be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company or any of its Restricted Subsidiaries creates or acquires any Restricted Subsidiary after the date of this Indenture and Investments in that Restricted Subsidiary exceed the amount described in clause (1) of the definition of "Permitted Investments", if required by Section 4.20 hereof, the Company will cause such Restricted Subsidiary to comply with the provisions of Section 4.20 hereof and this Article 11, to the extent applicable. For the avoidance of doubt, this Article 11 shall apply to each of the Acquired Subsidiaries, and the Company shall, and shall cause each such Acquired Subsidiary to, comply with Section 4.20 and this Article 11 on the Acquisition Date. Section 11.04 Guarantors May Consolidate, etc., on Certain Terms. Except as otherwise provided in Section 11.05 hereof, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, whether or not affiliated with such Guarantor, unless: (1) immediately after giving effect to such transaction, no Default or Event of Default exists; and (2) either: (a) subject to Section 11.05 hereof, the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger unconditionally assumes all the obligations of that Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under this Indenture and the Note Guarantee on the terms set forth herein or therein; and (b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation, Section 4.10 hereof. In case of any such consolidation, merger, sale or conveyance and, subject to Section 11.05 hereof, upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note 96 Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 11.05 Releases. (a) In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) the Company or a Restricted Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. (b) Upon designation of any Guarantor as an Unrestricted Subsidiary in accordance with the terms of this Indenture, such Guarantor will be released and relieved of any obligations under its Note Guarantee. (c) Upon Legal Defeasance in accordance with Article 8 hereof or satisfaction and discharge of this Indenture in accordance with Article 12 hereof, each Guarantor will be released and relieved of any obligations under its Note Guarantee. (d) Upon the requisite consent of the Holders of the Notes, in accordance with Section 9.02 hereof, a Guarantor shall be released and relieved of any Obligations under its Note Guarantee. Any Guarantor not released from its obligations under its Note Guarantee as provided in this Section 11.05 will remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. ARTICLE 12. SATISFACTION AND DISCHARGE Section 12.01 Satisfaction and Discharge. This Indenture will be discharged and will cease to be of further effect as to all Notes and Note Guarantees issued hereunder and all Liens securing the Notes and the Obligations including the Note Guarantees will be released, when: (1) either: 97 (a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the provisions of Sections 12.02 and 8.06 will survive. In addition, nothing in this Section 12.01 will be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. Section 12.02 Application of Trust Money. Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee pursuant to Section 12.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes 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, interest and Liquidated Damages, if any, 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. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 12.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's obligations under this Indenture and the Notes shall be 98 revived and reinstated as though no deposit had occurred pursuant to Section 12.01 hereof; provided that if the Company has made any payment of principal of, premium, if any, interest or Liquidated Damages, if any, on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. ARTICLE 13. MISCELLANEOUS Section 13.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties will control. Section 13.02 Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company and/or any Guarantor: American Casino & Entertainment Properties LLC American Casino & Entertainment Properties Finance Corp. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Telecopier No.: (702) 383-5242 Attention: Denise Barton With a copy to: Piper Rudnick LLP 1251 Avenue of the Americas New York, New York 10020 Telecopier No.: (212) 835-6001 Attention: Steven L. Wasserman, Esq. If to the Trustee: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Telecopier No.: (302) 636-4140 Attention: Michael G. Oller The Company, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being 99 deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time. Section 13.03 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 13.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 13.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA Section 314(e) and must include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (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 such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and 100 (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 13.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 13.07 No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, manager (or managing member), direct or indirect member, partner, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture, the Note Guarantees, the Collateral Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. Section 13.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 13.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10 Successors. All agreements of the Company in this Indenture and the Notes will bind its successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 11.05. Section 13.11 Severability. In case any provision in this Indenture, the Note Guarantees or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Section 13.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement. 101 Section 13.13 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 102 SIGNATURES Dated as of January 29, 2004 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: ____________________________________ Name: Title: AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: ____________________________________ Name: Title: WILMINGTON TRUST COMPANY By: ____________________________________ Name: Title: EXHIBIT A1 [Face of Note] CUSIP/CINS ____________ 7.85% Senior Secured Notes due 2012 No. ___ $____________ AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. each promise to pay to ____________________ or registered assigns, the principal sum of ___________________________________ DOLLARS on February 1, 2012. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Dated: AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: ____________________________________ Name: Title: AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: ____________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: WILMINGTON TRUST COMPANY, as Trustee By: ____________________________________ Authorized Signatory A1-1 [Back of Note] 7.85% Senior Secured Notes due 2012 [Insert the Global Note Legend, if ap`plicable pursuant to the provisions of the Indenture] [Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) INTEREST. American Casino & Entertainment Properties LLC, a Delaware limited liability company ("ACEP") and American Casino & Entertainment Properties Finance Corp., a Delaware corporation ("ACEP Finance", together with ACEP, the "Company"), promises to pay interest on the principal amount of this Note at 7.85% per annum from ________________, 20__ until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages, if any, semi-annually in arrears on February 1 and August 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be _____________, 20__. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. (2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the January 15 or July 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages, if any, on, all Global Notes and all other Notes the Holders of which hold at least $2.0 million aggregate principal amount of Notes and shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be 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. (3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change A1-2 any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. (4) INDENTURE AND COLLATERAL DOCUMENTS. The Company issued the Notes under an Indenture dated as of January 29, 2004 (the "Indenture") among the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company. The Notes are secured by a pledge of Note Collateral pursuant to the Collateral Documents referred to in the Indenture. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company will not have the option to redeem the Notes prior to February 1, 2008. On or after February 1, 2008, the Company will have the option to redeem the Notes, in whole or in part, upon not less than 15 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on February 1 of the years indicated below:
Year Percentage - ---- ---------- 2008............................... 103.925% 2009............................... 101.963% 2010 and thereafter................ 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to February 1, 2007, the Company may on one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including Additional Notes) issued under the Indenture with the net cash proceeds of one or more Equity Offerings of from the proceeds of Permitted Affiliate Subordinated Debt of ACEP at a redemption price equal to 107.850% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date; provided that at least 65% in aggregate principal amount of the Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by ACEP and its Subsidiaries) and that such redemption occurs within 60 days of the date of the closing of such Equity Offering or the issuance of Permitted Affiliate Subordinated Debt. (6) REDEMPTION PURSUANT TO GAMING LAWS. If any Gaming Authority requires that a Holder or Beneficial Owner of Notes be licensed, qualified or found suitable under any applicable Gaming Law and such Holder or Beneficial Owner: (a) fails to apply for a license, qualification or a finding of suitability within 30 days (or such shorter period as may be required by the applicable Gaming Authority) after being requested to do so by the Gaming Authority; or (b) is denied such license or qualification or not found suitable; ACEP shall then have the right, at its option: A1-3 (c) to require each such Holder or Beneficial Owner to dispose of its Notes within 30 days (or such earlier date as may be required by the applicable Gaming Authority) of the occurrence of the event described in clause (1) or (2) above, or (d) to redeem the Notes of each such Holder or Beneficial Owner, in accordance with Rule 14e-1 of the Exchange Act, if applicable, at a redemption price equal to the lowest of: (1) the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the date 30 days' after such Holder or Beneficial Owner is required to apply for a license, qualification or finding of suitability (or such shorter period that may be required by any applicable Gaming Authority) if such Holder or Beneficial Owner fails to do so ("Application Date") or of the date of denial of license or qualification or of the finding of unsuitability by such Gaming Authority; (2) the price at which such Holder or Beneficial Owner acquired the Notes, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the Application Date or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority; and (3) such other lesser amount as may be required by any Gaming Authority. Immediately upon a determination by a Gaming Authority that a Holder or Beneficial Owner of the Notes will not be licensed, qualified or found suitable and must dispose of the Notes, the Holder or Beneficial Owner will, to the extent required by applicable Gaming Laws, have no further right: (a) to exercise, directly or indirectly, through any trustee or nominee or any other Person or entity, any right conferred by the Notes, the Note Guarantees or the Indenture; or (b) to receive any interest, Liquidated Damages, dividend, economic interests or any other distributions or payments with respect to the Notes and the Note Guarantees or any remuneration in any form with respect to the Notes and the Note Guarantees from the Company, the Guarantors or the Trustee, except the redemption price referred to above. (7) SPECIAL MANDATORY REDEMPTION. In the event each of the Release Conditions shall not have been satisfied on or prior to the earlier of (A) August 31, 2004 and (B) an Interest Top-Off Failure (the earlier of (A) and (B) being the "Escrow Break Date"), ACEP shall redeem all of the Notes, on the second Business Day immediately following the Escrow Break Date, at a redemption price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest to the date of redemption. (8) MANDATORY REDEMPTION. Other than in connection with redemption pursuant to Gaming Laws or a Special Mandatory Redemption, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. (9) REPURCHASE AT THE OPTION OF HOLDER. (a) If there is a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any A1-4 Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Restricted Subsidiary of the Company consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.11 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) and other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" attached to this Note. (c) If the Company or a Restricted Subsidiary of the Company receives Excess Loss Proceeds, within five days of each date on which the aggregate amount of Excess Loss Proceeds exceeds $5.0 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture that require the Company to make an Event of Loss Offer pursuant to Section 3.12 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) and other pari passu Indebtedness that may be purchased out of the Excess Loss Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) and other pari passu Indebtedness tendered pursuant to an Event of Loss Offer is less than the Excess Loss Proceeds, the Company may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Loss Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Excess Loss Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" attached to this Note. (10) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 15 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a A1-5 Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (11) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (12) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (13) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Note Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing Default or Event of Default compliance with any provision of the Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Note Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to conform the text of the Indenture, the Collateral Documents or the Notes to any provision of the "Description of Notes" section of the Offering Memorandum, to the extent that such provision in that "Description of Notes" was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees, the Collateral Documents or the Notes, to provide for the Issuance of Additional Notes in accordance with the limitations set forth in the Indenture, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes. (14) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply with Section 3.08, 3.09, 4.07, 4.09, 4.10, 4.15, 4.16 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding voting as a single class to comply with certain other agreements in the Indenture, the Notes or the Collateral Documents; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain A1-6 undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, when taken together, would constitute a Significant Subsidiary; (viii) the breach of certain covenants in the Collateral Documents or the Collateral Documents shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect; (ix) certain cessations or suspensions of the Company's Gaming Licenses; and (x) except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. (15) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (16) NO RECOURSE AGAINST OTHERS. A director, officer, manager (or managing member) direct or indirect member, partner, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Note Guarantees, the Collateral Documents or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (17) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (18) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (19) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the A1-7 Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of January 29, 2004, among the Company and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Company , the Guarantors and the other parties thereto, relating to rights given by the Company and the Guarantors to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). (20) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: American Casino & Entertainment Properties LLC American Casino & Entertainment Properties Finance Corp. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Attention: Denise Barton A1-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature: ________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10, 4.15 or 4.16 of the Indenture, check the appropriate box below: [ ] Section 4.10 [ ] Section 4.15 [ ] Section 4.16 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10, Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $_______________ Date: _______________ Your Signature: ________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:_________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-10 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount Amount of decrease in Amount of increase in at maturity of this Principal Amount Principal Amount Global Note following Signature of authorized at maturity of at maturity of such decrease officer of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- ---------------- ---------------- ------------- ---------
* This schedule should be included only if the Note is issued in global form. A1-11 EXHIBIT A2 FORM OF AFFILIATE SUBORDINATED NOTE Dated as of [ ] American Casino & Entertainment Properties LLC 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 FOR VALUE RECEIVED, the undersigned, American Casino & Entertainment Properties LLC, a Delaware limited liability company (the "Maker"), hereby promises to pay to [ ] (the "Holder"), its successors or its assigns, at the offices of the Holder, or at such other place as the holder of this Affiliate Subordinated Note (this "PASI Note") shall specify, on [ ]* (the "Repayment Date") (or on such later date as the parties shall mutually agree), in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts, the aggregate unpaid principal amount of all Advances (as defined below), plus all interest added to the outstanding principal amount of this PASI Note pursuant to the terms hereof. The Maker promises to pay interest on the outstanding principal amount of this PASI Note in accordance with Section 2 of this PASI Note. 1. Definitions. Except as provided herein below, capitalized terms used herein shall have the meanings ascribed to such terms in the Indenture, dated as of January 29, 2004 (as amended, supplemented or restated, the "Indenture"), by and among the Maker, American Casino & Entertainment Properties Finance Corp. ("ACEP Finance"), certain Guarantors named therein and Wilmington Trust Company, as trustee (including any successor trustees, the "Trustee"), whether or not such Indenture is still in effect. The terms defined in this Section 1 shall have the following meanings for all purposes in this PASI Note: 1.1 "Advance" means loans or advances made or deemed to be made (including, for purposes of clarification, pursuant to Section 2.3) by the Holder to or on behalf of the Maker. 1.2 "Advance Date" means any date upon which Advances are made or deemed to be made (including, for purposes of clarification, pursuant to Section 2.3) by the Holder to or on behalf of the Maker. 1.3 "Advance Schedule" has the meaning set forth in Section 3. 1.4 "Capitalized Interest Date" has the meaning ascribed to such term in Section 2.3. 1.5 "Event of Default" means an Event of Default under the Indenture. 1.6 "Holder" has the meaning set forth in the first paragraph of this PASI Note. 1.7 "Indenture Debt" means the aggregate principal amount of the 8.85% Senior Secured Notes due 2012 (the "Notes"), including any Additional Notes issued under the Indenture, together in - -------- * No earlier than three months after the final maturity date of the Notes. A2-1 each case with interest thereon (including, without limitation, any interest subsequent to the filing by or against the Maker or ACEP Finance of any bankruptcy, reorganization or similar proceeding, whether or not such interest would constitute an allowed claim in any such proceeding, calculated at the rate set forth for overdue payments on the Notes set forth in the Indenture) and all fees, expenses and other amounts owing from time to time by the Maker, ACEP Finance and the Guarantors under the Indenture. 1.8 "Maker" has the meaning set forth in the first paragraph of this PASI Note. 1.9 "Proceeding" has the meaning set forth in Section 6.5. 1.10 "Repayment Date" has the meaning set forth in the first paragraph of this PASI Note. 1.11 "Senior Bank Debt" means the principal amount of all loans from time to time outstanding or owing under the Bank Credit Facility, together with interest thereon (including, without limitation, any interest subsequent to the filing by or against the Maker or ACEP Finance of any bankruptcy, reorganization or similar proceeding, whether or not such interest would constitute an allowed claim in any such proceeding, calculated at the rate set forth for overdue loans in the Bank Credit Facility) and all fees, expenses and other amounts owing from time to time by the Maker or ACEP Finance under the Bank Credit Facility. 1.12 "Senior Debt" means (i) the Indenture Debt, (ii) the Senior Bank Debt, (iii) all fees, expenses and other amounts owed to the Collateral Agent by the Maker and ACEP Finance under any collateral or other agreement relating to the Indenture Debt and/or the Senior Bank Debt, and (iv) any other indebtedness or other obligations of the Maker designated in writing by the Maker and Holder as Senior Debt. The provisions of this Section 1 to the contrary notwithstanding, to the extent any term defined in this PASI Note by cross reference to the Indenture is amended, such term shall be deemed likewise amended herein. Such terms shall continue to have the meanings set forth in the Indenture whether or not the Indenture remains in effect. 2. Interest Rates; Interest Repayment and Accrual. 2.1 Interest on the outstanding principal amount, if any, of each Advance shall accrue from and after the Advance Date with respect to each Advance, calculated on the basis of a 360-day year for the actual number of days elapsed, at the rate per annum of: [ ] 2.2 Until the principal amount of this PASI Note and any other amounts due hereunder are paid in full in cash, all accrued and unpaid interest on the outstanding principal amount of this PASI Note shall be payable quarterly in arrears on [ ], [ ], [ ], and [ ] of each year, commencing [ ], to the extent such payment is permitted under the Indenture and the Bank Credit Facility, provided that no such payments shall be made if a Default or an Event of Default shall have occurred and be continuing. All payments of principal of and interest on this PASI Note shall be payable in lawful currency of the United States of America. All such cash payments shall be made by the Maker to an account set forth on Schedule A or such other account designated in writing by the Holder to the Maker, and shall be recorded on the books and records of the Maker and the Holder. Subject to the provisions in Section 6 hereof, all accrued and unpaid interest shall be payable in cash upon maturity of this PASI Note (whether at stated maturity, by acceleration or otherwise) and from time to time thereafter upon demand of the Holder until this PASI Note is paid in full in cash. A2-2 2.3 On the date any accrued interest on the unpaid principal amount of this PASI Note is payable pursuant to Section 2.2 above, to the extent all or part of such payment is not permitted pursuant to Section 2.2 above, then on such date (the "Capitalized Interest Date") all or such portion of such interest shall be deemed to be an Advance to the Maker and shall be added to the outstanding principal amount of this PASI Note on such Capitalized Interest Date. 3. Notation of Advances, Repayments and Prepayments. At the time of the making of each Advance (including, for purposes of clarification, pursuant to Section 2.3) or of any repayment or prepayment, if any, the Holder shall make a notation on Schedule I of this PASI Note or on a continuation thereof (the "Advance Schedule"), specifying the date of such Advance, repayment or prepayment and the amount of such Advance, repayment or prepayment; provided, however, that a failure to make a notation with respect to any Advance shall not limit or otherwise affect the obligation of the Maker hereunder and recognition of payment of principal (including pursuant to Section 2.3 above) or interest on this PASI Note shall not be affected by the failure to make a notation on said Advance Schedule. If necessary to evidence an extension of the payment date or any other change in the provisions of this PASI Note agreed to in writing by the Maker and the Holder, the Maker shall furnish a new note in substitution for this PASI Note. The first notation made by the Holder on the Advance Schedule attached to the replacement PASI Note shall be the most recent aggregate outstanding principal balance appearing on the Advance Schedule attached to the replaced note. 4. Prepayments. To the extent permitted under the Indenture and the Bank Credit Facility, the Maker shall have the right from time to time to prepay this PASI Note, in whole or in part, together with accrued interest on the amount of principal prepaid to the date of prepayment without penalty or premium. 5. Unconditional Obligations; Fees; Waivers, Etc. 5.1 The obligations to make the payments provided for in this PASI Note are absolute and unconditional and not subject to any defense, set-off, counterclaim, rescission, recoupment or adjustment whatsoever. 5.2 The Holder agrees that, until the Senior Debt has been paid in full in cash, (i) it will not accelerate payment of all or any part of the principal, interest and other amounts owing under this PASI Note, unless the obligations under the Indenture or the Bank Credit Facility have been accelerated and (ii) it will not file or join in any petition or proceeding commencing the bankruptcy of the Maker or commencing any other Proceeding, but may join in any Proceeding after it has commenced. In the event of any Proceeding, if all Senior Debt has not been paid in full in cash at such time, Holder agrees to use its good faith, commercially reasonable efforts to enforce claims comprising obligations under this PASI Note in the name of Holder in any such Proceeding by proof of debt, proof of claim, suit or otherwise. 5.3 Subject to Sections 5.2, 6 and 8, if the holder of this PASI Note shall institute any action to enforce the collection of principal of and/or interest on this PASI Note, there shall be immediately due and payable from the Maker, in addition to the then unpaid principal amount of and interest on this PASI Note, all reasonable costs and expenses incurred by the Holder in connection therewith, including reasonable attorneys' fees and disbursements. 5.4 No forbearance, indulgence, delay or failure to exercise any right or remedy with respect to this PASI Note shall operate as a waiver, nor as an acquiescence in any default. No single or partial exercise of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. A2-3 5.5 This PASI Note may not be modified or discharged orally, but only in writing duly executed by the holder hereof. 5.6 The Maker hereby waives presentment, demand, notice of dishonor, protest and notice of protest. 6. Subordination. 6.1 Subordination Agreement. The Holder and the Maker agree that the payment of principal of and interest on this PASI Note, and any other amounts payable with respect thereto, is subordinated to the prior payment in full in cash (whether at maturity, by prepayment, by acceleration or otherwise) of any and all Senior Debt, and agree that, except as permitted under the Indenture and the Bank Credit Facility, no payment of, on, or on account of the indebtedness so subordinated shall be made unless and until all payments of principal, interest or amounts otherwise payable with respect to all Senior Debt have been paid in full in cash. Except as permitted under the Indenture and the Bank Credit Facility, the Holder further agrees not to receive or accept any such payment until all Senior Debt has been paid in full in cash. In the event that, notwithstanding the foregoing provisions, any payment shall be received by the Holder on account of principal of or interest on or other amounts payable with respect to this PASI Note in contravention of the foregoing provisions, such payment shall be held in trust for the benefit of and shall, to the extent that at such time all Senior Debt has not been paid in full in cash, be paid over to the Collateral Agent, as agent for the holders of the Senior Debt, for application to the payment of the Senior Debt until all such Senior Debt shall have been paid in full in cash. 6.2 Dissolution, Etc. In the event of any dissolution, winding-up, liquidation or reorganization of the Maker or ACEP Finance (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of the Maker or ACEP Finance or otherwise): 6.2.1 the holders of the Senior Debt shall be entitled to receive payments in full in cash of all such Senior Debt (including, as applicable, interest accruing on, or original issue discount accreting with respect to, such Senior Debt after the commencement of a bankruptcy case or proceeding at the contract rate whether or not such interest is an allowed claim in such case or proceeding and any additional interest that would have accrued thereon but for the commencement of any such case or proceeding) before the Holder is entitled to receive any payment on account of the principal of or interest on or any other amounts payable in respect of this PASI Note; 6.2.2 any payment or distribution of assets of the Maker in the form of cash or property, to which the Holder would, except for the subordination provisions set forth herein, be entitled shall be paid by the Maker, or any receiver, trustee in bankruptcy, liquidating trustee or agent or other person making such payment or distribution directly to the Collateral Agent, as agent for the holders of the Senior Debt, to the extent necessary to make payment in full in cash of all Senior Debt remaining unpaid; and 6.2.3 in the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Maker in the form of cash or property shall be received by the Holder on account of principal of or interest on or other amounts payable in respect of this PASI Note before all Senior Debt (including, as applicable, interest accruing on, or original issue discount accreting with respect to, such Senior Debt after the commencement of a bankruptcy case or proceeding at the contract rate whether or not such interest is an allowed claim in such case or proceeding and any additional interest that would have accrued thereon but for the commencement of any such case or proceeding) is paid in full in cash, or A2-4 effective provision is made for their payment, such payment or distribution shall be received in trust and shall, to the extent that at such time all Senior Debt has not been paid in full in cash, be paid over to the Collateral Agent, as agent for the holders of the Senior Debt, for application to the payment of such Senior Debt until all such Senior Debt shall have been paid in full in cash. The consolidation of the Maker with, or the merger of the Maker into, another entity in accordance with the provisions of Article 5 of the Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for purpose of these subordination provisions. 6.3 Subrogation. Subject to the payment in full in cash of all Senior Debt, the Holder shall be subrogated to the rights of the holders of the Senior Debt or their respective representatives (except that the Holder shall not be subrogated to the position of a secured creditor until the payment in full in cash of all Senior Debt), to receive payments or distributions of assets of the Maker applicable to the Senior Debt until all amounts owing on this PASI Note shall be paid in full in cash, and for the purpose of such subrogation, no payments or distributions to the holders of the Senior Debt, or their respective representatives, as the case may be, by or on behalf of the Maker or by or on behalf of the Holder, which otherwise would have been made to the Holder shall, as between the Maker and its creditors, be deemed to be payment by the Maker to or on account of the holders of the Senior Debt, or their respective representatives, as the case may be, it being understood that the subordination provisions in this Section 6 are intended solely for the purpose of defining the relative rights of the Holder, on the one hand, and the holders of the Senior Debt and their respective representatives, on the other hand. 6.4 Obligation to Pay Unconditional. Except as expressly provided herein, nothing is intended to or shall impair, as between the Maker and the Holder, the obligation of the Maker, which is absolute and unconditional, to pay to the Holder the principal of and interest on this PASI Note as and when the same shall become due and payable in accordance with its terms. 6.5 Proceedings. This PASI Note shall remain in full force and effect as between the Holder, the Trustee and Collateral Agent, the Maker and/or Administrative Agent notwithstanding the occurrence of any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding of or against the Maker or ACEP Finance, its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of the Maker or ACEP Finance, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) general assignment for the benefit of creditors of the Maker or ACEP Finance or (d) other marshalling of the assets of the Maker or ACEP Finance (each of (a) through (d) above, a "Proceeding"). 7. Events of Default. 7.1 Subject to the provisions of Sections 5.2 and 7.2 hereof, upon the happening of an Event of Default, and while such Event of Default is continuing, the Holder may, by written notice to the Maker and subject to applicable cures and waivers, declare this PASI Note immediately due and payable, whereupon the principal of, the interest on, and any other amount owing under, this PASI Note shall immediately become due and payable; provided, that the Holder may not accelerate the obligations under this PASI Note unless the obligations under the Indenture and the Bank Credit Facility have been accelerated. Notwithstanding the foregoing, if an Event of Default specified in Sections 6.01(9) or 6.01(10) of the Indenture occurs, the principal of, the interest on, and any other amount owing under, this PASI Note shall be due and payable immediately without further action or notice. 7.2 The provisions of Section 7.1 to the contrary notwithstanding, in the event an Event of Default under the Indenture shall be waived or cured, then the related Event of Default under this PASI Note shall be deemed waived or cured, as the case may be, for all purposes of this PASI Note. To the A2-5 extent the maturity of and payments due under this PASI Note shall have been accelerated as a result of any Event of Default that is deemed waived or cured, such indebtedness shall cease to be accelerated and all terms of this PASI Note shall continue to be in effect as if no acceleration occurred. 8. Suits for Enforcement and Remedies. Subject to the provisions of Sections 5.2, 6 and 7 hereof, if any one or more Events of Default shall occur and be continuing, the Holder may proceed to protect and enforce the Holder's rights either by suit in equity or by action at law, or both, or proceed to enforce the payment of this PASI Note or to enforce any other legal or equitable right of the Holder. No right or remedy herein or in any other agreement or instrument conferred upon the Holder is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 9. Miscellaneous. 9.1 If any payment hereunder falls due on a Saturday, Sunday or any other day on which commercial banks in New York City are authorized or required by law to close, the maturity thereof shall be extended to the next succeeding business day. 9.2 The headings of the various Sections of this PASI Note are for convenience of reference only and shall in no way modify any of the terms or provisions of this PASI Note. 9.3 The Trustee, for the benefit of the holders of the Notes, and the Administrative Agent, for the benefit of the lenders of the Bank Credit Facility shall be express third party beneficiaries of the provisions of this PASI Note relating to subordination and the deferral or accrual of interest payments and the maturity date of the PASI Notes (including without limitation Sections 5.2, 6, 7 and 9.3 of this PASI Note). No such provisions may be amended without the consent of the requisite holders of each class of Senior Debt. 10. CHOICE OF LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS PASI NOTE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 11. Consent to Jurisdiction. Each of the Maker and the Holder (a) irrevocably agrees that any suit, action or proceeding arising out of or based upon this PASI Note shall be instituted in any United States Federal or New York State court located in the Borough of Manhattan, The City of New York, (b) irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such proceeding, and (c) irrevocably submits to the non-exclusive jurisdiction of any United States Federal or New York State court located in the Borough of Manhattan, The City of New York in connection with any suit, action or proceeding arising out of, or relating to this PASI Note. Each of the Maker and the Holder expressly consents to the jurisdiction of such courts in respect of any such action and waives any other requirements of or objections to personal jurisdiction with respect thereto. [Remainder of page intentionally left blank] A2-6 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By:________________________________ Name: Title: Agreed to and Acknowledged: [HOLDER] By: ________________________________ Name: Title: A2-7 Schedule A ACCOUNT INFORMATION A2-8 Schedule I ADVANCES, REPAYMENTS AND PREPAYMENTS
AMOUNT AMOUNT OF REPAYMENT OR UNPAID DATE OF ADVANCE PREPAYMENT PRINCIPAL BALANCE NOTATION MADE BY - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ---------------- - ---- ---------- --------------- ----------------- ----------------
A2-9 EXHIBIT A3 [Face of Regulation S Temporary Global Note] CUSIP/CINS __________ 7.85% Senior Secured Notes due 2012 No. ___ $__________ AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. promises to pay to ____________________ or registered assigns, the principal sum of ___________________________________________________ DOLLARS on February 1, 2012. Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Dated: AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: ____________________________________ Name: Title: AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: ____________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: WILMINGTON TRUST COMPANY, as Trustee By: ____________________________________ Authorized Signatory A3-1 [Back of Regulation S Temporary Global Note] 7.85% Senior Secured Notes due 2012 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.12 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF American Casino & Entertainment Properties LLC THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) IN THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) OUTSIDE THE UNITED STATES IN AN A3-2 OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a) (1), (2), (3) OR (7) OF THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC SO REQUESTS), (2) TO AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF AT ANY TIME THE NEVADA GAMING COMMISSION FINDS THAT A HOLDER OF THIS SECURITY IS UNSUITABLE TO CONTINUE TO OWN THE SECURITY, AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC SHALL HAVE THE RIGHT TO REQUIRE SUCH HOLDER TO DISPOSE OF SUCH SECURITY AS PROVIDED BY THE GAMING LAWS OF THE STATE OF NEVADA AND THE REGULATIONS PROMULGATED THEREUNDER. ALTERNATIVELY, AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC SHALL HAVE THE RIGHT TO REDEEM THE SECURITY FROM THE HOLDER AT A PRICE SPECIFIED IN THE INDENTURE GOVERNING THE SECURITY. NEVADA GAMING LAWS AND REGULATIONS RESTRICT THE RIGHT UNDER CERTAIN CIRCUMSTANCES: (A) TO PAY OR RECEIVE ANY INTEREST UPON SUCH SECURITY; (B) TO EXERCISE, DIRECTLY OR THROUGH ANY TRUSTEE OR NOMINEE, ANY VOTING RIGHT CONFERRED BY SUCH SECURITY; OR (C) TO RECEIVE ANY REMUNERATION IN ANY FORM FROM AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, FOR SERVICES RENDERED OR OTHERWISE. Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) INTEREST. American Casino & Entertainment Properties LLC, a Delaware limited liability company ("ACEP") and American Casino & Entertainment Properties Finance Corp., a Delaware corporation ("ACEP Finance", together with ACEP, the "Company"), promises to pay interest on the principal amount of this Note at 7.85% per annum from ________________, 20__ until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages, if any, semi-annually in arrears on February 1 and August 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be _____________, 20__. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a A3-3 rate that is 1% per annum in excess of the rate then in effect; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Note, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. (2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the January 15 or July 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages, if any, on, all Global Notes and all other Notes the Holders of which hold at least $2.0 million aggregate principal amount of Notes and shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be 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. (3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. (4) INDENTURE AND COLLATERAL DOCUMENTS. The Company issued the Notes under an Indenture dated as of January 29, 2004 (the "Indenture") among the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company. The Notes are secured by a pledge of Note Collateral pursuant to the Collateral Documents referred to in the Indenture. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company will not have the option to redeem the Notes prior to February 1, 2008. On or after February 1, 2008, the Company will have the option to redeem the Notes, in whole or in part, upon not less than 15 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on February 1 of the years indicated below: A3-4
Year Percentage - ---- ---------- 2008.................................... 103.925% 2009.................................... 101.963% 2010 and thereafter..................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to February 1, 2007, the Company may on one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including Additional Notes) issued under the Indenture with the net cash proceeds of one or more Equity Offerings of from the proceeds of Permitted Affiliate Subordinated Debt of ACEP at a redemption price equal to 107.850% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date; provided that at least 65% in aggregate principal amount of the Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by ACEP and its Subsidiaries) and that such redemption occurs within 60 days of the date of the closing of such Equity Offering or the issuance of Permitted Affiliate Subordinated Debt. (6) REDEMPTION PURSUANT TO GAMING LAWS. If any Gaming Authority requires that a Holder or Beneficial Owner of Notes be licensed, qualified or found suitable under any applicable Gaming Law and such Holder or Beneficial Owner: (a) fails to apply for a license, qualification or a finding of suitability within 30 days (or such shorter period as may be required by the applicable Gaming Authority) after being requested to do so by the Gaming Authority; or (b) is denied such license or qualification or not found suitable; ACEP shall then have the right, at its option: (a) to require each such Holder or Beneficial Owner to dispose of its Notes within 30 days (or such earlier date as may be required by the applicable Gaming Authority) of the occurrence of the event described in clause (1) or (2) above, or (b) to redeem the Notes of each such Holder or Beneficial Owner, in accordance with Rule 14e-1 of the Exchange Act, if applicable, at a redemption price equal to the lowest of: (1) the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the date 30 days' after such Holder or Beneficial Owner is required to apply for a license, qualification or finding of suitability (or such shorter period that may be required by any applicable Gaming Authority) if such Holder or Beneficial Owner fails to do so ("Application Date") or of the date of denial of license or qualification or of the finding of unsuitability by such Gaming Authority; (2) the price at which such Holder or Beneficial Owner acquired the Notes, together with accrued and unpaid interest and Liquidated Damages, if any, to the earlier of the date of redemption, the Application Date or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority; and (3) such other lesser amount as may be required by any Gaming Authority. A3-5 Immediately upon a determination by a Gaming Authority that a Holder or Beneficial Owner of the Notes will not be licensed, qualified or found suitable and must dispose of the Notes, the Holder or Beneficial Owner will, to the extent required by applicable Gaming Laws, have no further right: (c) to exercise, directly or indirectly, through any trustee or nominee or any other Person or entity, any right conferred by the Notes, the Note Guarantees or the Indenture; or (d) to receive any interest, Liquidated Damages, dividend, economic interests or any other distributions or payments with respect to the Notes and the Note Guarantees or any remuneration in any form with respect to the Notes and the Note Guarantees from the Company, the Guarantors or the Trustee, except the redemption price referred to above. (7) SPECIAL MANDATORY REDEMPTION. In the event each of the Release Conditions shall not have been satisfied on or prior to the earlier of (A) August 31, 2004 and (B) an Interest Top-Off Failure (the earlier of (A) and (B) being the "Escrow Break Date"), ACEP shall redeem all of the Notes, on the second Business Day immediately following the Escrow Break Date, at a redemption price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest to the date of redemption. (8) MANDATORY REDEMPTION. Other than in connection with redemption pursuant to Gaming Laws or a Special Mandatory Redemption, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. (9) REPURCHASE AT THE OPTION OF HOLDER. (a) If there is a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Restricted Subsidiary of the Company consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.11 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) and other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such A3-6 Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" attached to this Note. (c) If the Company or a Restricted Subsidiary of the Company receives Excess Loss Proceeds, within five days of each date on which the aggregate amount of Excess Loss Proceeds exceeds $5.0 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture that require the Company to make an Event of Loss Offer pursuant to Section 3.12 of the Indenture to purchase the maximum principal amount of Notes (including any Additional Notes) and other pari passu Indebtedness that may be purchased out of the Excess Loss Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes (including any Additional Notes) and other pari passu Indebtedness tendered pursuant to an Event of Loss Offer is less than the Excess Loss Proceeds, the Company may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Loss Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Excess Loss Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" attached to this Note. (10) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 15 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (11) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. A3-7 (12) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (13) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Note Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing Default or Event of Default compliance with any provision of the Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Note Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to conform the text of the Indenture, the Collateral Documents or the Notes to any provision of the "Description of Notes" section of the Offering Memorandum, to the extent that such provision in that "Description of Notes" was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees, the Collateral Documents or the Notes, to provide for the Issuance of Additional Notes in accordance with the limitations set forth in the Indenture, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes. (14) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply with Section 3.08, 3.09, 4.07, 4.09, 4.10, 4.15, 4.16 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes including Additional Notes, if any, then outstanding voting a single class to comply with certain other agreements in the Indenture, the Notes or the Collateral Documents; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, when taken together, would constitute a Significant Subsidiary; (viii) the breach of certain covenants in the Collateral Documents or the Collateral Documents shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect; (ix) certain cessations and suspensions of the Company's Gaming Licenses; and (x) except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided A3-8 in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. (15) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (16) NO RECOURSE AGAINST OTHERS. A director, officer, manager (or managing member) direct or indirect member, partner, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Note Guarantees, the Collateral Documents or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (17) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (18) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (19) ADDITIONAL RIGHTS OF HOLDERS. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of January 29, 2004, among the Company and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Company , the Guarantors and the other parties thereto, relating to rights given by the Company and the Guarantors to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). (20) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A3-9 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: American Casino & Entertainment Properties LLC American Casino & Entertainment Properties Finance Corp. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Attention: Denise Barton A3-10 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature: ________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A3-11 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10, 4.15 or 4.16 of the Indenture, check the appropriate box below: [ ] Section 4.10 [ ] Section 4.15 [ ] Section 4.16 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10, Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $_______________ Date: _______________ Your Signature: ________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: ________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A3-12 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or exchanges in part of another other Restricted Global Note for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount Amount of decrease in Amount of increase in at maturity of this Principal Amount Principal Amount Global Note following Signature of authorized at maturity of at maturity of such decrease officer of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- ---------------- ---------------- ------------- ---------
A3-13 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Attention: Denise Barton Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Re: 7.85% Senior Secured Notes due 2012 Reference is hereby made to the Indenture, dated as of January 29, 2004 (the "Indenture"), among American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP"), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", together with ACEP, the "Company"), the Guarantors party thereto and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S PERMANENT GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and B-1 neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Permanent Global Note, the Regulation S Temporary Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144, Rule 903 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Restricted Definitive Notes and in the Indenture and the Securities Act. 4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. B-2 (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________________ [Insert Name of Transferor] By:_____________________________________ Name: Title: Dated: _______________________ B-3 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (iv) [ ] Unrestricted Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Attention: Denise Barton Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Re: 7.85% Senior Secured Notes due 2012 (CUSIP ____________) Reference is hereby made to the Indenture, dated as of January 29, 2004 (the "Indenture"), among American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP"), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", together with ACEP, the "Company"), the Guarantors party thereto and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the C-1 Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. C-2 ________________________________________ [Insert Name of Transferor] By:_____________________________________ Name: Title: Dated: ______________________ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Attention: Denise Barton Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Re: 7.85% Senior Secured Notes due 2012 Reference is hereby made to the Indenture, dated as of January 29, 2004 (the "Indenture"), among American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP"), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", together with ACEP, the "Company"), the Guarantors party thereto and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person D-1 EXHIBIT D purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. D-2 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ________________________________________ [Insert Name of Accredited Investor] By:_____________________________________ Name: Title: Dated: _______________________ D-3 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, dated as of January 29, 2004 (the "Indenture"), among American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP"), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", together with ACEP, the "Company"), the Guarantors party thereto and Wilmington Trust Company, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium and Liquidated Damages, if any, and interest on, the Notes, whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of and interest on the Notes, if any, if lawful, 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 of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes 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 Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions and (b) appoints the Trustee attorney-in-fact of such Holder for all purposes. Capitalized terms used but not defined herein have the meanings given to them in the Indenture. [NAME OF GUARANTOR(S)] By:_____________________________________ Name: Title: E-1 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, 200__, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP") (or its permitted successor), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", together with ACEP, the "Company"), the other Guarantors (as defined in the Indenture referred to herein) and Wilmington Trust Company, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of January 29, 2004 providing for the issuance of 7.85% Senior Secured Notes due 2012 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the indenture including but not limited to Article 11 thereof. 4. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Collateral Documents, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 5. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. F-1 6. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 7. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 8. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. F-2 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, 20___ [GUARANTEEING SUBSIDIARY] By: _______________________________ Name: Title: AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: _______________________________ Name: Title: AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: _______________________________ Name: Title: [EXISTING GUARANTORS] By: _______________________________ Name: Title: [TRUSTEE], as Trustee By: _______________________________ Authorized Signatory F-3 EX-4.2 7 y99320exv4w2.txt SUPPLEMENTAL INDENTURE Exhibit 4.2 SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of May 26, 2004, among Arizona Charlie's, LLC (f/k/a Arizona Charlie's, Inc.), a Nevada limited liability company, Charlie's Holding LLC, a Delaware limited liability company, Fresca, LLC, a Nevada limited liability company, Stratosphere Advertising Agency, a Nevada corporation, Stratosphere Corporation, a Delaware corporation, Stratosphere Development, LLC, a Delaware limited liability company, Stratosphere Gaming Corp., a Nevada corporation, Stratosphere Land Corporation, a Nevada corporation, and Stratosphere Leasing, LLC, a Delaware limited liability company (together, the "Guaranteeing Subsidiaries"), each a subsidiary of American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP") (or its permitted successor), American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP Finance", together with ACEP, the "Company") and Wilmington Trust Company, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of January 29, 2004 providing for the issuance of 7.85% Senior Secured Notes due 2012 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a supplemental indenture pursuant to which each Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and the Guaranteeing Subsidiaries mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees to be bound by the terms of the Indenture and to unconditionally Guarantee all of the Company's obligations under the Notes, the Indenture and the Collateral Documents on the terms set forth in the Indenture and agrees to execute and deliver a Note Guarantee in the form attached as Exhibit E to the Indenture. 3. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 4. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 5. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 6. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company. [Remainder of page intentionally left blank.] -2- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer CHARLIE'S HOLDING LLC By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown ------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer ARIZONA CHARLIE'S, LLC By: /s/ Denise Barton ------------------------------------ Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer SIGNATURE PAGE TO SUPPLEMENTAL INDENTURE 1 OF 3 FRESCA, LLC By: Charlie's Holding LLC, its sole member By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown ----------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE CORPORATION By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE DEVELOPMENT, LLC By: Stratosphere Corporation, member By: /s/ Richard P. Brown ----------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer By: Arizona Charlie's, LLC, member By: /s/ Denise Barton ----------------------------------- Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer SIGNATURE PAGE TO SUPPLEMENTAL INDENTURE 2 OF 3 By: Fresca, LLC, member By: Charlie's Holding LLC, its sole member By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown --------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE GAMING CORP. By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE LEASING, LLC By: Stratosphere Corporation, its sole member By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE ADVERTISING AGENCY By: /s/ Denise Barton ------------------------------------ Name: Denise Barton Title: Chief Financial Officer, Secretary and Treasurer STRATOSPHERE LAND CORPORATION By: /s/ Denise Barton ------------------------------------ Name: Denise Barton Title: Secretary and Treasurer SIGNATURE PAGE TO SUPPLEMENTAL INDENTURE 3 OF 3 WILMINGTON TRUST COMPANY By: /s/ Michael G. Oller, Jr. --------------------------------- Name: Michael G. Oller, Jr. Title: Senior Financial Services Officer SIGNATURE PAGE TO SUPPLEMENTAL INDENTURE 4 OF 4 EX-4.4 8 y99320exv4w4.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.4 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT DATED AS OF JANUARY 29, 2004 BY AND AMONG AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. AND BEAR, STEARNS & CO. INC. This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of January 29, 2004, by and among American Casino & Entertainment Properties LLC, a Delaware limited liability company, as issuer ("ACEP"), and American Casino & Entertainment Properties Finance Corp., a Delaware corporation, as co-issuer ("ACEP FINANCE" and, together with ACEP, the "COMPANY"), and Bear, Stearns & Co. Inc. (the "INITIAL PURCHASER"), who has agreed to purchase the Company's 7.85% Senior Secured Notes due 2012 (the "INITIAL NOTES") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated January 15, 2004 (the "PURCHASE AGREEMENT"), by and among the Company, American Real Estate Holdings Limited Partnership, a Delaware limited partnership, and the Initial Purchaser. In order to induce the Initial Purchaser to purchase the Initial Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchaser set forth in Section 8(n) of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture, dated as of January 29, 2004, among the Company and Wilmington Trust Company, a Delaware banking company, as trustee, relating to the Initial Notes and the Exchange Notes (the "INDENTURE"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: ACEP OR ACEP FINANCE: Shall have the meaning set forth in the preamble of this Agreement. ACT: The Securities Act of 1933, as amended. AFFILIATE: As defined in Rule 144. BROKER-DEALER: Any broker or dealer registered under the Exchange Act. BUSINESS DAY: Any day other than a Saturday, a Sunday or a day on which banking institutions in the City of New York or at place of payment are authorized by law, regulation or executive order to remain closed. CLOSING DATE: The date hereof. COMMISSION: The Securities and Exchange Commission. COMPANY: Shall have the meaning set forth in the preamble of this Agreement. CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Notes to be issued in the Exchange Offer, (b) the maintenance of the continuous effectiveness of such Exchange Offer Registration Statement and the keeping of the Exchange Offer open for a period not less than the period i required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Indenture of Exchange Notes in the same aggregate principal amount as the aggregate principal amount of Initial Notes tendered by Holders thereof pursuant to the Exchange Offer. CONSUMMATION DEADLINE: As defined in Section 3(b) hereof. EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. EXCHANGE NOTES: The Company's 7.85% Senior Secured Notes due 2012 to be issued pursuant to the Indenture: (a) in the Exchange Offer or (b) as contemplated by Section 4 hereof. EXCHANGE OFFER: The exchange and issuance by the Company of a principal amount of Exchange Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Initial Notes that are tendered by such Holders in connection with such exchange and issuance. EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating to the Exchange Offer, including the related Prospectus. FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof. HOLDERS: As defined in Section 2 hereof. INDENTURE: Shall have the meaning set forth in the preamble of this Agreement. INITIAL NOTES: Shall have the meaning set forth in the preamble of this Agreement. INITIAL PURCHASER: Shall have the meaning set forth in the preamble of this Agreement. PROSPECTUS: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. PURCHASE AGREEMENT: Shall have the meaning set forth in the preamble of this Agreement. RECOMMENCEMENT DATE: As defined in Section 6(d) hereof. REGISTRATION DEFAULT: As defined in Section 5 hereof. REGISTRATION STATEMENT: Any registration statement of the Company and the Guarantors relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement, (ii) including the Prospectus included therein and (iii) including all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. ii RULE 144: Rule 144 promulgated under the Act. SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof. SUSPENSION NOTICE: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. TRANSFER RESTRICTED SECURITIES: Each Initial Note until the earliest to occur of (a) the date on which such Initial Note has been exchanged by a Person other than a Broker-Dealer for an Exchange Note in the Exchange Offer, (b) following the exchange by a Broker-Dealer in the Exchange Offer of an Initial Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such Broker-Dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement, (c) the date on which such Initial Note has been effectively registered under the Act and disposed of in accordance with the Shelf Registration Statement or (d) the date on which such Initial Note is distributed to the public pursuant to Rule 144. SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable law or Commission rule, regulation or policy (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company and the Guarantors shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission no later than 90 days after the Acquisition Date (such 90th day being the "FILING DEADLINE"), (ii) use all commercially reasonable efforts to cause such Exchange Offer Registration Statement to become effective no later than 180 days after the Acquisition Date (such 180th day being the "EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the Exchange Notes to be offered in exchange for the Initial Notes that are Transfer Restricted Securities and (ii) resales of Exchange Notes by Broker-Dealers that tendered into the Exchange Offer Initial Notes that such Broker-Dealer acquired for its own account as a result of market-making activities or other trading activities (other than Initial Notes acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. iii (b) The Company and the Guarantors shall use all commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company and the Guarantors shall cause the Exchange Offer to comply in all material respects with all applicable federal and state securities laws. No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement. The Company and the Guarantors shall use all commercially reasonable efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 Business Days thereafter, or longer, if required by federal securities laws (the last day of such period being the "CONSUMMATION DEADLINE"). (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Initial Notes acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Exchange Notes received by such Broker-Dealer in the Exchange Offer, the Company and Guarantors shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement. To the extent necessary to ensure that the Prospectus contained in the Exchange Offer Registration Statement is available for sales of Exchange Notes by Broker-Dealers, the Company and the Guarantors agree to use all commercially reasonable efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(a) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 270 days from the Consummation Deadline or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company and the Guarantors shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, and in no event later than two Business Days after such request, at any time during such period. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Company and the Guarantors are not (A) required to file the Exchange Offer Registration Statement or (B) permitted to Consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission regulations, iv rules or policy (after the Company and the Guarantors have complied with the procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer Restricted Securities notifies the Company prior to 20 Business Days following Consummation of the Exchange Offer that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer, (B) such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Initial Notes acquired directly from the Company or any of its Affiliates, then the Company and the Guarantors shall: (x) use all commercially reasonable efforts on or prior to 30 days after the earlier of (i) the date as of which the Company determines that the Exchange Offer Registration Statement will not be or cannot be, as the case may be, filed as a result of clause (a)(i) above (after the Company and the Guarantors have complied with the procedures set forth in Section 6(a)(i) below, and (ii) the date on which the Company receives the notice specified in clause (a)(ii) above (such earlier date, the "FILING DEADLINE"), to file a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities, and (y) shall use all commercially reasonable efforts to cause such Shelf Registration Statement to become effective on or prior to 90 days after such obligation arises (such 90th day being the "EFFECTIVENESS DEADLINE"). If, after the Company and the Guarantors have filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company and the Guarantors are required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (i.e., clause (a)(i)(B) above), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company and the Guarantors shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a) and the other securities required to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and the Guarantors shall use all commercially reasonable efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, until the expiration of the period referred to in Rule 144(k) (as extended pursuant to Section 6(d)), or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 Business Days after receipt of a request therefor, (x) the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or v Prospectus or preliminary prospectus included therein, (y) an agreement to update such information, from time to time, as required or appropriate, and (z) an agreement to comply with the prospectus delivery requirements in connection with the offer and sale of Transfer Restricted Securities. No Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information and agreements. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated within 30 Business Days of the applicable Effectiveness Deadline or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified herein (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby Liquidated Damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the Liquidated Damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company and the Guarantors shall in no event be required to pay Liquidated Damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable, in the case of (iv) above, the Liquidated Damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued Liquidated Damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. Notwithstanding the fact that any securities for which Liquidated Damages are due cease to be Transfer Restricted Securities, all obligations of the Company and the Guarantors to pay Liquidated Damages with respect to securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. vi SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company and the Guarantors shall (x) comply with all applicable provisions of Section 6(c) below, (y) use all commercially reasonable efforts to effect such exchange and to permit the resale of Exchange Notes by Broker-Dealers that tendered in the Exchange Offer Initial Notes that such Broker-Dealer acquired for its own account as a result of its market-making activities or other trading activities (other than Initial Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and (z) comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company and the Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission or the staff of the Commission allowing the Company and the Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company and the Guarantors hereby agree to pursue the issuance of such a no-action letter or decision to the Commission staff level. In connection with the foregoing, the Company and the Guarantors hereby agree to take all such other actions as may be requested by the Commission or otherwise required by the Commission in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff; provided that this Section 6(a)(i) shall not restrict or limit the Company and the Guarantors from complying with the requirements of Section 4, including filing and making effect a Shelf Registration Statement before obtaining a no-action letter or other decision or resolution from the Commission or the staff of the Commission. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker-Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company and the Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary course of business. As a condition to its participation in the Exchange Offer each Holder using the Exchange Offer to participate in a distribution of the Exchange Notes shall acknowledge and agree that, if the resales are of Exchange Notes obtained by such Holder in exchange for Initial Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and vii similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall, upon request of the Commission, provide a supplemental letter to the Commission (A) stating that the Company and the Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that neither the Company nor any Guarantor has entered into any arrangement or understanding with any Person to distribute the Exchange Notes to be received in the Exchange Offer and that, to the best of the Company's and each Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Exchange Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Guarantors shall: (i) comply with all the provisions of Section 6(c) below and use all commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company and the Guarantors will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof, and (ii) issue, upon the request of any Holder or purchaser of Initial Notes covered by any Shelf Registration Statement contemplated by this Agreement, Exchange Notes having an aggregate principal amount equal to the aggregate principal amount of Initial Notes sold pursuant to the Shelf Registration Statement and surrendered to the Company for cancellation; the Company shall register Exchange Notes on the Shelf Registration Statement for this purpose and issue the Exchange Notes to the purchaser(s) of securities subject to the Shelf Registration Statement in the names as such purchaser(s) shall designate. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company and the Guarantors shall: viii (i) use all commercially reasonable efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Guarantors shall file promptly an appropriate amendment to such Registration Statement or supplement to the Prospectus curing such defect, and, if Commission review is required of any such amendment, use all commercially reasonable efforts to cause such amendment to be declared effective as soon as practicable; (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424 and 430A, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Holder promptly and, if requested by such Holder, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, and (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that any notice required pursuant to this Section 6(c)(iii) shall be provided by the Company on its behalf and on behalf of the Guarantors. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, ix the Company and the Guarantors shall use all commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to each Holder in connection with such exchange or sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents, upon such Holders' request, will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such Holders shall reasonably object within five Business Days after the receipt thereof. A Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Act; (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus in connection with such exchange or sale, if any, provide copies of such document to each Holder, make the Company's and the Guarantors' representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such Holders may reasonably request; (vii) make available, at reasonable times, for inspection by each Holder and any attorney or accountant retained by such Holders at the offices at which such information normally is kept during normal business hours, all financial and other records, pertinent corporate documents of the Company and the Guarantors and cause the Company's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such Holder, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any Holders in connection with such exchange or sale, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all x required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder in connection with such exchange or sale, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each Holder without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company and the Guarantors hereby consent to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the request of any Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, the Company and the Guarantors shall: (A) upon request of any Holder, furnish (or, in the case of paragraphs (2), (3) and (4), use all commercially reasonable efforts to cause to be furnished) to each Holder, upon the effectiveness of the Shelf Registration Statement: (1) a certificate, dated such date, signed on behalf of the Company, in form and substance reasonably satisfactory to the Initial Purchaser, including such matters as such Holders may reasonably request; (2) an opinion, dated the date of effectiveness of the Shelf Registration Statement, of counsel for the Company and the Guarantors, in form and substance reasonably satisfactory to the Initial Purchaser and counsel for the Initial Purchaser, to the effect set forth in Exhibit A to the Purchase Agreement and such other similar matters as such Holders may reasonably request; (3) an opinion, dated the date of effectiveness of the Shelf Registration Statement, of Nevada counsel for the Company and the Guarantors, in form and substance reasonably satisfactory to the Initial Purchaser and counsel for the Initial Purchaser, to the effect set forth in Exhibit B to the Purchase Agreement and such other similar matters as such Holders may reasonably request; (4) a customary comfort letter, dated the date of effectiveness of the Shelf Registration Statement, from the Company's independent xi accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 8(i) of the Purchase Agreement, provided that any Holder so requesting a comfort letter confirms in writing to the Company's independent accountants that it is of the class of persons entitled to receive a comfort letter under applicable accounting standards or pronouncements; and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with clause (A) above and with any customary conditions contained in the any agreement entered into by the Company and the Guarantors pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that neither the Company nor any Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xiv) use all commercially reasonable efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) obtain a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvi) otherwise use all commercially efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a xii consolidated earnings statement meeting the requirements of Rule 158 under the Act (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xvii) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use all commercially reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xviii) provide promptly to each Holder, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Guarantors' performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Guarantors and the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Exchange Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of xiii independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Guarantors. Anything contained herein to the contrary notwithstanding, the Company and the Guarantors shall not have any obligation whatsoever in respect of any brokerage commissions, dealers' selling concessions, transfer taxes or, except as otherwise expressly set forth herein, any other selling expenses incurred in connection herewith or the Exchange Offer or sale of Transfer Restricted Notes, Initial Notes or Exchange Notes. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company and the Guarantors will reimburse the Initial Purchaser and the Holders of Transfer Restricted Securities who are tendering Initial Notes in the Exchange Offer and/or selling or reselling Initial Notes or Exchange Notes pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins LLP, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared; provided that the Company's and the Guarantors' reimbursement obligation relating to such fees and disbursements shall not exceed $15,000. SECTION 8. INDEMNIFICATION (a) Indemnification by Company. The Company and the Guarantors agree, jointly and severally, to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, judgments, (including without limitation, any reasonable legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Exchange Notes or registered Initial Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders. (b) Indemnification by Holders. Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, or the Guarantors to the same extent as the foregoing indemnity from the Company and the xiv Guarantors set forth in section (a) above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) Notice. In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company and Guarantors, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action effected with its written consent; provided that such consent was not unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not xv include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) Contribution. To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Guarantors, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Guarantor, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company, the Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. xvi SECTION 9. RULE 144A AND RULE 144 The Company and each Guarantor agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10. MISCELLANEOUS (a) Remedies. The Company and the Guarantors acknowledge and agree that any failure by the Company and/or the Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchaser or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchaser or any Holder may obtain such relief as may be required to specifically enforce the Company's and the Guarantors' obligations under Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any Guarantor has previously entered into, or is currently a party to, any agreement granting any registration rights with respect to its securities to any Person that would require such securities to be included in any Registration Statement filed hereunder. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Guarantors' securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities (except that in the event Holders of less than all outstanding Transfer Restricted Securities provide their written consent, such amendment, modification or supplement and waiver or consent shall only be enforceable against such Holders that provided their written consent) and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such xvii Exchange Offer, may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Initial Purchaser, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) Acquired Entities to Sign Agreement. At the Acquisition Date, any subsidiary of the Company formed or acquired in connection with the Acquisition that executes a guarantee of the Notes in accordance with the terms of the Indenture shall become a party to this Agreement as a Guarantor as if it were a Guarantor as of the date hereof and shall execute and deliver Addendum A attached hereto and deliver any certificates, opinions or other deliverables that would have been required if it were a Guarantor on the date hereof. (f) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telecopier or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company or the Guarantors: American Casino & Entertainment Properties LLC 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Telecopier No.: (702) 383-4738 Attention: Chief Financial Officer With a copy to: Piper Rudnick LLP 1251 Avenue of the Americas New York, New York 10020 Telecopier No.: (212) 884-8448 Attention: Steven L. Wasserman, Esq. All notices and communications will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged in writing, if telecopied; and on the next Business Day, if timely delivered to an overnight air courier guaranteeing next day delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. xviii (g) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement, the terms of the offering described in the Offering Memorandum under the caption "Notice to Investors" or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (h) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (k) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. xix IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: /s/ Richard P. Brown ------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer BEAR, STEARNS & CO. INC. By: /s/ Stephen A. Mongillo -------------------------------- Name: Stephen A. Mongillo Title: Senior Managing Director xx American Casino & Entertainment Properties LLC American Casino & Entertainment Properties Finance Corp. ADDENDUM TO REGISTRATION RIGHTS AGREEMENT This Addendum to the Registration Rights Agreement (this "ADDENDUM") is made as of May 26,2004 among the Company, the Guarantors listed under the caption "Guarantors" on Schedule I to the Purchase Agreement (the "GUARANTORS") and the Initial Purchaser. Terms used, but not defined herein, have the meanings assigned thereto in the Registration Rights Agreement, dated as of January 29,2004, among the Company and the Initial Purchaser (the "REGISTRATION RIGHTS AGREEMENT"). On the date hereof, the Company consummated the Acquisition. The Registration Rights Agreement provides in Section 10(e) thereof that the Guarantors shall deliver this Addendum and become parties to the Registration Rights Agreement upon the consummation of the Acquisition. AGREEMENT In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree to as follows: 1. Registered Exchange Offer. Each Guarantor hereby acknowledges that such Guarantor has reviewed the Exchange Offer obligations set forth in Section 3 of the Registration Rights Agreement. Each Guarantor agrees that it shall be bound by the Exchange Offer obligations set forth in Section 3 of the Registration Rights Agreement as if it were a Guarantor on the date of the Registration Rights Agreement. 2. Shelf Registration. Each Guarantor hereby acknowledges that such Guarantor has reviewed the Shelf Registration obligations set forth in Section 4 of the Registration Rights Agreement. Each Guarantor agrees that it shall be bound by the Shelf Registration obligations set forth in Section 4 of the Registration Rights Agreement as if it were a Guarantor on the date of the Registration Rights Agreement. 3. Liquidated Damages. Each Guarantor hereby acknowledges that such Guarantor has reviewed the Liquidated Damages obligations set forth in Section 5 of the Registration Rights Agreement. Each Guarantor agrees that it shall be jointly and severally bound by the Liquidated Damages obligations set forth in Section 5 of the Registration Rights Agreement as if it were a Guarantor on the date of the Registration Rights Agreement. 4. Registration Procedures. Each Guarantor hereby acknowledges that such Guarantor has reviewed the registration procedures set forth in Section 6 of the Registration Rights Agreement. Each Guarantor agrees that it shall comply with the registration procedures set forth in Section 6 of the Registration Rights Agreement as if it were a Guarantor on the date of the Registration Rights Agreement. - 1 - 5. Indemnification. Each Guarantor hereby acknowledges that such Guarantor has reviewed the indemnification and contribution obligations set forth in Section 8 of the Registration Rights Agreement. Each Guarantor agrees that it shall be jointly and severally bound by the indemnification and contribution obligations set forth in Section 8 of the Registration Rights Agreement as if it were a Guarantor on the date of the Registration Rights Agreement. 6. Each Guarantor hereby acknowledges that such Guarantor has reviewed the terms and provisions of the Registration Rights Agreement. Each Guarantor agrees that it shall be bound by the terms and provisions of the Registration Rights Agreement as if it were a Guarantor on the date of the Registration Rights Agreement. 7. Counterparts. This Addendum may be executed in various counterparts which together shall constitute one and the same instrument. [Remainder of page intentionally left blank.] - 2 - The parties hereto have executed this Addendum as of the date first set forth above. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: /s/ Richard P. Brown ---------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. By: /s/ Richard P. Brown ---------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer CHARLIE'S HOLDING LLC By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown ------------------------------------------ Name: Richard P. Brown Title: President and Chief Executive Officer ARIZONA CHARLIE'S, LLC By: /s/ Denise Barton ---------------------------------------------- Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer FRESCA, LLC By: Charlie's Holding LLC, its sole member By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown ------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer ADDENDUM TO REGISTRATION RIGHTS AGREEMENT 1 OF 3 STRATOSPHERE CORPORATION By: /s/ Richard P. Brown ---------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE DEVELOPMENT, LLC By: Stratosphere Corporation, member By: /s/ Richard P. Brown ---------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer By: Arizona Charlie's, LLC, member By: /s/ Denise Barton ---------------------------------------------- Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer By: Fresca, LLC, member By: Charlie's Holding LLC, its sole member By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown -------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE GAMING CORP. By: /s/ Richard P. Brown ---------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer ADDENDUM TO REGISTRATION RIGHTS AGREEMENT 3 OF 3 STRATOSPHERE LEASING, LLC By: Stratosphere Corporation, its sole member By: /s/ Richard P. Brown ---------------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer STRATOSPHERE ADVERTISING AGENCY By: /s/ Richard P. Brown ---------------------------------------------- Name: Denise Barton Title: Chief Financial Officer, Secretary and Treasurer STRATOSPHERE LAND CORPORATION By: /s/ Denise Barton ---------------------------------------------- Name: Denise Barton Title: Secretary and Treasurer BEAR, STEARNS & Co. INC. By: /s/ Keith C. Barnish ---------------------------------------------- Name: Keith C. Barnish Title: Senior Managing Director ADDENDUM TO REGISTRATION RIGHTS AGREEMENT 3 OF 3 EX-10.1 9 y99320exv10w1.txt CREDIT AGREEMENT EXHIBIT 10.1 Execution Copy $20,000,000 CREDIT AGREEMENT among AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC as the Borrower, Certain Subsidiaries of the Borrower From Time To Time Party Hereto, as Guarantors, The Several Lenders from Time to Time Parties Hereto, BEAR STEARNS CORPORATE LENDING INC., as Syndication Agent, and BEAR STEARNS CORPORATE LENDING INC., as Administrative Agent Dated as of January 29, 2004 BEAR, STEARNS & CO. INC., as Sole Lead Arranger and Sole Bookrunner TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS.......................................................... 1 1.1. Defined Terms................................................. 1 1.2. Other Definitional Provisions................................. 26 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS...................................... 27 2.1. Commitments................................................... 27 2.2. Procedure for Loan Borrowing.................................. 27 2.3. Commitment Fees, etc.......................................... 29 2.4. Termination or Reduction of Commitments....................... 29 2.5. L/C Commitment................................................ 29 2.6. Procedure for Issuance of Letter of Credit.................... 30 2.7. Fees and Other Charges........................................ 30 2.8. L/C Participations............................................ 31 2.9. Reimbursement Obligation of the Borrower...................... 32 2.10. Obligations Absolute.......................................... 32 2.11. Letter of Credit Payments..................................... 32 2.12. Applications.................................................. 33 SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT........ 33 3.1. Optional Prepayments.......................................... 33 3.2. Mandatory Prepayments and Commitment Reductions............... 33 3.3. Conversion and Continuation Options........................... 34 3.4. Limitations on Eurodollar Tranches............................ 34 3.5. Interest Rates and Payment Dates.............................. 34 3.6. Computation of Interest and Fees.............................. 35 3.7. Inability to Determine Interest Rate.......................... 35 3.8. Pro Rata Treatment and Payments............................... 36 3.9. Requirements of Law........................................... 37 3.10. Taxes ..................................................... 38 3.11. Indemnity..................................................... 40 3.12. Change of Lending Office...................................... 41 3.13. Replacement of Lenders........................................ 41 3.14. Evidence of Debt.............................................. 41 3.15. Illegality.................................................... 42 3.16. Source of Loans............................................... 42 SECTION 4. REPRESENTATIONS AND WARRANTIES....................................... 42 4.1. Financial Condition........................................... 42 4.2. No Change..................................................... 43 4.3. Corporate Existence; Compliance with Law...................... 43
ii 4.4. Power; Authorization; Enforceable Obligations................. 44 4.5. No Legal Bar.................................................. 44 4.6. Litigation.................................................... 44 4.7. No Default.................................................... 45 4.8. Ownership of Property; Liens.................................. 45 4.9. Intellectual Property......................................... 45 4.10. Taxes ..................................................... 45 4.11. Federal Regulations........................................... 45 4.12. Labor Matters................................................. 45 4.13. ERISA ..................................................... 45 4.14. Investment Company Act; Other Regulations..................... 46 4.15. Subsidiaries.................................................. 46 4.16. Use of Proceeds............................................... 46 4.17. Environmental Matters......................................... 46 4.18. Accuracy of Information, etc.................................. 47 4.19. Mortgages..................................................... 47 4.20. Solvency...................................................... 48 4.21. Senior Indebtedness........................................... 48 4.22. Regulation H.................................................. 48 4.23. Certain Documents............................................. 48 SECTION 5. CONDITIONS PRECEDENT................................................. 48 5.1. Conditions to Closing Date.................................... 48 5.2. Conditions to Availability Date............................... 49 5.3. Conditions to Each Extension of Credit........................ 51 SECTION 6. AFFIRMATIVE COVENANTS................................................ 52 6.1. Financial Statements.......................................... 52 6.2. Certificates; Other Information............................... 53 6.3. Payment of Obligations........................................ 54 6.4. Maintenance of Existence; Compliance.......................... 54 6.5. Maintenance of Property; Insurance............................ 54 6.6. Inspection of Property; Books and Records; Discussions........ 54 6.7. Notices....................................................... 55 6.8. Environmental Laws............................................ 56 6.9. Additional Collateral, etc.................................... 56 6.10. Further Assurances............................................ 58 6.11. Unrestricted Subsidiaries and Restricted Subsidiaries......... 58 SECTION 7. NEGATIVE COVENANTS................................................... 59 7.1. Financial Condition Covenants................................. 60 7.2. Indebtedness.................................................. 60 7.3. Liens......................................................... 62 7.4. Fundamental Changes........................................... 64 7.5. Disposition of Property....................................... 65 7.6. Restricted Payments........................................... 65 7.7. Investments................................................... 68
iii 7.8. Optional Payments and Modifications of Certain Debt Instrument.. 70 7.9. Transactions with Affiliates.................................... 70 7.10. Sales and Leasebacks............................................ 71 7.11. Hedge Agreements................................................ 71 7.12. Negative Pledge Clauses......................................... 71 7.13. Clauses Restricting Subsidiary Distributions.................... 72 7.14. Lines of Business............................................... 73 7.15. Amendments to Acquisition Documents............................. 73 7.16. Restrictions on Leasing and Dedication of Key Property.......... 73 SECTION 8. EVENTS OF DEFAULT...................................................... 74 SECTION 9. THE AGENTS............................................................. 77 9.1. Appointment..................................................... 77 9.2. Delegation of Duties............................................ 78 9.3. Exculpatory Provisions.......................................... 78 9.4. Reliance by Agents.............................................. 78 9.5. Notice of Default............................................... 79 9.6. Non-Reliance on Agents and Other Lenders........................ 79 9.7. Indemnification................................................. 79 9.8. Agent in Its Individual Capacity................................ 80 9.9. Successor Administrative Agent.................................. 80 9.10. Agents Generally................................................ 80 9.11. The Lead Arranger............................................... 80 SECTION 10. GUARANTEE............................................................. 81 10.1. Guarantee....................................................... 81 10.2. Rights of Reimbursement, Contribution and Subrogation........... 82 10.3. Amendments, etc. with respect to the Borrower Obligations....... 83 10.4. Guarantee Absolute and Unconditional............................ 83 10.5. Reinstatement................................................... 84 10.6. Payments........................................................ 84 SECTION 11. MISCELLANEOUS......................................................... 84 11.1. Amendments and Waivers.......................................... 84 11.2. Notices......................................................... 85 11.3. No Waiver; Cumulative Remedies.................................. 86 11.4. Survival of Representations and Warranties...................... 87 11.5. Payment of Expenses and Taxes................................... 87 11.6. Successors and Assigns; Participations and Assignments.......... 88 11.7. Adjustments; Set-off............................................ 91 11.8. Counterparts.................................................... 92 11.9. Severability.................................................... 92 11.10. Integration..................................................... 92 11.11. GOVERNING LAW................................................... 92 11.12. Submission To Jurisdiction; Waivers............................. 92 11.13. Acknowledgments................................................. 93
iv 11.14. Releases of Guarantees and Liens.............................. 93 11.15. Confidentiality............................................... 93 11.16. WAIVERS OF JURY TRIAL......................................... 94 11.17. Additional Guarantors......................................... 94 11.18. Gaming Laws................................................... 94
SCHEDULES: 1.1 Mortgaged Property 4.1 Dispositions 4.4 Consents, Authorizations, Filings and Notices 4.6 Litigation 4.15 Subsidiaries 4.19 Mortgage Filing Jurisdictions 7.2 Existing Indebtedness 7.3 Existing Liens 7.7 Existing Investments 7.13 Existing Other Agreements EXHIBITS: A Form of Compliance Certificate B Form of Group Member Certificate C Form of Assignment and Assumption D Forms of Legal Opinion E Form of Exemption Certificate F Form of Note G Lenders; Commitments H Form of Guarantor Addendum I Forms of Mortgages J Form of Indemnity Agreement K Form of Pledge and Security Agreement L Form of Tax Allocation Agreement M Form of Subordination Agreement N Forms of Title Policy v CREDIT AGREEMENT, dated as of January 29, 2004 among AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, a Delaware limited liability company ("ACEP" or the "Borrower"), certain Subsidiaries of ACEP from time to time party to this Agreement (the "Guarantors"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), BEAR, STEARNS & CO. INC., as sole lead arranger and sole bookrunner (in such capacity, the "Lead Arranger"), BEAR STEARNS CORPORATE LENDING INC., as syndication agent (in such capacity, the "Syndication Agent") and BEAR STEARNS CORPORATE LENDING INC., as administrative agent for the Lenders and each other Agent (in such capacity, the "Administrative Agent"). The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1. Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "ACEP": as defined in the preamble to this Agreement. "Acquisitions": the acquisitions of the Key Properties by ACEP pursuant to the Acquisition Agreements. "Acquisition Agreements": that certain membership interest purchase agreement by and among ACEP, Starfire Holding Corporation and Carl C. Icahn, and that certain contribution agreement by and among Stratosphere Corporation, ACEP, American Real Estate Holdings Limited Partnership and American Entertainment Properties Corp. "Acquisition Documentation": collectively, the Acquisition Agreements and all schedules, exhibits and annexes thereto and all side letters and agreements affecting the terms thereof or entered into in connection therewith. "Administrative Agent": as defined in the preamble to this Agreement. "Affiliate": as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agents": the collective reference to the Syndication Agent, the Lead Arranger and the Administrative Agent, which term shall include, for purposes of Section 9 only, the Issuing Lender. "Aggregate Exposure": with respect to any Lender at any time, an amount equal to (a) until the Availability Date, the amount of such Lender's Commitment at such time and (b) thereafter, the amount of such Lender's Commitment then in effect or, if the Commitments have been terminated, the amount of such Lender's Extensions of Credit then outstanding. 1 "Aggregate Exposure Percentage": with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time. "Agreement": this Credit Agreement. "Applicable Margin": for Eurodollar Loans, 3.25 percentage points per annum and for Base Rate Loans, 2.25 percentage points per annum. "Application": an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit. "Approved Fund": (a) a CLO and (b) with respect to any Lender that is a fund which invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Arizona Charlie's Boulder": that certain hotel and casino located on approximately 24 acres at 4575 Boulder Highway, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Arizona Charlie's Decatur": that certain hotel and casino located on approximately 17 acres at 740 S. Decatur Boulevard, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Asset Coverage Ratio": as of the last day of any period, the ratio of (a) Net PP&E for all Key Properties on such day to (b) Consolidated First Lien Debt on such day. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c) or (d) of Section 7.5) that yields gross proceeds to any Group Member (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $500,000. "Assignee": as defined in Section 11.6(b). "Assignment and Assumption": an Assignment and Assumption, substantially in the form of Exhibit C. "Attributable Debt": in respect of a sale and leaseback transaction, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation." "Availability Date": the date on which the conditions precedent set forth in Section 5.2 shall have been satisfied. 2 "Available Commitment": as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Commitment then in effect over (b) such Lender's Extensions of Credit then outstanding. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Reference Lender as its prime rate in effect at its principal office in San Francisco (the Prime Rate not being intended to be the lowest rate of interest charged by the Reference Lender in connection with extensions of credit to debtors). Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Base Rate Loans": Loans the rate of interest applicable to which is based upon the Base Rate. "Benefitted Lender": as defined in Section 11.7(a). "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrower": as defined in the preamble to this Agreement. "Borrower Credit Agreement Obligations": the collective reference to the unpaid principal of and interest on the Loans and Reimbursement Obligations and all other obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in this Agreement after the maturity of the Loans and Reimbursement Obligations and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to any Agent or any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement or the other Loan Documents or, any Letter of Credit, or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements). "Borrower Hedge Agreement Obligations": the collective reference to all obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in any Specified Hedge Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to any Lender or any Affiliate of any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, any Specified Hedge Agreement or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise 3 (including, without limitation, all fees and disbursements of counsel to the relevant Lender or affiliate thereof that are required to be paid by the Borrower pursuant to the terms of any Specified Hedge Agreement). "Borrower Obligations": the collective reference to (i) the Borrower Credit Agreement Obligations, (ii) the Borrower Hedge Agreement Obligations, but only to the extent that, and only so long as such obligations are secured by the Collateral Documents, and (iii) all other obligations and liabilities of the Borrower, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement (including, without limitation, all fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by each the Borrower pursuant to the terms of this Agreement). "Borrowing Date": any Business Day specified by the Borrower as the date on which the Borrower requests the Lenders to make Loans hereunder. "Business": as defined in Section 4.17(b). "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City or California are authorized or required by law to close, provided, that with respect to notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. "Capital Lease Obligations": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": (a) in the case of a corporation, corporate stock; (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (c) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person but excluding from all of the foregoing (i) any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock and (ii) Financing Participations. "Cash Equivalents": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of one year or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within 4 one year from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition or money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody's and (iii) have portfolio assets of at least $5,000,000,000. "CLO": any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an affiliate of such Lender. "Closing Date": the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied, which date is January 29, 2004. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all property of the Group Members, now owned or hereafter acquired, upon which a Lien is purported to be created by any Collateral Document. "Collateral Agent": Bear Stearns Corporate Lending Inc., in its capacity as collateral agent for each of the Secured Parties (as defined in the Pledge and Security Agreement). "Collateral Documents": the collective reference to the Pledge and Security Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent or the Collateral Agent purporting to grant a Lien on any property of any Person to secure the obligations and liabilities of any Group Member under any Loan Document. "Commitment": as to any Lender, the obligation of such Lender, if any, to make Loans and to participate in each Letter of Credit in an aggregate principal and/or face amount not to exceed the amount set forth under the heading "Commitment" under such Lender's name on Exhibit G for such Lender or in the Assignment and Assumption pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original amount of the Total Commitments is $20,000,000. "Commitment Fee Rate": 0.50% per annum. "Commitment Period": the period commencing on the Availability Date and ending on the Termination Date. 5 "Commonly Controlled Entity": an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code. "Compliance Certificate": a certificate duly executed by a Responsible Officer substantially in the form of Exhibit A. "Conduit Lender": any special purpose entity organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument, subject to the consent of the Administrative Agent and (so long as no Default or Event of Default has occurred and is continuing) ACEP (which consent shall not be unreasonably withheld); provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender, and provided, further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 3.9, 3.10, 3.11 or 10.5 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender or (b) be deemed to have any Commitment. "Consolidated Cash Flow": with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (a) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (b) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (c) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus (d) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (e) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; in each case, on a consolidated basis and determined in accordance with GAAP, provided that with respect to the period ending on the last day of the calendar quarter immediately after the 6 Availability Date and each period prior thereto, Consolidated Cash Flow for such period shall be on a combined basis and determined in accordance with GAAP. "Consolidated First Lien Debt": at any date, the aggregate principal amount of all Indebtedness of the Group Members at such date other than the Senior Second Lien Notes and unsecured Indebtedness, determined on a consolidated basis in accordance with GAAP. "Consolidated First Lien Debt Leverage Ratio": as of the last day of any fiscal quarter of ACEP, the ratio of (a) Consolidated First Lien Debt on such day to (b) Consolidated Cash Flow for the Group Members for the four consecutive fiscal quarters ending on such date. "Consolidated Net Income": with respect to ACEP for any period, the aggregate of the Net Income of the Group Members for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (a) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (b) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (c) the cumulative effect of a change in accounting principles will be excluded; and (d) notwithstanding clause (a) above, the Net Income of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Continuing Directors": the directors of ACEP on the Closing Date, and each other director, if, in each case, such other director's nomination for election to the board of directors of ACEP is recommended by at least 66-2/3% of the then Continuing Directors or such other director receives the vote of the Permitted Investors in his or her election by the shareholders of ACEP. "Contractual Obligation": as applied to any Person, any provision of any security issued by such Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which such Person is a party or by which it or any of its property is bound or to which any of its properties is subject. "Control Investment Affiliate": as to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. 7 "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Disposition": with respect to any Property, any sale, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms "Dispose" and "Disposed of" shall have correlative meanings. "Disqualified Stock": any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the Termination Date. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require ACEP to repurchase such Capital Stock upon the occurrence of a change of control, event of loss, an asset sale or other special redemption event will not constitute Disqualified Stock if the terms of such Capital Stock provide that ACEP may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 7.6 or where the funds to pay for such repurchase was from the cash net proceeds of such Capital Stock and such net cash proceeds was set aside in a separate account to fund such repurchase. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Group Members may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Dollars" and "$": dollars in lawful currency of the United States. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "Equity Interests": Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Escrow and Security Agreement": the Escrow And Security Agreement, dated as of January 29, 2004, by and among ACEP, Finance Co, American Real Estate Holdings Limited Partnership, the Trustee and Fleet National Bank, a national banking association organized under the laws of the United States, as escrow agent. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for 8 eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the "Eurodollar Base Rate" shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurodollar Tranche": the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Extensions of Credit": as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Loans held by such Lender then outstanding, and (b) such Lender's Percentage of the L/C Obligations then outstanding. "Fair Market Value": the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the board of directors of ACEP (unless otherwise provided herein). "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by the Reference Lender from three federal funds brokers of recognized standing selected by it. 9 "Fee Letter" the letter agreement, dated as of January 29, 2004, among the Borrower, the Administrative Agent and the Lead Arranger relating to, among other things, the payment of certain fees and the syndication of the Facilities. "Financing Participations": a participation in the revenues generated by specified equipment or a specified amenity that was financed, in whole or in part, by the person receiving the participation. "Fixed Charge Coverage Ratio": with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee Obligation, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. For the purpose of calculating the Fixed Charge Coverage Ratio (or any component thereof) at any time prior to the completion of the fourth full fiscal quarter after the Availability Date (and the availability of internal financial statements for such period), the Fixed Charge Coverage Ratio (and each component thereof) shall be calculated as if the Acquisitions had occurred at a date prior to the beginning of the fourth full fiscal quarter prior to the date of determination and shall be based upon the historical combined financial statements for such period as reflected in the historical combined financial statements delivered to the Lenders on the Closing Date; provided that such calculation shall give pro forma effect to the offering of the Senior Second Lien Notes and the related interest, fees and expenses incurred in connection with the Senior Second Lien Notes. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (a) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect (in accordance with Regulation S-X under the Securities Act of 1933) as if they had occurred on the first day of the four-quarter reference period; (b) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (c) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations 10 giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (d) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (e) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (f) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any obligations under Hedge Agreements applicable to such Indebtedness if such obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges": with respect to any specified Person for any period, the sum, without duplication, of: (a) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedge Agreements in respect of interest rates (excluding any accrued interest or interest paid in kind in respect of Permitted Affiliate Subordinated Indebtedness); plus (b) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period (excluding any capitalized interest in respect of Permitted Affiliate Subordinated Indebtedness); plus (c) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee Obligation or Lien is called upon; plus (d) the product of (i) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on preferred stock payable solely in Equity Interests of ACEP (other than Disqualified Stock) or to ACEP or a Restricted Subsidiary of ACEP, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP. "Funding Office": the office of the Administrative Agent specified in Section 11.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to ACEP and the Lenders. 11 "GAAP": generally accepted accounting principles in the United States as in effect from time to time except that for purposes of Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements referred to in Section 4.1(b). In the event that any Accounting Change (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then ACEP and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating ACEP's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by ACEP, Administrative Agent and the Majority Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC. "Gaming Authority": any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States or other national government, any state, province or any city or other political subdivision, including without limitation, the State of Nevada, whether now or hereafter existing, or any officer or official thereof and any other agency with authority thereof to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Sponsor, its Related Parties, the Borrower or any of their respective Subsidiaries or Affiliates. "Gaming Laws": all applicable federal, state and local laws, rules and regulations pursuant to which any Gaming Authority possesses regulatory, licensing or permit authority over the ownership or operation of gaming facilities, including, without limitation, the Nevada Gaming Control Act, as codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to time, and the regulations of the Nevada Gaming Commission promulgated thereunder. "Gaming License": every license, franchise, approval or other authorization required to own, lease, operate or otherwise conduct gaming activities of any Group Member, including without limitation, all such licenses granted under Nevada law, and the regulations promulgated in connection therewith, and other applicable national, provincial or local laws. "Governmental Authority": any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners). "Group Members": the collective reference to the Borrower and the Restricted Subsidiaries, provided, that prior to the Availability Date, in addition to each Restricted Subsidiary, each of Stratosphere Corporation and its wholly-owned subsidiaries, Stratosphere Gaming Corp., Stratosphere Land Corporation, Stratosphere Advertising Agency, Stratosphere Leasing, LLC and Stratosphere Development, LLC, Arizona Charlie's, LLC, Charlie's Holding LLC and Fresca, LLC shall be deemed Group Members solely for purposes of the Borrower's obligations in respect of the delivery of its combined financial statements. 12 "Group Multiemployer Plan": a Group Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Group Plan": at a particular time, any "employee benefit plan" as defined in Section 3(3) of ERISA that is covered by Title IV of ERISA which is or was maintained, sponsored or contributed to by ACEP or a Group Member. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by ACEP in good faith. "Hedge Agreements": any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Group Members shall be a Swap Agreement. "Indebtedness": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person for the deferred purchase price of property or services (other than accrued expenses and current trade payables incurred in the ordinary course of such Person's business); (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments; 13 (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (e) all Capital Lease Obligations or Attributable Debt of such Person; (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements; (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person; (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; and (j) for the purposes of Sections 7.2 and 8(e) only, all obligations of such Person in respect of Hedge Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor. "Indemnity Agreements": each Indemnity Agreement executed and delivered by each Group Member to the Administrative Agent (or the Collateral Agent on its behalf) for the benefit of the Lenders substantially in the form of Exhibit J. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Intercreditor Agreement": the Intercreditor Agreement, dated as of January 29, 2004, among the Collateral Agent, the Administrative Agent and the Trustee, acting on behalf of the holders of the Senior Second Lien Notes. 14 "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding, the date on which such Loan is converted to a Eurodollar Loan and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, and (d) as to any Loan, the date of any repayment or prepayment made in respect thereof. "Interest Period": as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six or (if available to all Lenders) twelve months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent no later than 11:00 A.M., New York City time, on the date that is three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) the Borrower may not select an Interest Period that would extend beyond the Termination Date; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "Investments": as defined in Section 7.7. "Issuing Lender": a financial institution to be mutually agreed between the Administrative Agent and the Borrower on or prior to the Availability Date, in its capacity as issuer of any Letter of Credit. "Key Properties": the Stratosphere, Arizona Charlie's Decatur and Arizona Charlie's Boulder on the Closing Date, together with the other properties that may be acquired after the Closing Date. A "Key Property" means any of the foregoing Key Properties, together with the other properties that may be acquired after the Closing Date. "L/C Commitment": $10,000,000. 15 "L/C Fee Payment Date": the last day of each March, June, September and December and the last day of the Commitment Period. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 2.9. "L/C Participants": the collective reference to all the Lenders other than the Issuing Lender. "Lead Arranger": as defined in the recitals to this Agreement. "Lease Transaction": as defined in Section 7.16. "Lenders": as defined in the preamble hereto; provided, that unless the context otherwise requires, each reference herein to the Lenders shall be deemed to include any Conduit Lender. "Letters of Credit": as defined in Section 2.5(a). "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan Documents": this Agreement, the Fee Letter, the Collateral Documents, the Indemnity Agreements, the Intercreditor Agreement and the Notes. "Loans": as defined in Section 2.1(a). "Majority Lenders": the holders (excluding for the purposes of this definition, any Related Party or any Affiliate of any such Related Party unless each of the Lenders has provided its written consent to each such Person becoming a Lender in accordance with Section 11.6(ii)(F) hereof) of more than 50% the aggregate amount: (a) until the Availability Date, of all Lenders' Commitments at such time (exclusive of any Commitments held by any Related Party or any Affiliate of any such Related Party unless each of the Lenders has provided its written consent to each such Person becoming a Lender in accordance with Section 11.6(ii)(F) hereof); and (b) thereafter, of all Lenders' Commitments then in effect (exclusive of any Commitments held by any Related Party or any Affiliate of any such Related Party unless each of the Lenders has provided its written consent to each such Person becoming a Lender in accordance with Section 11.6(ii)(F) hereof) or, if the Commitments have been terminated, the amount of all Extensions of Credit then outstanding (exclusive of any Extensions of Credit held by any Related Party or any Affiliate of any such Related Party unless each of the Lenders has provided its written consent to each such Person becoming a Lender in accordance with Section 11.6(ii)(F) hereof); 16 provided, that unless each of the Lenders has provided its written consent to each such Person becoming a Lender in accordance with Section 11.6(ii)(F) hereof, for the purposes of this definition, each Lender (other than any Related Party or any Affiliate of any such Related Party) shall be deemed to hold the portion of the Extensions of Credit then outstanding equal to (x) the percentage which (i) such Lender's Commitment then constitutes of (ii) the difference between the Total Commitments and the Commitments held by any Related Party or any Affiliate of any Related Party (in each case of subclause (i) and subclause (ii) of this clause (x), immediately preceding and without giving effect to such termination of the Commitments) times (y) the aggregate amount of all Extensions of Credit. "Material Adverse Effect": a material adverse effect on (a) the Acquisitions, (b) the business, assets, property, operations, condition (financial or otherwise), results of operations or prospects of the Group Members, taken as a whole, or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Agents or the Lenders hereunder or thereunder or the validity, perfection or priority of the Administrative Agent's (or the Collateral Agent's) Liens on the Collateral. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Material Gaming License": any Gaming License that the loss, suspension, revocation, termination or material impairment of which, individually or in the aggregate, would materially adversely affect any Key Property and such Key Property is the principal asset of a Significant Subsidiary or if such Key Property (considered separately) would constitute a Significant Subsidiary if it were the only asset in a Significant Subsidiary. "Mortgaged Properties": the real properties listed on Schedule 1.1, as to which the Administrative Agent (or the Collateral Agent on its behalf) for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages. "Mortgages": each of the mortgages and deeds of trust made by any Group Member in favor of, or for the benefit of, the Administrative Agent (or the Collateral Agent on its behalf) for the benefit of the Lenders substantially in the form of Exhibit I. "Multiemployer Plan": a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or by the Disposition of any non-cash consideration received in connection therewith or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Collateral Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of Capital 17 Stock or any incurrence of Indebtedness, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Net Income": with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (i) any Asset Sale; or (ii) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; (b) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss); (c) any interest expense from Permitted Affiliate Subordinated Indebtedness, whether paid or accrued; and (d) any payments pursuant to the Tax Allocation Agreement. "Net PP&E": for any date of determination, the value of the plant, property and equipment related to a Key Property (other than any such Property that constitutes an Excluded Asset (as defined in the Pledge and Security Agreement)), as reflected on the consolidated balance sheet of the Group Members for the last day of the most recently completed fiscal quarter required to be delivered to the Lenders pursuant to Section 6.1, determined in accordance with GAAP, less accumulated amortization, depletion, depreciation or similar charges in respect of such plant, property and equipment. "Nevada Gaming Authorities": the Nevada State Gaming Control Board, the Nevada Gaming Commission, Clark County, Nevada and the City of Las Vegas, Nevada. "Non-Excluded Taxes": as defined in Section 3.10(a). "Non-Recourse Financing": Indebtedness incurred in connection with the construction, purchase or lease of personal or real property or equipment (a) as to which the lender upon default may seek recourse or payment against any Group Member only through the return or foreclosure or sale of the property or equipment so constructed, purchased or leased and to any proceeds of such property and Indebtedness and the related collateral account in which such proceeds are held and (b) may not otherwise assert a valid claim for payment on such Indebtedness against any Group Member or any other property of any Group Member except in each case in the case of fraud and other customary non-recourse exceptions. "Non-Recourse Indebtedness": Indebtedness or Disqualified Stock, as the case may be, or that portion of Indebtedness or Disqualified Stock, as the case may be (a) as to which neither ACEP nor any of its Restricted Subsidiaries (i) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (ii) is directly or indirectly liable as a guarantor or otherwise; (b) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of 18 any other Indebtedness of ACEP or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and (c) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of ACEP or any of its Restricted Subsidiaries. "Non-U.S. Lender": as defined in Section 3.10(d). "Notes": the collective reference to any promissory note evidencing Loans. "Obligations": the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Group Member, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of such Group Member to any Agent or to any Lender (or, in the case of Specified Hedge Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Specified Hedge Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to any Agent or to any Lender that are required to be paid by a Group Member pursuant hereto) or otherwise; provided, that (i) obligations of any Group Member under any Specified Hedge Agreement shall be secured pursuant to the Collateral Documents and guaranteed hereunder only to the extent that, and for so long as, the other Obligations arising under this Agreement are so secured and guaranteed and (ii) any release of Collateral or Guarantors effected in the manner permitted by this Agreement shall not require the consent of holders of obligations under Specified Hedge Agreements. "Offering Memorandum": the offering memorandum dated January 15, 2004 prepared by the Borrower and American Casino & Entertainment Properties Finance Corp. in connection with the offering of the Senior Second Lien Notes. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Participant": as defined in Section 11.6(c). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor). "Percentage": as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the Total Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Permitted Affiliate Subordinated Indebtedness": any Indebtedness of any Group Member to an Affiliate of ACEP other than a Group Member (a) for which no installment of 19 principal or installment of interest may be made if a Default or Event of Default exists or is continuing (except that interest may accrue on Permitted Affiliate Subordinated Indebtedness or be paid in the form of additional Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified Stock), (b) for which no installment of principal matures earlier than the date that is three months after the Termination Date, (c) for which the payment of principal and interest is subordinated in right of payment to the notes or any note at least to the extent set forth in Exhibit M hereto and (d) under which no interest, premium or penalty is due or payable (other than interest, premium and penalty payable in the form of additional Permitted Affiliate Subordinated Indebtedness or Capital Stock of ACEP that is not Disqualified Stock and except that interest may accrue on Permitted Affiliate Subordinated Indebtedness) unless such amount may be paid as a Restricted Payment. "Permitted Indebtedness": as defined in Section 7.2(b). "Permitted Investors": the collective reference to the Sponsor and its Control Investment Affiliates. "Permitted Payments to Parent": without duplication as to amounts (a) payments to the Sponsor or American Entertainment Properties Corp., in the aggregate, not to exceed $100,000 per annum; and (b) payments pursuant to the Tax Allocation Agreement. "Permitted Refinancing Indebtedness": any Indebtedness of ACEP or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of ACEP or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, and other expenses, incurred in connection therewith); (b) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (c) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Loans, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Loans on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (d) such Indebtedness is incurred either by ACEP or by the Restricted Subsidiary who is the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and (e) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is Indebtedness secured by a Permitted Lien on Property that is not 20 Collateral, then such Permitted Refinancing Indebtedness may be secured by a Lien on such other Property. "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan that is covered by ERISA and in respect of which ACEP or a Commonly Controlled Entity is (or, if such plan is terminated at such time, is under Section 4069 of ERISA deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge and Security Agreement": the Pledge and Security Agreement executed and delivered by each Group Member to the Administrative Agent (or the Collateral Agent on its behalf) for the benefit of the Lenders substantially in the form of Exhibit K. "Principal Business": the casino gaming, hotel, retail, conference center and entertainment mall and resort business (including, without limitation, the business contemplated by the Key Properties) and any activity or business incidental, directly related or similar thereto (including owning interests in Subsidiaries, operating a conference center and meeting facilities and owning and operating or licensing the operation of a retail and entertainment facilities), or any business or activity that is a reasonable extension, development or expansion thereof or ancillary thereto. "Pro Forma Balance Sheet": as defined in Section 4.1(a). "Project Assets" means, at any time, all of the assets then in use on the Key Properties including any real estate assets, any buildings or improvements thereon, and all equipment, furnishings and fixtures, but excluding: (a) any obsolete property determined by ACEP's board of directors to be no longer useful or necessary to the operations or support of such Key Property and (b) any personal property leased from a third party in the ordinary course of business. "Projections": as defined in Section 6.2(c). "Properties": as defined in Section 4.17(a). "Property": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. "Protective Advances": any advances with respect to (i) the payment of any delinquent taxes or insurance premiums owed by any of the Group Members with respect to the Key Properties, (ii) the removal of any Lien or encumbrance on the Key Properties (other than Liens that are junior to the Lien of the applicable Mortgage or other Collateral Document) or the defense of any of the Group Members' title thereto or of the validity, enforceability, perfection or priority of the Liens and security interests granted pursuant to the Collateral Documents or (iii) the repair, maintenance, protection or preservation of the value of the Key Properties or (in each case) any portion thereof, including, without limitation, for payment of heating, gas, electric and other utility bills. 21 "Qualified Counterparty": with respect to any Specified Hedge Agreement, any counterparty thereto that, at the time such Specified Hedge Agreement was entered into, was a Lender or an Affiliate of a Lender. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of any Group Member. "Reference Lender": a financial institution to be mutually agreed between the Administrative Agent and the Borrower on or prior to the Availability Date. "Register": as defined in Section 11.6(b). "Regulation U": Regulation U of the Board as in effect from time to time. "Related Parties": (1) Carl Icahn, any spouse and any child, stepchild, sibling or descendant of Carl Icahn, (2) any estate of the Carl Icahn or any person under clause (1), (3) any person who receives a beneficial interest in the Sponsor from any estate under clause (2) to the extent of such interest, (4) any executor, personal administrator or trustee who holds such beneficial interest in ACEP for the benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to the extent of such interest, (5) any corporation, partnership, limited liability company, trust, or similar entity, directly or indirectly owned or controlled by Carl Icahn or any other person or persons identified in clauses (1) or (2). "Reimbursement Obligation": the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 2.9 for amounts drawn under Letters of Credit. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by any Group Member in connection therewith that are not applied to repay the Loans pursuant to Section 3.2 as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale or Recovery Event in respect of which ACEP has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that ACEP (directly or indirectly through another Group Member) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale to make an Investment in or expenditures for acquiring or constructing properties or assets that replace the assets that were the subject of the Asset Sale or to acquire all or substantially all of the assets of or the majority of the Voting Stock of a Principal Business or a Recovery Event to acquire or repair fixed or capital assets useful in its business or to repair or replace the assets which were the subject of such Recovery Event. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire or repair fixed or capital assets useful in a Group Member's business or to repair or replace the assets which were the subject of the relevant Recovery Event. 22 "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring six months after such Reinvestment Event and (b) the date on which ACEP shall have determined not to, or shall have otherwise ceased to, acquire or repair fixed or capital assets useful in a Group Member's business or repair or replace the assets which were the subject of the relevant Recovery Event with all or any portion of the relevant Reinvestment Deferred Amount. "Related Agreements": the Acquisition Documentation and the Senior Second Lien Note Indenture. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under applicable regulations. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, president or chief financial officer of ACEP, but in any event, with respect to financial matters, the chief financial officer of ACEP. "Restricted Investment": an Investment not permitted by Section 7.7. "Restricted Payments": as defined in Section 7.6. "Restricted Subsidiary": any Subsidiary that is not an Unrestricted Subsidiary. "SEC": the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority. "Securities Act": the Securities Act of 1933, as amended. "Senior Second Lien Note Indenture": the Indenture entered into by the Borrower and the other Group Members in connection with the issuance of the Senior Second Lien Notes, together with all instruments and other agreements entered into by the Group Members in connection therewith. "Senior Second Lien Notes": the senior notes of the Borrower and American Casino & Entertainment Properties Finance Corp. issued pursuant to the Senior Second Lien Note Indenture. "Settlement Date": as defined in Section 2.2(d). 23 "Significant Subsidiary": any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1 - 02 of Regulation S - X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Closing Date. "Single Employer Plan": any Plan that is covered by Title IV of ERISA, but that is not a Multiemployer Plan. "Solvent": with respect to any Person, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors; (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured; (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business; and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Specified Hedge Agreement": any Hedge Agreement (a) entered into by (i) any Group Member and (ii) any Qualified Counterparty and (b) that has been designated by such Agent or Lender, as the case may be, and ACEP, by notice to the Administrative Agent, as a Specified Hedge Agreement. The designation of any Hedge Agreement as a Specified Hedge Agreement shall not create in favor of the Qualified Counterparty that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of any Guarantor under the Pledge and Security Agreement. "Sponsor": American Real Estate Partners, L.P. "Stratosphere": that certain hotel, casino and tower located on approximately 31 acres at 2000 Las Vegas Boulevard South, Las Vegas, Nevada, together with all other improvements (including any buildings) and property thereon. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a 24 "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of ACEP. "Syndication Agent": as defined in the preamble to this Agreement. "Tax Allocation Agreement": that certain tax allocation agreement to be entered into between American Entertainment Properties Corp., ACEP and the Subsidiaries of ACEP substantially in the form of Exhibit L. "Termination Date": (a) January 29, 2008 or (b) August 31, 2004 if the conditions precedent set forth in Section 5.2 have not been satisfied (or such earlier date as may be mutually agreed to in writing by the parties in the event that the Administrative Agent and the Borrower determines that such conditions precedent will not be met on or before August 31, 2004). "Total Commitments": at any time, the aggregate amount of the Commitments then in effect. "Total Extensions of Credit": at any time, the aggregate amount of the Extensions of Credit of the Lenders outstanding at such time. "Transferee": any Assignee or Participant. "Trustee": Wilmington Trust Company, as trustee under the Senior Second Lien Indenture. "Type": as to any Loan, its nature as an Base Rate Loan or a Eurodollar Loan. "United States": the United States of America. "Unrestricted Subsidiary" (i) each Subsidiary described as an Unrestricted Subsidiary on Schedule 4.15 as amended, supplemented or otherwise modified from time to time and (ii) each other Subsidiary of a Group Member that becomes an Unrestricted Subsidiary, in each case, in accordance with the requirements of Section 6.11. "Voting Stock": with respect to any Person that is a corporation, any class or series of capital stock of such Person that is ordinarily entitled to vote in the election of directors thereof at a meeting of stockholders called for such purpose, without the occurrence of any additional event or contingency and with respect to any other Person that is a limited liability company, membership interests entitled to manage the operations or business of the limited liability company. "Weighted Average Life to Maturity": when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the number of years (calculated to the nearest one-twelfth) obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal or liquidation preference, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount or liquidation preference, as applicable, of such Indebtedness or Disqualified Stock, as the case may be. 25 "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. 1.2. Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP; (ii) the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation"; (iii) the word "incur" shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words "incurred" and "incurrence" shall have correlative meanings); and (iv) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights; (v) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time (subject to any applicable restrictions hereunder); and (vi) references herein to any Person shall be deemed to include such Person's permitted successors and assigns. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (e) The expressions, "payment in full," "paid in full" and any other similar terms or phrases when used herein with respect to the Obligations shall mean the payment in full, in immediately available funds, of all the Obligations. 26 (f) References to "days" shall mean calendar days, unless the term "Business Days" shall be used. References to a time of day shall mean such time in New York, New York, unless otherwise specified. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1. Commitments. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Loans") to the Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Percentage of the L/C Obligations then outstanding, does not exceed the amount of such Lender's Commitment minus such Lender's Percentage of the aggregate amount of reserves established by the Administrative Agent pursuant to Section 2.1(b) below. During the Commitment Period the Borrower may use the Commitments by borrowing, prepaying and reborrowing the Loans in whole or in part, all in accordance with the terms and conditions hereof. The Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 3.3. (b) Anything to the contrary in this Section 2.1 notwithstanding, the Administrative Agent shall have the right, in its discretion to establish reserves against the Total Commitments with respect to amounts owing by any Group Member to any Person to the extent secured by a Lien on, or trust over, any portion of the Collateral in favor of the PBGC or a Multiemployer Plan, to the extent that any such Lien or trust may be reasonably expected to have priority over the Liens granted by any Group Member pursuant to the Collateral Documents with respect to any portion of the Collateral, provided that in any event, any such reserve shall not exceed the principal amount of the Obligations so secured and such reserves shall be released upon satisfaction of such Obligations. (c) To the extent that the aggregate amount of all Lenders' Extensions of Credit exceeds the difference between (i) the Total Commitment and (ii) the aggregate amount of reserves established (and then in effect) by Administrative Agent pursuant to Section 2.1(b) above, the Borrower shall immediately prepay the Borrower Obligations to the extent of such excess. (d) The Borrower shall repay all outstanding Loans on the Termination Date. 2.2. Procedure for Loan Borrowing. (a) A Borrower may borrow under the Commitments during the Commitment Period on any Business Day, provided that such Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans) (provided that any such notice of a borrowing of Base Rate Loans to finance payments required to be made pursuant to Section 3.5 may be given not later than 10:00 A.M., New York City time, on the date of the proposed borrowing), specifying (i) the amount and Type of Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. Each borrowing under the Commitments shall be in 27 an amount equal to (x) in the case of Base Rate Loans, $500,000 or a whole multiple thereof (or, if the then aggregate Available Commitments are less than $500,000, such lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. (b) Each Lender and each Group Member hereby authorizes the Administrative Agent, in its sole discretion, to make Protective Advances on behalf of the Borrower (including in the event that the Borrower is unable to satisfy with the conditions precedent to an Extension of Credit set forth in Section 5) in accordance herewith. (c) Unless the Administrative Agent shall have been notified by any Lender prior to the date of borrowing that such Lender does not intend to make available to the Administrative Agent its Percentage of the borrowing to be made on such date, the Administrative Agent may assume that such Lender will make such amount available to the Administrative Agent on the Settlement Date and the Administrative Agent, in reliance upon such assumption, may but shall not be obligated to make available the amount of the borrowing to be provided by such Lender. If and to the extent such Lender shall not have so made available to the Administrative Agent its Percentage of such borrowing on such date and the Administrative Agent shall have so made available to the Borrower a corresponding amount on behalf of such Lender, the Administrative Agent may recover such amount on demand from such Lender. If such Lender does not pay such corresponding amount promptly upon the Administrative Agent's demand therefor, the Administrative Agent may promptly notify ACEP and the Borrower shall immediately repay such corresponding amount to the Administrative Agent together with accrued interest thereon at the interest rate otherwise applicable to the outstanding Loans. (d) Unless the Majority Lenders have instructed the Administrative Agent to the contrary, the Administrative Agent on behalf of the Lenders may but shall not be obligated to make Base Rate Loans under clause (b) above without prior notice of the proposed borrowing to the Lenders, subject to the following settlement arrangements: (i) The amount of each Lender's Percentage of Loans shall be computed weekly (or more frequently in the Administrative Agent's discretion) and shall be adjusted upward or downward on the basis of the amount of outstanding Loans as of 5:00 P.M. on the last Business Day of the period specified by the Agent (such date, the "Settlement Date"). The Administrative Agent shall deliver to each of the Lenders promptly after the Settlement Date a summary statement of the amount of outstanding Loans for such period. The Lenders shall transfer to the Administrative Agent such amounts as are necessary so that (after giving effect to all such transfers) the amount of Loans made by each Lender shall be equal to such Lender's Percentage of the aggregate amount of Loans outstanding as of such Settlement Date. If the summary statement is received by the Lenders prior to 12:00 noon on any Business Day, each Lender shall make the transfers described above in immediately available funds no later than 3:00 P.M. on the day such summary statement was received; and if such summary statement is 28 received by the Lenders after 12:00 noon on such day, each Lender shall make such transfers no later than 3:00 P.M. on the next succeeding Business Day. The obligation of each of the Lenders to transfer such funds shall be irrevocable and unconditional and without recourse to or warranty by the Administrative Agent. Each of the Administrative Agent and the Lenders agrees to mark its books and records on the Settlement Date to show at all times the dollar amount of its Percentage of the outstanding Loans. (ii) To the extent that the settlement described above shall not yet have occurred, upon repayment of Loans by the Borrower, the Administrative Agent may first apply such amounts repaid directly to the amounts made available by the Agent pursuant to this Section 2.2(d). (iii) Because the Administrative Agent on behalf of the Lenders may be advancing and/or may be repaid Loans prior to the time when the Lenders will actually advance and/or be repaid Loans, interest with respect to Loans shall be allocated by the Administrative Agent to each Lender and to the Administrative Agent in accordance with (A) the amount of Loans actually advanced by and repaid to each Lender and to the Administrative Agent, and (B) the timing of each such advance by or repayment to each Lender and Administrative Agent, and (x) shall accrue in favor of Administrative Agent from and including the date such Loans are so advanced by Administrative Agent to but excluding the date such Loans are either repaid by the Borrower or actually settled by the applicable Lender as described in this Section, and (y) shall accrue in favor of each Lender from and including the date that such Lender funds to Administrative Agent its Percentage of such Loans to but excluding the date such Loans are repaid by the Borrower. 2.3. Commitment Fees, etc. (a) Each Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee for the period from and including the Availability Date to the last day of the Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Termination Date, commencing on the first of such dates to occur after the date hereof. (b) Each Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates previously agreed to in writing by the Borrower and the Administrative Agent. 2.4. Termination or Reduction of Commitments. The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Commitments or, from time to time, to reduce the amount of the Commitments; provided that no such termination or reduction of Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the Total Extensions of Credit would exceed the Total Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Commitments then in effect. 2.5. L/C Commitment 29 (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 2.8(a), agrees to issue letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day during the Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Commitments minus the aggregate amount of reserves established (and then in effect) by the Administrative Agent pursuant to Section 2.1(b) would be less than zero. Each Letter of Credit shall (A) be denominated in Dollars, (B) have a face amount of at least $500,000 (unless otherwise agreed by the Issuing Lender) and (C) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date that is five Business Days prior to the Termination Date, provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). (b) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 2.6. Procedure for Issuance of Letter of Credit. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will notify the Administrative Agent of the amount, the beneficiary and the requested expiration of the requested Letter of Credit, and upon receipt of confirmation from the Administrative Agent that after giving effect to the requested issuance, the result of (a) the Available Commitments minus (b) the aggregate amount of reserves established (and then in effect) by the Administrative Agent pursuant to Section 2.1(b), would not be less than zero, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower (with a copy to the Administrative Agent) promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). 2.7. Fees and Other Charges (a) The Borrower will pay a fee on all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans, shared ratably among the Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. In addition, the Borrower shall pay to the Issuing Lender for its own account a fronting fee in an amount equal to 0.125% (as of the Closing Date) of the undrawn and unexpired amount of each Letter of Credit as agreed by the Borrower and the 30 Issuing Lender, payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. (b) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 2.8. L/C Participations (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions set forth below, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Percentage in the Issuing Lender's obligations and rights under and in respect of each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Administrative Agent upon demand of the Issuing Lender an amount equal to such L/C Participant's Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. The Administrative Agent shall promptly forward such amounts to the Issuing Lender. (b) If any amount required to be paid by any L/C Participant to the Administrative Agent for the account of the Issuing Lender pursuant to Section 2.8(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Administrative Agent for the account of the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Administrative Agent for the account of the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 2.8(a) is not made available to the Administrative Agent for the account of the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 2.8(a), the Administrative Agent or the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Administrative Agent or the Issuing Lender, as the case may be, will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the 31 event that any such payment received by Administrative Agent or the Issuing Lender, as the case may be, shall be required to be returned by the Administrative Agent or the Issuing Lender, such L/C Participant shall return to the Administrative Agent for the account of the Issuing Lender the portion thereof previously distributed by the Administrative Agent or the Issuing Lender, as the case may be, to it. 2.9. Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse the Issuing Lender on the same Business Day on which the Issuing Lender notifies ACEP of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices referred to herein in Dollars and in immediately available funds. Interest shall be payable on any such amounts from the date on which the relevant draft is paid until payment in full in (i) until the Business Day next succeeding the date of the relevant notice, at the rate set forth Section 3.5(b) and (ii) in the event that the Borrower fails to satisfy the conditions precedent set forth in Section 5.3, thereafter, at the rate set forth in Section 3.5(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 2.8 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.2 of Base Rate Loans in the amount of such drawing and such amount shall constitute a Loan hereunder. The Borrowing Date with respect to such borrowing shall be the first date on which a borrowing of Loans could be made, pursuant to Section 2.2, if the Administrative Agent had received a notice of such borrowing at the time the Administrative Agent receives notice from the relevant Issuing Lender of such drawing under such Letter of Credit. 2.10. Obligations Absolute. The Borrower's obligations under Section 2.9 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 2.9 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among any Group Member and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of a Group Member against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuing Lender. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to any Group Member. 2.11. Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify ACEP of the date and 32 amount thereof. The responsibility of the Issuing Lender to ACEP in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. 2.12. Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 2, the provisions of this Section 2 shall apply. SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT 3.1. Optional Prepayments. The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent no later than 11:00 A.M., New York City time, three Business Days prior thereto in the case of Eurodollar Loans and no later than 11:00 A.M., New York City time, one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 3.11. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial optional prepayments of Loans shall be in an aggregate principal amount of $500,000 or a whole multiple thereof. 3.2. Mandatory Prepayments and Commitment Reductions (a) If on any date any Group Member shall receive Net Cash Proceeds from any Asset Sale (other than a sale of Capital Stock of ACEP) or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be applied on such date toward the prepayment of the Loans as set forth in Section 3.2(b); provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales and Recovery Events that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed $5,000,000 in any fiscal year of ACEP and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Loans as set forth in Section 3.2(b); provided, that any such prepayment shall not constitute a reduction of the Commitments. (b) The application of any prepayment pursuant to Section 3.2 shall be made, first, to Base Rate Loans and, second, to Eurodollar Loans. Each prepayment of the Loans under Section 3.2 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. (c) Any reduction of the Commitments shall be accompanied by prepayment of the Loans to the extent, if any, that the Total Extensions of Credit exceed the amount of the Total Commitments as so reduced, provided that if the aggregate principal amount of Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding 33 Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders in an amount equal to 105% of such balance of such excess and otherwise on terms and conditions satisfactory to the Administrative Agent. 3.3. Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent prior irrevocable notice of such election no later than 11:00 A.M., New York City time, on the Business Day preceding the proposed conversion date, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable notice of such election no later than 11:00 A.M., New York City time, three Business Days preceding the proposed conversion date (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Lenders have determined in its or their sole discretion not to permit such conversions. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Lenders have determined in its or their sole discretion not to permit such continuations, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. 3.4. Limitations on Eurodollar Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple of $100,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time. 3.5. Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate applicable to such day plus the Applicable Margin. 34 (c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) shall bear interest at a rate per annum equal to (x) in the case of Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans plus 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans plus 2%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand. 3.6. Computation of Interest and Fees. (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify ACEP and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify ACEP and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of ACEP, deliver to ACEP a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 3.5(a). 3.7. Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (i) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (ii) the Administrative Agent shall have received notice from the Majority Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, 35 the Administrative Agent shall give telecopy or telephonic notice thereof to ACEP and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then-current Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. 3.8. Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee and any reduction of the Commitments of the Lenders shall be made pro rata according to the Percentages of the Lenders. (b) Each payment (including each prepayment) by the Borrower on account of the Borrower Obligations shall be applied as follows: (i) first, to pay any costs or expenses reimbursable by any Group Member and then due to any Agent under the Loan Documents until paid in full, (ii) second, to pay any costs or expenses reimbursable by any Group Member and then due to any Lender under the Loan Documents, on a ratable basis in accordance with the Lenders' respective Percentages, until paid in full, (iii) third, to pay any fees then due to any Agent under the Loan Documents until paid in full, (iv) fourth, to pay any fees then due to any Lender under the Loan Documents, on a ratable basis in accordance with the Lenders' respective Percentages, until paid in full, (v) fifth, to pay interest due in respect of the Loans, on a ratable basis in accordance with the Lenders' respective Percentages, until paid in full, (vi) sixth, to pay the principal of all Loans, on a ratable basis in accordance with the Lenders' respective Percentages, until paid in full, (vii) seventh, if an Event of Default has occurred and is continuing, to Administrative Agent, to be held by Administrative Agent, for the ratable benefit of Issuing Lender and the Lenders, as cash collateral in an amount up to 105% of the then extant amount of the L/C Obligations, until paid in full, and (viii) eighth, if an Event of Default has occurred and is continuing, to pay any other Borrower Obligations (including the provision of amounts to Administrative Agent, to be held by Administrative Agent, for the benefit of the Qualified Counterparties that are a party to any Specified Hedge Agreement, as cash collateral in an amount up to the amount determined by Administrative Agent in its discretion as the amount necessary to secure the Group Members' obligations in respect of the Specified Hedge Agreements). (c) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any 36 extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (d) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans, on demand, from the Borrower. (e) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower. 3.9. Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 3.10 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any 37 other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify ACEP (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to ACEP (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction. (c) A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to ACEP (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. Notwithstanding anything to the contrary in this Section, no Borrower shall be required to compensate a Lender pursuant to this Section for any amounts incurred more than six months prior to the date that such Lender notifies ACEP of such Lender's intention to claim compensation therefor; provided that, if the circumstances giving rise to such claim have a retroactive effect, then such six-month period shall be extended to include the period of such retroactive effect. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 3.10. Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent or such Lender having executed, delivered or performed its 38 obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld from any amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that no Borrower shall be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agents and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. (d) Each Lender (or Transferee) that is not a "U.S. Person" as defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to ACEP and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a statement substantially in the form of Exhibit E and a Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify ACEP at any time it determines that it is no longer in a position to provide any previously delivered certificate to ACEP (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. 39 (e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to ACEP (with a copy to the Administrative Agent), at the time or times prescribed by applicable law and as reasonably requested in writing by ACEP, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. (f) If any Agent or any Lender determines, in its sole discretion, that it has received a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 3.10, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 3.10 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that each Borrower, upon the request of such Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to such Agent or such Lender in the event such Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require any Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to any Group Member or any other Person. (g) The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 3.11. Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. In the case of clauses (a) and (c), such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 40 3.12. Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 3.9 or 3.10(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section 3.9 or 3.10(a). 3.13. Replacement of Lenders. ACEP shall be permitted to replace any Lender that: (a) requests reimbursement for amounts owing pursuant to Section 3.9 or 3.10(a); or (b) defaults in its obligation to make Loans hereunder, with a replacement lender provided that: (i) such replacement does not conflict with any Requirement of Law; (ii) no Event of Default shall have occurred and be continuing at the time of such replacement; (iii) prior to any such replacement, such Lender shall have taken no action under Section 3.12 so as to eliminate the continued need for payment of amounts owing pursuant to Section 3.9 or 3.10(a); (iv) the replacement lender shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement; (v) the Borrower shall be liable to such replaced lender under Section 3.11 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto; (vi) the replacement Lender, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent; (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 11.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein); (viii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 3.9 or 3.10(a), as the case may be; and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. 3.14. Evidence of Debt. 41 (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing Indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (b) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 11.6(b), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type of such Loan and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (c) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 3.14(a) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement. (d) Each Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a promissory note of the Borrower evidencing any Loans of such Lender, substantially in the forms of Exhibit F, with appropriate insertions as to date and principal amount. 3.15. Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 3.11. 3.16. Source of Loans. The Agents and each Lender hereby represent and warrant to the Borrower and Commonly Controlled Entity that no part of the source of any Loan made hereunder constitutes assets of any "employee benefit plan" within the meaning of Section 3(3) of ERISA. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, each Group Member from time to time party hereto hereby represents and warrants to each Agent and each Lender that: 4.1. Financial Condition. 42 (a) The unaudited pro forma combined balance sheet of the Group Members as at September 30, 2003 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Acquisition, (ii) the Senior Second Lien Notes to be issued on the Closing Date and the use of proceeds thereof and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to ACEP as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of the combined Group Members as at September 30, 2003, assuming that the events specified in the preceding sentence had actually occurred at such date. (b) The audited combined balance sheets of the Group Members as at December 31, 2000, December 31, 2001, and December 31, 2002, and, in the case of the Availability Date, the audited or unaudited combined balance sheets of the Group Members as at December 31, 2003 to the extent such statements are available, and the related combined statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from KPMG LLP present fairly the combined financial condition of the Group Members as at such date, and the combined results of the operations and its combined cash flows for the respective fiscal years then ended. The unaudited combined balance sheet of the Group Members as at September 30, 2003 and, in the case of the Availability Date, March 31, 2004, if such balance sheet is available, and the related unaudited combined statements of income and cash flows for the year to date period ended on such date, present fairly the combined financial condition of the Group Members as at such date, and the combined results of its operations and its combined cash flows for the nine-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). No Group Member has any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases (other than any Lease Transaction permitted hereunder) or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph other than, on the Availability Date, the Guarantee Obligations of the Group Members that constitute Restricted Subsidiaries in respect of the Senior Second Lien Notes. During the period from September 30, 2003 to and including the date hereof there has been no Disposition by the Group Members of any material part of its business or property other than pursuant to and in accordance with the Acquisition Agreements except as described on Schedule 4.1. 4.2. No Change. Since September 30, 2003, there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect. 4.3. Corporate Existence; Compliance with Law. Each Group Member: (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; 43 (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to be so qualified would not have a Material Adverse Effect; and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.4. Power; Authorization; Enforceable Obligations. Each Group Member has the power and authority, and the legal right, to make, deliver and perform the Loan Documents and the Related Agreements to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each Group Member has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents and the Related Agreements to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection the extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, the Related Agreements (excluding, on the Closing Date the Acquisition Agreements), except (i) consents, authorizations, filings and notices described in Schedule 4.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect (except as specified in Schedule 4.4) and (ii) the filings referred to in Schedule 3 to the Pledge and Security Agreement. Each Loan Document and each Related Agreement has been duly executed and delivered on behalf of each Group Member party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Group Member party thereto, enforceable against each such Group Member in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5. No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of any Group Member and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Collateral Documents). No Requirement of Law or Contractual Obligation applicable to any Group Member could reasonably be expected to have a Material Adverse Effect. 4.6. Litigation. Except as set forth in Schedule 4.6, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of any Group Member, threatened by or against any Group Member or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect. 44 4.7. No Default. No Group Member is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8. Ownership of Property; Liens. Each Group Member has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 7.3. 4.9. Intellectual Property. Each Group Member owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does any Group Member know of any valid basis for any such claim. The use of Intellectual Property by each Group Member does not infringe on the rights of any Person in any material respect. 4.10. Taxes. Each Group Member has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of that are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the applicable Group Member); no tax Lien has been filed, and, to the knowledge of any Group Member, no claim is being asserted, with respect to any such tax, fee or other charge other than those permitted pursuant to Section 7.3 or as could not otherwise have a Material Adverse Effect 4.11. Federal Regulations. No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used for "buying" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U. 4.12. Labor Matters. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group Member pending or, to the knowledge of any Group Member, threatened; (b) hours worked by and payment made to employees of each Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the relevant Group Member. 4.13. ERISA. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Single Employer Plan,; (b) each Plan has complied in all 45 material respects with the applicable provisions of ERISA and the Code; (c) no termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Single Employer Plan has arisen, during such five-year period; (d) the present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits; and (e) neither ACEP nor any Commonly Controlled Entity (i) has had a complete or partial withdrawal from any Multiemployer Plan, (ii) expect to incur any withdrawal liability with respect to any Multiemployer Plan or (iii) has received notice that any Multiemployer Plan is in Reorganization or is Insolvent. 4.14. Investment Company Act; Other Regulations. No Group Member is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Group Member is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness. 4.15. Subsidiaries. Except as disclosed to the Administrative Agent by ACEP in writing from time to time after the Closing Date, (a) Schedule 4.15 (as such Schedule 4.15 may be amended, supplemented or otherwise modified from time to time in connection with the creation or acquisition by any Group Member of a new Subsidiary or the designation of a Restricted Subsidiary as an Unrestricted Subsidiary) sets forth the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by any Group Member and (b) there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors' qualifying shares) of any nature relating to any Capital Stock of a Group Member, except as created by the Loan Documents and the Acquisition Agreements. Schedule 4.15 (as so amended, supplemented or otherwise modified ) correctly identifies whether each such Subsidiary is a Restricted or an Unrestricted Subsidiary. 4.16. Use of Proceeds. The proceeds of the Loans shall be used, together with the proceeds of and the Letters of Credit, for general corporate purposes. 4.17. Environmental Matters. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) the facilities and properties owned, leased or operated by any Group Member (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or could give rise to liability under, any Environmental Law; (b) no Group Member has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by any Group Member (the "Business"), nor does any Group Member have knowledge or reason to believe that any such notice will be received or is being threatened; (c) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been 46 generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law; (d) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of any Group Member, threatened, under any Environmental Law to which any Group Member is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business; (e) there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Group Member in connection with the Properties, any facilities or properties formerly owned, leased or operated by any Group Member or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws; (f) the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and (g) no Group Member has assumed any liability of any other Person under Environmental Laws. 4.18. Accuracy of Information, etc. No statement or information contained in this Agreement, any other Loan Document, the Offering Memorandum or any other document, certificate or statement furnished by or on behalf of any Group Member to the Administrative Agent or the Lenders, or any of them, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Offering Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of ACEP to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. As of the date hereof, to the best of each Group Member's knowledge after due inquiry, the representations and warranties contained in the Acquisition Documentation are true and correct in all material respects. There is no fact known to any Group Member that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Offering Memorandum or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 4.19. Mortgages. Each of the Mortgages is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds and products thereof, and when the Mortgages are filed in the offices specified on Schedule 4.19, each such Mortgage shall 47 constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Group Member in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person. Schedule 1.1 lists, as of the Closing Date and as of the Availability Date, each parcel of owned real property and each leasehold interest in real property held by any Group Member. 4.20. Solvency. Each Group Member is, and after giving effect to the Acquisition and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 4.21. Senior Indebtedness. The Borrower Obligations constitute "First Lien Obligations" under and as defined in the Intercreditor Agreement and the Senior Second Lien Note Indenture. The Obligations of each Restricted Subsidiary hereunder constitute "First Lien Obligations" of such Restricted Subsidiary under and as defined in the Intercreditor Agreement and the Senior Second Lien Note Indenture. 4.22. Regulation H. No Mortgage encumbers improved real property that is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968 (except any Mortgaged Properties as to which such flood insurance as required by Regulation H has been obtained and is in full force and effect as required by this Agreement). 4.23. Certain Documents. ACEP has delivered to each Lender a complete and correct copy of the Related Agreements, including any amendments, supplements or modifications with respect to any such Related Agreements. SECTION 5. CONDITIONS PRECEDENT 5.1. Conditions to Closing Date. The effectiveness of this Agreement and the obligations of each Agent and each Lender hereunder is subject to the satisfaction of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by each Agent, each Lender, each Group Member and each Person listed on Schedule 1.1A, (ii) the Fee Letter, executed and delivered by the Borrower, (iii) the Intercreditor Agreement, executed and delivered by the Trustee and the Collateral Agent and (iv) each other Loan Document required to be executed on or before such date, executed by the applicable party. (b) Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received (i) the Pro Forma Balance Sheet, and (ii) audited combined financial statements of the Group Members for the 2000, 2001 and 2002 fiscal years and the unaudited combined financial statement for the nine-month period ended September 30, 2003, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the combined financial condition of the Group Members as reflected in the financial statements or projections contained in the Offering Memorandum. (c) Lien Searches. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where the Group Members are organized and where 48 assets of the Group Members are located, and such search shall reveal no liens on any of the assets of the Group Members except for liens permitted by Section 7.3 or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Administrative Agent. (d) Fees. The Lenders and the Agents shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel not to exceed $125,000), on or before the Closing Date. (e) Group Member Certificate. The Administrative Agent shall have received a certificate of each Group Member, dated the Closing Date, substantially in the form of Exhibit B, with appropriate insertions and attachments including the certificate of formation of each Group Member certified by the relevant authority of the jurisdiction of organization of such Group Member, and a good standing certificate for each Group Member from its jurisdiction of organization. (f) Legal Opinion. The Administrative Agent shall have received the legal opinion of New York counsel to the Group Members in form and substance satisfactory to the Administrative Agent. (g) Miscellaneous. The Administrative Agent shall have received such other documents, agreements, certificates and information as it shall reasonably request. 5.2. Conditions to Availability Date. The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Availability Date (but in any event no later than August 31, 2004), of the following conditions precedent: (a) Acquisitions, etc. The following events have occurred or transactions shall have been consummated, in each case on terms and conditions reasonably satisfactory to each Agent and each Lender: (i) the Acquisitions; and (ii) the Escrow Release Date (as defined under the Escrow and Security Agreement) shall have occurred and none of the conditions precedent to the occurrence of such event shall have been waived without the prior written consent of the each of the Lenders, provided that any such conditions precedent that require the perfection of the second priority security interests in the Collateral of the Trustee or enforceability of other rights in respect of the Collateral or otherwise running to the benefit of the Trustee shall be deemed satisfied for purposes of this Section 5.2(a) only to the extent that the first priority security interest in the Collateral of the Administrative Agent (or the Collateral Agent on its behalf) are perfected and the other rights in respect of the Collateral running to the benefit of the Administrative Agent (or the Collateral Agent on its behalf) are enforceable and are otherwise satisfactory to the Administrative Agent, including, without limitation, delivery of title policies to the Administrative substantially in the form of Exhibit N-1 through N-4 hereto. (b) Loan Documents. Each of the Group Members that has been formed or acquired in connection with the Acquisitions shall have become a party to (i) this Agreement, (ii) the Pledge and Security Agreement, (iii) the Intercreditor Agreement, (iv) a Mortgage with respect to its respective Mortgaged Property, and (v) each other Loan Document required to be 49 executed on or before such date, and each such agreement shall have been executed by each such Group Member and delivered to the Administrative Agent. Each such entity shall be a "Group Member" for purposes of each condition precedent set forth in this Article 5, including, without limitation, the requirement that such entity make each of the representations and warranties hereunder and under each Loan Document. (c) Financial Statements. The Lenders shall have received (i) the audited combined financial statements of the Group Members for the 2003 fiscal year and the most recently year to date quarterly period, in each case, to the extent such audited combined financial statements are available and (ii) unaudited interim combined financial statements of the Group Members for each quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available. (d) Lien Searches. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where the Group Members are organized and where assets of the Group Members are located, and such search shall reveal no liens on any of the assets of the Group Members except for liens permitted by Section 7.3 or discharged on or prior to the Availability Date pursuant to documentation satisfactory to the Administrative Agent. (e) Fees. The Lenders and the Agents shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel, which, together with the fees paid in respect thereof on the Closing Date, shall not exceed $125,000), on or before the Availability Date. All such amounts may be paid with proceeds of Loans made on the Availability Date and will be reflected in the funding instructions given by ACEP to the Administrative Agent on or before the Availability Date. (f) Group Member Certificate. The Administrative Agent shall have received a certificate of each Group Member, dated the Availability Date, substantially in the form of Exhibit B, with appropriate insertions and attachments including the certificate of formation of each Group Member certified by the relevant authority of the jurisdiction of organization of such Group Member, and a good standing certificate for each Group Member from its jurisdiction of organization. (g) Filings, Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by the Collateral Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 7.3), shall be in proper form for filing, registration or recordation. (h) Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 4.2 of the Pledge and Security Agreement and Section 6.5 hereof. (i) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions: (i) the legal opinion of New York counsel to the Group Members, substantially in the form of Exhibit D-1; and 50 (ii) the legal opinion of local counsel in Nevada to the Group Members substantially in the form of Exhibit D-2; and (iii) the legal opinion such other special and local counsel as may be required by the Administrative Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (j) Pledged Stock; Stock Powers; Pledged Notes. The Collateral Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Pledge and Security Agreement, together with an undated stock power or assignment for each such certificate executed in blank by a duly authorized officer, member or manager of the pledgor thereof and (ii) each promissory note (if any) pledged to the Collateral Agent pursuant to the Pledge and Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof. (k) Additional Representations and Warranties. Each of the representations and warranties made by any Group Member set forth in the Escrow and Security Agreement shall be true and correct in all material respects (except to the extent that any such representation or warranty is qualified by materiality in which case, it shall be true and correct in all respects). (l) Miscellaneous. The Administrative Agent shall have received such other documents, agreements, certificates and information as it shall reasonably request. 5.3. Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including its initial extension of credit except with respect to Section 5.3(d)) is subject to the satisfaction of the following conditions precedent: (a) No Default or Event of Default shall have occurred and be continuing (on a pro forma basis after giving effect to the extension of credit contemplated thereby). (b) Each of the representations and warranties made by any Group Member in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date (except for any representation and warranty that is as of a specific date) and after giving effect to the extensions of credit requested to be made on such date. (c) A Responsible Officer shall certify in writing to the Administrative Agent that the incurrence of Indebtedness represented by the requested extensions of credit is permitted under the Senior Second Lien Note Indenture and that the debt so incurred will constitute "First Lien Obligations" under and as defined in the Intercreditor Agreement and Senior Second Lien Note Indenture. (d) No Material Adverse Effect shall have occurred and be continuing, or could reasonably be expected to result from such extension of credit or the application of the proceeds thereof. Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.3 have been satisfied. 51 SECTION 6. AFFIRMATIVE COVENANTS Each Group Member from time to time party hereto hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or Agent hereunder, such Group Member shall and shall cause each other Group Member that is a Subsidiary of such Group Member to: 6.1. Financial Statements. Furnish to the Administrative Agent and each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of ACEP, a copy of: (i) the audited consolidating and consolidated balance sheet of the Group Members (or, prior to the end of the first fiscal year following the Availability Date, the audited combined balance sheet of the Group Members) as at the end of such year; (ii) the related audited consolidating and consolidated (or combined, as applicable) statements of income; and (iii) the related audited consolidated (or combined, as applicable) statements of cash flows for such year; setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by KPMG LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of ACEP: (i) the unaudited consolidating (if such statements have been prepared by the Group Members) and consolidated balance sheet of the Group Members (or, prior to the end of the first fiscal quarter following the Availability Date, the unaudited combined balance sheet of the Group Members) as at the end of such quarter; (ii) the related unaudited consolidating (if such statements have been prepared by the Group Members) and consolidated (or combined, as applicable) statements of income; and (iii) the related unaudited consolidated (or combined, as applicable) statement of cash flows for such quarter and the portion of the fiscal year through the end of such quarter; setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or 52 officer, as the case may be, and disclosed therein). If ACEP has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto of the financial condition and results of operations of the Group Members separate from the financial condition and results of operations of the Unrestricted Subsidiaries. 6.2. Certificates; Other Information. Furnish to the Administrative Agent and each Lender (or, in the case of clause (g), to the relevant Lender): (a) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Group Member during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information and calculations necessary for determining compliance by the Group Members with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of ACEP, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a listing of any Intellectual Property acquired by any Group Member since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Availability Date); (c) as soon as available, and in any event no later than the last day of each fiscal year of ACEP, a detailed consolidated and consolidating projected income statement of the Group Members as of the end of the following fiscal year, and a description of the underlying assumptions applicable thereto (collectively, the "Projections"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) if ACEP is not then a reporting company under the Securities Exchange Act of 1934, as amended, within 45 days after the end of each fiscal quarter of ACEP, a narrative discussion and analysis of the financial condition and results of operations of Group Members for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the actual financial condition and results of operations comparable periods of the previous year; 53 (e) no later than 10 Business Days prior to the effectiveness thereof, copies of substantially final drafts of any proposed amendment, supplement, waiver or other modification with respect to the Senior Second Lien Note Indenture or the Acquisition Documentation; (f) within five days after the same are sent, copies of all financial statements and reports that ACEP sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports that ACEP may make to, or file with, the SEC; and (g) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 6.3. Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Group Member. 6.4. Maintenance of Existence; Compliance. (a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.5. Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same business. 6.6. Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities, (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records during customary business hours once each calendar quarter (excluding any visit by any Lender or Affiliate thereof made for purposes other than an inspection), provided that at any time after the occurrence and during the continuance of a Default or an Event of Default, representatives of any Lender may visit and inspect any of the properties of the Group Members and examine and make abstracts from any of the books and records of the Group Members at any reasonable time and as often as may reasonably be desired, (c) permit representatives of any Lender to discuss the business, operations, properties and financial and other condition of the Group Members with officers and employees of the Group Members at any reasonable time and as often as may reasonably be desired, (d) after any Lender has notified ACEP of its intent to do so, permit representatives of any Lender to meet with their independent certified public accountants no more than once per year (other than at any time after the occurrence and during the continuance of a Default or an 54 Event of Default during which time such representatives may meet with their independent certified public accountants at any reasonable time and as often as may reasonably be desired), and (e) cooperate with the Administrative Agent in the event that the Administrative Agent requests and conducts any appraisal of the assets of the Group Members. 6.7. Notices. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of any Group Member or (ii) litigation, investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that in either case could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting any Group Member (i) in which the amount involved is $500,000 or more and not covered by insurance, (ii) in which injunctive or similar relief is sought or (iii) which relates to any Loan Document; (d) the following events, as soon as possible and in any event within 30 days after a Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Single Employer Plan, a failure to make any required contribution to a Single Employer Plan, the creation of any Lien in favor of the PBGC or a Single Employer Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or ACEP or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan, and in each case in clause (i) and (ii), such event, together will all other such events, could reasonably be expected to have a Material Adverse Effect; (e) the following events, as soon as possible and in any event within 30 days after a Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Group Plan, a failure to make any required contribution to a Group Plan, the creation of any Lien in favor of the PBGC or a Group Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Group Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or ACEP or any Group Member or any Group Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Group Plan; (f) any development or event that has had or could reasonably be expected to have a Material Adverse Effect; and (g) promptly upon any Person becoming a Subsidiary of any Group Member written notice setting forth with respect to such Person: (i) the date on which such Person became a Subsidiary of the Borrower, (ii) whether such Subsidiary is a Restricted or an Unrestricted Subsidiary, and 55 (iii) all of the data required to be set forth in Schedule 4.15 hereto with respect to all Subsidiaries of Group Member (it being understood that such written notice shall be deemed to supplement Schedule 4.15 hereto for all purposes of this Agreement); Each notice pursuant to this Section 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action applicable Group Member proposes to take with respect thereto. 6.8. Environmental Laws(a) . (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 6.9. Additional Collateral, etc. (a) With respect to any property acquired after the Availability Date by any Group Member (other than (x) any property described in paragraph (b), (c) or (d) below, and (y) any property subject to a Lien expressly permitted by Section 7.3(h)) as to which the Administrative Agent (or the Collateral Agent on its behalf), for the benefit of the Lenders, does not have a perfected first priority Lien, promptly: (i) execute and deliver to the Administrative Agent (or the Collateral Agent on its behalf) such amendments to the Pledge and Security Agreement or such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent (or the Collateral Agent on its behalf), for the benefit of the Lenders, a security interest in such property; and (ii) take all actions necessary or advisable to grant to the Administrative Agent (or the Collateral Agent on its behalf), for the benefit of the Lenders, a perfected first priority security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions or take such other actions as may be required by the Pledge and Security Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to any fee interest in any real property having a value (together with improvements thereof) of at least $2,000,000 or acquired with the proceeds of any disposition of any property or assets constituting Collateral acquired after the Closing Date by any Group Member (other than any such real property subject to a Lien expressly permitted by Section 7.3(h)), promptly: (i) execute and deliver a first priority Mortgage, in favor of the Administrative Agent (or the Collateral Agent on its behalf), for the benefit of the Lenders, covering such real property; 56 (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor's certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent; (iii) if requested by the Administrative Agent, deliver to the Administrative Agent an environmental report, which report shall be in form and substance reasonably satisfactory to the Administrative Agent; and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent (or the Collateral Agent on its behalf) legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) With respect to any new Restricted Subsidiary created or acquired after the Availability Date by any Group Member (which, for the purposes of this paragraph (c), shall include any existing Restricted Subsidiary that ceases to be an Unrestricted Subsidiary), subject to applicable Gaming Laws, promptly: (i) execute and deliver to the Administrative Agent (or the Collateral Agent, as applicable) such amendments hereto and to the Pledge and Security Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent (or the Collateral Agent on its behalf), for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Restricted Subsidiary that is owned by any Group Member; (ii) deliver to the Administrative Agent (or the Collateral Agent on its behalf) the certificates representing such Capital Stock, together with undated stock powers or assignments, in blank, executed and delivered by a duly authorized officer of the relevant Group Member; (iii) cause such new Restricted Subsidiary (A) to become a party hereto and to the Pledge and Security Agreement, (B) to take such actions necessary or advisable to grant to the Administrative Agent (or the Collateral Agent on its behalf) for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Pledge and Security Agreement with respect to such new Restricted Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions and take such other actions as may be required by the Pledge and Security Agreement or by law or as may be requested by the Administrative Agent and (C) to deliver to the Administrative Agent (or the Collateral Agent on its behalf) such other documentation required to be delivered pursuant to the Pledge and Security Agreement; and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent (or the Collateral Agent on its behalf) legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 57 (d) With respect to any new Unrestricted Subsidiary created or acquired after the Availability Date by any Group Member, subject to applicable Gaming Laws, promptly: (i) execute and deliver to the Administrative Agent such amendments hereto and to the Pledge and Security Agreement, as applicable, as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent (or the Collateral Agent on its behalf), for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by any such Group Member; (ii) deliver to the Administrative Agent (or the Collateral Agent on its behalf) the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Administrative Agent's (or the Collateral Agent's) security interest therein; and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent (or the Collateral Agent on its behalf) legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 6.10. Further Assurances. From time to time execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as the Administrative Agent may reasonably request for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents, or of more fully perfecting or renewing the rights of the Administrative Agent and the Lenders with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by any Group Member which may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any consent, approval, recording qualification or authorization of any Governmental Authority, the applicable Group Member will execute and deliver, or will cause the execution and delivery of, all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lenders may be required to obtain from the applicable Group Member for such governmental consent, approval, recording, qualification or authorization. 6.11. Unrestricted Subsidiaries and Restricted Subsidiaries. ACEP may designate any Subsidiary as an Unrestricted Subsidiary if: (i) such designation is in compliance with Section 7.6; (ii) after giving effect to such designation, such Subsidiary does not own, directly or indirectly, 50% or more of the Capital Stock in any Restricted Subsidiary; (iii) such Subsidiary has no Indebtedness other than Non-Recourse Indebtedness; 58 (iv) such Subsidiary does not own any Key Property or portion thereof or interest therein; (v) such Subsidiary is not party to any agreement, contract, arrangement or understanding with any Group Member other than any such agreement, contract, arrangement or understanding the terms of which are no less favorable to such Group Member than the terms that such member could obtain at the time from Persons who are not Affiliates of a Group Member (other than any agreement, contract, arrangement or understanding described in Section 7.9(b)(iv)); (vi) such Subsidiary is a Person with respect to which no Group Member has any direct or indirect obligation (a) to subscribe for additional Equity Interests (unless the amount of such subscription could be made as a Restricted Payment) or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (vii) no Event of Default shall have occurred and be continuing as a result from ACEP's election to so designate a Subsidiary. ACEP may designate an Unrestricted Subsidiary as a Restricted Subsidiary if: (a) the Indebtedness of such Unrestricted Subsidiary would have been permitted under Section 7.2; and (b) no Event of Default shall have occurred and be continuing or shall result from such designation. Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary, and any designation of an Unrestricted Subsidiary as a Restricted Subsidiary, shall be evidenced by filing with the Administrative Agent a certified copy of the resolution of the board of directors of ACEP giving effect to such designation and an officer's certificate of ACEP certifying that such designation complies with the applicable requirements set forth in this Section 6.11. Schedule 4.15 may be amended from time to time by ACEP in accordance with the following sentence. Upon the designation of a Subsidiary as an Unrestricted Subsidiary or a Restricted Subsidiary, Schedule 4.15 shall be amended to indicate the status of such Subsidiary as an Unrestricted Subsidiary or a Restricted Subsidiary. Any Restricted Subsidiary designated as an Unrestricted Subsidiary in accordance with this Section 6.11 shall be released from its obligations under each Loan Document to which it is a party and the Administrative Agent shall release and discharge the Liens granted by such Unrestricted Subsidiary related to the Collateral pursuant to such Loan Documents. The foregoing to the contrary notwithstanding, in the event that ACEP designates any Subsidiary as an Unrestricted Subsidiary without satisfying each of the requirements set forth in this Section 6.11, such Subsidiary shall be deemed to be a Restricted Subsidiary and such designation of such Subsidiary as an Unrestricted Subsidiary shall be ineffective. SECTION 7. NEGATIVE COVENANTS Each Group Member from time to time party hereto hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or Agent hereunder, such Group Member shall not, and shall not permit any other Group Member that is a Subsidiary of such Group Member to, directly or indirectly: 59 7.1. Financial Condition Covenants (a) Minimum Asset Coverage Ratio. On and after the Availability Date, permit the Asset Coverage Ratio as at the last day of any fiscal quarter of ACEP (or, on the Availability Date, the most recently completed fiscal quarter immediately preceding the Availability Date) to fall below 5.00 to 1.00 unless the Group Member shall have repaid Indebtedness to the extent necessary to achieve an Asset Coverage Ratio equal to or above 5.00 to 1.00 within 5 days after a Group Member is aware (after due inquiry) of such non-compliance (and in any event prior to the date on which ACEP is required to deliver the applicable financial statements, it being understood that if such financial statements are not delivered on or before the date required pursuant to Section 6.1, the Group Members shall be deemed not to be in compliance with this Section 7.1). (b) Consolidated First Lien Debt Leverage Ratio. On and after the Availability Date, permit the Consolidated First Lien Debt Leverage Ratio as at the last day of any fiscal quarter of ACEP (or, on the Availability Date, the most recently completed fiscal quarter immediately preceding the Availability Date) to exceed 1.00 to 1.00 unless the Group Member shall have repaid Indebtedness to the extent necessary to achieve a Consolidated First Lien Debt Leverage Ratio equal to or less than 1.00 to 1.00 within 5 days after a Group Member is aware (after due inquiry) of such non-compliance (and in any event prior to the date on which ACEP is required to deliver the applicable financial statements, it being understood that if such financial statements are not delivered on or before the date required pursuant to Section 6.1, the Group Members shall be deemed not to be in compliance with this Section 7.1). 7.2. Indebtedness (a) Ratio Debt. No Group Member will, directly or indirectly, incur any Indebtedness, and the Borrower will not issue any Disqualified Stock and will not permit any of their Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Group Members may incur Indebtedness (including Indebtedness acquired as a result of any merger or acquisition) or issue Disqualified Stock or preferred stock, if the Fixed Charge Coverage Ratio for the Borrower's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Additional Permitted Debt. In addition, clause (a) above will not prohibit the incurrence of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) Indebtedness of any Group Member pursuant to any Loan Document; (ii) the Senior Second Lien Notes in an aggregate principal amount of $215,000,000 or the exchange notes in respect thereof pursuant to the Senior Second Lien Indenture; (iii) (A) Indebtedness of the Borrower and American Casino & Entertainment Properties Finance Corp. in respect of additional Senior Second Lien 60 Notes (including any Senior Second Lien Notes issued pursuant to Section 4.09(b)(14) of the Senior Second Lien Indenture) and (B) Guarantee Obligations of any Restricted Subsidiary in respect of such Indebtedness, provided that such Indebtedness and the Liens in respect thereof are subject to the Intercreditor Agreement; (iv) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 7.3(h) in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding; (v) the incurrence by any Group Member of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under the first paragraph of this covenant or clauses (iv), (v), (xi) or (xii) of this paragraph; (vi) the incurrence by Group Members of intercompany Indebtedness between or among Group Members; provided, however, that (a) if the Borrower is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Borrower Obligations, (b) if any other Group Member is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of its Obligations under Section 10; and (c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than a Group Member and (ii) any sale or other transfer of any such Indebtedness to a Person that is not a Group Member shall be deemed, in each case, to constitute an incurrence of such Indebtedness by a Group Member, as the case may be, that was not permitted by this clause (v); provided that in the case of clauses (a) and (b), that no restriction on the payment of principal, interest or other obligations in connection with such intercompany Indebtedness shall be required by such subordinated terms except during the occurrence and continuation of a Default or Event of Default; (vii) Hedge Agreements permitted under Section 7.11; (viii) Guarantee Obligations by any Group Member of Indebtedness of another Group Member that was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Loans, then such Guarantee Obligations shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; (ix) the incurrence by ACEP or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, performance and surety bonds in the ordinary course of business; (x) the incurrence by ACEP or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (xi) Indebtedness outstanding on the date hereof and listed on Schedule 7.2 and any refinancings, refundings, renewals or extensions thereof (without increasing, or shortening the maturity of, the principal amount thereof); 61 (xii) the incurrence by any Group Member of Non-Recourse Financing used to finance the construction, purchase or lease of personal or real property used in the business of such Group Member; provided, that the Indebtedness incurred pursuant to this clause (xii) (including any refinancings thereof pursuant to clause (v) above) shall not exceed $15,000,000 outstanding at any time; (xiii) Indebtedness arising from any agreement entered into by a Group Member providing for indemnification, purchase price adjustment or similar obligations, in each case, incurred or assumed in connection with an Asset Sale; (xiv) the incurrence by a Group Member of Permitted Affiliate Subordinated Indebtedness; (xv) the incurrence by ACEP or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (xv), not to exceed $10,000,000 at any one time outstanding. No Group Member will incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Group Members unless such Indebtedness is also contractually subordinated in right of payment to the Obligations on substantially identical terms; provided, however, that no Indebtedness of a Group Member shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of such Group Member for purposes of this paragraph solely by virtue of being unsecured or secured to a lesser extent or on a junior Lien basis. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of clause (a) or (b) above, in each case, as of the date of incurrence thereof, the Borrower shall, in its sole discretion, classify (or later reclassify in whole or in part, in its sole discretion) such item of Indebtedness in any manner that complies with this covenant and such Indebtedness will be treated as having been incurred pursuant to such clauses, designated by the Borrower. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, that in each such case, that the amount thereof shall be included in Fixed Charges of ACEP as accrued (to the extent applicable under the definition of Fixed Charges). Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that any Group Member may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (a) the Fair Market Value of such assets at the date of determination; and (b) the amount of the Indebtedness of the other Person. 7.3. Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except for: 62 (a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Group Members, as the case may be, in conformity with GAAP and such proceedings could not reasonably be expected to result in the imminent sale, forfeiture or loss of any material portion of the Collateral or any interest therein; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Group Members, as the case may be, in conformity with GAAP; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation, provided that such deposit or deposits do not exceed $2,000,000 in the aggregate; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Group Member; (f) leases or a leasehold mortgage in favor of a party financing the lease of space, including, without limitation, construction or improvements thereto within a Key Property; provided that (i) such lease or the lease affected by such leasehold mortgage is permitted pursuant to Section 7.16, (ii) no Group Member is liable for the payment of any principal of, or interest or premium on, or any other amount in respect of, such financing and (iii) the affected lease and leasehold mortgage are expressly made subject and subordinate to the Lien of the applicable Mortgage, subject to Section 7.16(c); (g) Liens in existence on the date hereof listed on Schedule 7.3, securing Indebtedness permitted by Section 7.2(b)(xi), provided that no such Lien is spread to cover any additional property after the Availability Date and that the amount of Indebtedness secured thereby is not increased; (h) Liens to secure Indebtedness permitted pursuant to Section 7.2(b)(iv) and (xii) and extending only to the personal or real property so purchased or leased; provided, however, that, such Lien does not extend over the real property secured under the Mortgages executed on the Availability Date (or any Mortgages executed after the Availability Date with respect to any real property acquired with the proceeds of any disposition of any property or assets constituting Collateral); (i) Liens securing the Obligations hereunder created pursuant to the Collateral Documents; (j) Liens securing Indebtedness incurred pursuant to Section 7.2(b)(ii) and (iii), provided that (A) such Liens are subject to the Intercreditor Agreement and in accordance with 63 the Second Lien Trust Indenture and (B) no amounts may be deposited by any Group Member with the Trustee (other than pursuant to the Escrow and Security Agreement); (k) any interest or title of a lessor under any lease entered into by a Group Member in the ordinary course of its business and covering only the assets so leased; (l) licenses of patents, trademarks and other intellectual property rights granted by any Group Member in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of such Group Member; (m) any judgment attachment or judgment Lien not constituting an Event of Default; (n) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (o) Liens arising from filing financing statements or other instruments or documents relating solely to leases; (p) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (q) Liens incurred in the ordinary course of business of the Group Members with respect to obligations that do not exceed $5,000,000 in the aggregate at any one time outstanding; (r) Liens on property of a Person existing at the time such Person became a Group Member, is merged into or consolidated with or into, or wound up into, one of a Group Member; provided, that such Liens were in existence prior to the consummation of, and were not entered into in contemplation of, such merger or consolidation or winding up and do not extend to any other assets other than those of the Person acquired by, merged into or consolidated with a Group Member; (s) Liens on property existing at the time of acquisition thereof by a Group Member; provided that such Liens were in existence prior to the consummation of, and were not entered into in contemplation of, such acquisition; (t) Liens created pursuant to the Escrow and Security Agreement; and (u) Liens in favor of a Group Member; provided that if such Liens are on any Collateral, that such Liens are either collaterally assigned to the Administrative Agent (or the Collateral Agent on its behalf) or subordinate to the Lien in favor of the Administrative Agent securing the Obligations. 7.4. Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of, all or substantially all of its property or business, or, in the case of any Restricted Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except that: (a) any Group Member may be merged or consolidated with or into another Group Member that is the Borrower or a Wholly Owned Subsidiary or, subject to Section 7.7, 64 with or into any Unrestricted Subsidiary, provided that if a Group Member (other than the Borrower) merges with or is consolidated with or into the Borrower, the Borrower is the surviving entity; and (b) any Group Member may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to another Group Member that is the Borrower or a Wholly Owned Subsidiary or, subject to Section 7.7, any Unrestricted Subsidiary. 7.5. Disposition of Property. Except with respect to any Disposition, the proceeds of which are applied in accordance with Section 3.2(a), dispose of any of its property, whether now owned or hereafter acquired (including any issuance or sale by any Group Member of Capital Stock of their respective Restricted Subsidiaries and any designation of a Restricted Subsidiary as an Unrestricted Subsidiary), except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 7.4(b); (d) the sale or issuance of any Subsidiary's Capital Stock to a Group Member that is the Borrower or a Wholly Owned Subsidiary; and (e) the Disposition of other property having a fair market value not to exceed $1,000,000 in the aggregate for any fiscal year of ACEP. 7.6. Restricted Payments. No Group Member shall, directly or indirectly: (a) declare or pay any dividend or make any other payment or distribution on account of ACEP's or any Restricted Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving any Group Member) or to the direct or indirect holders of any Group Member's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of ACEP or to a Group Member); (b) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving ACEP) any Equity Interests of ACEP or any direct or indirect parent of ACEP; (c) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of any Group Member that is contractually subordinated to the Obligations (excluding any intercompany Indebtedness between or among the Group Members), except a payment of interest, other expenses or principal at the stated maturity on such subordinated Indebtedness that is not Permitted Affiliate Subordinated Indebtedness; (d) purchase, redeem, defease or otherwise retire for value or pay any interest, principal or other amount on any Permitted Affiliate Subordinated Indebtedness (other than payment of interest in the form of additional Permitted Affiliate Subordinated Indebtedness or 65 Equity Interests in ACEP (other than Disqualified Stock) or accrual of interest on Permitted Affiliate Subordinated Indebtedness); or (e) make any Restricted Investment (all such payments and other actions set forth in these clauses (a) through (e) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (i) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; (ii) ACEP would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four-quarter period for which financial statements are available, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the Section 7.2(a) and (iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by any Group Member after the Closing Date (excluding Restricted Payments permitted by clauses (II), (III), (IV), (VI), (VII), (VIII) and (IX) of the next succeeding paragraph) is less than the sum, without duplication, of: (A) 50% of the Consolidated Net Income of ACEP for the period (taken as one accounting period) from the Availability Date to the end of ACEP's most recently ended fiscal quarter for which financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); provided, however, that to the extent any payments pursuant to the Tax Allocation Agreement were excluded from the calculation of Consolidated Net Income during the applicable period, for the purposes of this clause (a), such payments pursuant to the Tax Allocation Agreement will be deducted from Consolidated Net Income, plus (B) 100% of the aggregate net cash proceeds received by ACEP since the Availability Date as a contribution to its common equity capital or received as cash proceeds of Permitted Affiliate Subordinated Indebtedness of ACEP or from the issue or sale of Equity Interests of ACEP (excluding Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of ACEP that have been converted into or exchanged for such Equity Interests (other than Equity Interests or Disqualified Stock or debt securities) sold to a Subsidiary of ACEP, plus (C) 100% of the lesser of (1) the sum of (I) the aggregate amount received in cash and (II) the Fair Market Value of property received by means of (X) the sale or other disposition (other than to a Group Member) of Restricted Investments made by a Group Member and repurchases and redemptions of such Restricted Investments from a Group Member and repayments of loans or advances which constitute Restricted Investments by a Group Member or (Y) the sale (other than to a Group Member) of the Capital Stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary (other than in each case to the extent the Investment in such Unrestricted Subsidiary was made by a Restricted Subsidiary pursuant to clause (IX) below or to the extent such Investment constituted a Permitted Investment) or a dividend from an Unrestricted Subsidiary and (2) the aggregate amount of Restricted Payments made to make the Restricted Investment 66 so sold or disposed of or in the Capital Stock of the Unrestricted Subsidiary so sold or disposed of (provided, however, that if the cash received in any transaction described in clause (X) or (Y) of this clause (C) plus the cash received from the disposition of any property received in any such transaction is greater than the amount otherwise calculated under this clause (c), then such greater cash amount may be added to this clause (C) in lieu of such lesser amount), plus (D) in case, after the date hereof, any Unrestricted Subsidiary has been redesignated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys assets to, or is liquidated into a Group Member, and no Default or Event of Default is then occurring or results therefrom, an amount equal to the lesser of (1) the Fair Market Value of the Investments owned by ACEP and the Restricted Subsidiaries in such Unrestricted Subsidiary at the time of the redesignation, combination, transfer or liquidation (or of the assets transferred or conveyed, as applicable) and (2) the aggregate amount of Restricted Payments made in such Unrestricted Subsidiary. So long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (I) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have otherwise complied with this Agreement; (II) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of ACEP) of, Equity Interests (other than Disqualified Stock) or Permitted Affiliate Subordinated Indebtedness of ACEP or from the substantially concurrent contribution of common equity capital to ACEP; provided, however, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (iii)(B) above; (III) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of any Group Member that is contractually subordinated to the Obligations with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness with respect thereto; (IV) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of ACEP to the direct holders of such Restricted Subsidiary's Equity Interests on a pro rata basis; (V) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of ACEP, any parent of ACEP or any Restricted Subsidiary of ACEP held by any member of ACEP's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2,000,000; (VI) the redemption or repurchase of any Equity Interests or Indebtedness of ACEP or any of its Subsidiaries to the extent required by any Gaming Authority or, if 67 determined in the good faith judgment of the board of directors of ACEP as evidenced by a resolution of the board of directors that has been delivered to the Administrative Agent, required to prevent the loss or to secure the grant or establishment of any gaming license or other right to conduct lawful gaming operations in the United States; (VII) Permitted Payments to Parent; (VIII) Restricted Payments pursuant to the terms of the Acquisition Agreements and the payment of the balance of the intercompany debt owed by Stratosphere Corporation to American Real Estate Holdings Limited Partnership; (IX) the one-time payment of a distribution of Cash Equivalents and marketable securities to the Parent (the "Parent Distribution") to be paid within twenty days of the Availability Date such that, at the Availability Date after giving effect to the Parent Distribution, the purchase price of the Acquisition, the payment of the balance of the intercompany debt owed by Stratosphere Corporation to American Real Estate Holdings Limited Partnership and any unpaid fees and expenses relating to the offering of the Senior Second Lien Notes, ACEP and its Restricted Subsidiaries, on a combined basis, would have cash no less than the sum of (x) $25,000,000 and (y) the amount of accrued interest on the Senior Second Lien Notes from the Closing Date to, and including, the Availability Date; provided, that from the Closing Date to the date of the Parent Distribution, except as disclosed in the Offering Memorandum and contemplated in the Acquisition Agreements, ACEP shall not take any actions and shall cause its Affiliates not to take any actions that would cause the business of the Key Properties to be conducted, in any material respect, other than in the ordinary course. (X) other Restricted Payments in an aggregate amount since the Closing Date not to exceed $2,500,000. For purposes of determining compliance with this covenant, in the event that a proposed Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in clauses (I) through (X) above, or is permitted to be made pursuant to the first paragraph of this covenant, ACEP shall, in its sole discretion, classify such Restricted Payment in any manner that complies with this covenant. The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the assets, property or securities proposed to be transferred or issued by ACEP or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. 7.7. Investments. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, "Investments"), except: (a) any Investments in ACEP, or any guarantor of the Senior Second Lien Notes and of the Borrower Obligations or in any Restricted Subsidiary that is not such a guarantor if the Investments in such Restricted Subsidiary that is not such a guarantor from ACEP or any of the other Restricted Subsidiaries aggregate less than $1,000,000; (b) any Investments in Cash Equivalents; 68 (c) Investments by ACEP or any Restricted Subsidiary of ACEP in a Person, if as a result of such Investment (i) such Person becomes a Group Member or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, a Group Member; (d) any Investment in assets useful in the business of the Group Members made by any Group Member with the proceeds with any Reinvestment Deferred Amount (including any Investment made as a result of the receipt of non-cash consideration from an Asset Sale in accordance with Section 3.10); (e) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of ACEP; (f) receivables owing to ACEP or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as ACEP or any such Restricted Subsidiary deems reasonable under the circumstances; (g) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (h) loans or advances to employees, former employees or directors of ACEP or the Restricted Subsidiaries (i) to fund the exercise price of options granted under the employment agreements or ACEP's stock option plans or agreements, in each case, as approved by ACEP's board of directors or (ii) for any other purpose not to exceed $2,000,000 in the aggregate at any one time outstanding under this clause (ii); (i) Investments received (i) in settlement of debts created in the ordinary course of business and owing to ACEP and any Restricted Subsidiary (including gaming debts in the ordinary course of business owed by a patron or pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer), (ii) in satisfaction of judgments or (iii) settlement of litigation, arbitrations or other disputes; (j) Investments in any person engaged in the casino gaming, hotel, retail, conference center and entertainment mall and resort business and any activity or business incidental, directly related or similar thereto (including owning interests in Subsidiaries, operating a conference center and meeting facilities and owning and operating or licensing the operation of a retail and entertainment facilities), or any business or activity that is a reasonable extension, development or expansion thereof or ancillary thereto, which Investment is made by the issuance of Equity Interests (other than Disqualified Stock) of ACEP; (k) any Investments having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (k) since the Closing Date not to exceed the sum of $20,000,000, plus the amount of cash repaid on any loan made pursuant to this clause (k) not to exceed the respective original principal amounts of such loans; (l) any grant to any Subsidiary of ACEP of gaming or other rights derivative of any Material Gaming License; 69 (m) Investments represented by obligations under any Hedge Agreement; (n) any Investments or loans made to third parties in connection with such third parties' build out and development of property located at any of the Key Properties not to exceed $10,000,000 in the aggregate at any one time outstanding; (o) repurchases of the Senior Second Lien Notes not otherwise prohibited hereunder; and (p) Investments existing on the Closing Date and described on Schedule 7.7 and any Investments of the funds in the Note Proceeds Account (as defined in the Senior Second Lien Indenture) in accordance with the investment limitations in the Escrow Agreement (as defined in the Senior Second Lien Indenture). The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. If any Group Member Disposes of any Capital Stock of any Subsidiary thereof or enters into any merger, consolidation or amalgamation, such that, after giving effect to any such Disposition, merger, consolidation or amalgamation, such Person is no longer a Wholly Owned Subsidiary of a Group Member, such Group Member which owns such Person shall be deemed to have made an Investment on the date of such Disposition, merger, consolidation or amalgamation equal to the fair market value of the Capital Stock of such Person owned by such Group Member after giving effect to such Disposition, merger, consolidation or amalgamation. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the applicable Group Member in the Subsidiary so designated will be deemed to be an Investment made as of the date of such designation. 7.8. Optional Payments and Modifications of Certain Debt Instruments. (a) Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to the Senior Second Lien Notes (other than any such repurchase or redemption pursuant to a mandatory disposition pursuant to and in accordance with Gaming Laws or as a result of an Asset Sale Offer or Excess Loss Proceeds Offer in accordance with the Senior Second Lien Indenture), (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Escrow and Security Agreement, the Senior Second Lien Note Indenture or the Senior Second Lien Notes (other than any such amendment, modification, waiver or other change that (i) would extend the maturity or reduce the amount of any payment of principal thereof or reduce the rate or extend any date for payment of interest thereon and (ii) does not involve the payment of a consent fee); or (c) designate (or permit any other Person to designate) any Indebtedness (other than obligations of a Group Member pursuant to the Loan Documents) as "First Lien Obligations" or "Additional Permitted Senior Debt Obligations" (or any other defined term having a similar purpose) for the purposes of the Intercreditor Agreement or the Senior Second Lien Note Indenture. 7.9. Transactions with Affiliates. (a) Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than any Group Member) unless such transaction is (i) otherwise permitted under this Agreement, (ii) in the ordinary course of business of the relevant Group 70 Member, and (iii) upon fair and reasonable terms no less favorable to the relevant Group Member, than it would obtain in a comparable arm's length transaction with a Person that is not an Affiliate. (b) The following items will not be subject to the provisions of this Section 7.9: (i) any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by ACEP or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto; (ii) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of ACEP; (iii) loans or advances to employees in the ordinary course of business not to exceed $1,000,000 in the aggregate at any one time outstanding; and (iv) the provision of accounting, financial, management, information technology and other ancillary services to Affiliates, provided that the applicable Group Members are paid a fee equal to their out of pocket costs and allocated overhead (including a portion of salaries and benefits) as determined by ACEP in its reasonable judgment; provided further that services under this clause shall not include providing complimentaries or other benefits to customers of Affiliates. 7.10. Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by any Group Member of real or personal property that has been or is to be sold or transferred by such Group Member to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Group Member. 7.11. Hedge Agreements. Enter into any Hedge Agreement, except: (a) Hedge Agreements entered into to hedge or mitigate risks to which a Group Member has actual exposure (other than those in respect of Capital Stock); and (b) Hedge Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the any Group Member. 7.12. Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Group Member to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its Obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) solely as to restrictions on Liens securing liabilities other than the Obligations and the Senior Second Lien Note Indenture and (c) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby). 71 7.13. Clauses Restricting Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Group Member to: (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, any Group Member; (b) make loans or advances to, or other Investments in, any Group Member; or (c) sell, lease or transfer any of its assets to any Group Member, except for such encumbrances or restrictions existing under or by reason of: (i) any restrictions existing under the Loan Documents; (ii) any restrictions existing under the Senior Second Lien Note Indenture; (iii) agreements in effect on the Availability Date and identified on Schedule 7.13 and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided, however, that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other restrictions than those contained in those agreements on the Availability Date; (iv) applicable law, rule or order of an applicable governmental body; (v) any instrument governing Indebtedness or Capital Stock of a Person acquired by any Group Member as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Agreement to be incurred; (vi) customary non-assignment provisions in leases entered into in the ordinary course of business; (vii) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (c) above; (viii) any agreement for the sale or other disposition of a Group Member that restricts distributions by that Group Member pending its sale or other disposition; (ix) Permitted Refinancing Indebtedness; provided, however, that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; 72 (x) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 7.3; and (xi) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business. 7.14. Lines of Business. Enter into any business, either directly or through any Subsidiary, except for a Principal Business. 7.15. Amendments to Acquisition Documents. (a) Amend, supplement or otherwise modify any term or provision of the Acquisition Documentation or any such other documents except for any such amendment, supplement or modification that could not reasonably be expected to have a Material Adverse Effect or (b) waive the conditions set forth in Sections 8.1 or 9.4 of that certain membership interest purchase agreement by and among ACEP, Starfire Holding Corporation and Carl C. Icahn without the prior written consent of the Administrative Agent. 7.16. Restrictions on Leasing and Dedication of Key Property. (a) ACEP will not, and will not permit any Group Member to lease, sublease, or grant a license, concession or other agreement to occupy, manage or use, as lessor or sublessor, any real or personal Project Assets owned or leased by any Group Member for annual lease base rent, excluding common area maintenance and percentage rent, exceeding $2,000,000 with respect to any individual transaction (each, a "Lease Transaction"), other than the following Lease Transactions: (i) any Group Member may enter into a Lease Transaction with respect to any Project Assets, within or outside the Key Properties, or with any Person, provided that, in the reasonable opinion of ACEP, (a) such Lease Transaction will not materially interfere with, impair or detract from the operations of any of the Project Assets, and will in the reasonable judgment of ACEP enhance the value and operations of the Key Properties and (b) such Lease Transaction is at a fair market rent (in light of other similar or comparable prevailing commercial transactions or in the reasonable judgment of ACEP, otherwise enhances the value and operations of any of the Key Properties) and contains such other terms such that the Lease Transaction, taken as a whole, is commercially reasonable and fair to such Group Member; (ii) the transactions and agreements described under Section 7.9 to the extent such transactions or agreements constitute Lease Transactions; (iii) any Group Member may enter into a management or operating agreement with respect to any Project Asset, including any hotel with any Person (other than an Unrestricted Subsidiary or other Affiliate of the Sponsor (other than a Group Member)); provided that (i) the manager or operator has experience in managing or operating similar operations or assets and (ii) such management or operating agreement is on commercially reasonable and fair terms to such Group Member (in either case, in the reasonable judgment of ACEP); and (iv) any Group Member may enter into a Lease Transaction with any of any other Group Member. 73 (b) Notwithstanding Section 7.16(a), (i) no gaming or casino operations may be conducted on any Project Asset that is the subject of such Lease Transaction other than by a Group Member; and (ii) no Lease Transaction may provide that any Group Member may subordinate its fee or leasehold interest to any lessee or any party providing financing to any lessee. (c) The Administrative Agent shall at the request of any Group Member enter into a commercially customary leasehold non-disturbance and attornment agreement with the lessee under any Lease Transaction permitted under this Section 7.16. Such agreement, among other things, shall provide that if the interests of the applicable Group Member in the Project Assets subject to the Lease Transaction are acquired by the Administrative Agent on behalf of the Lenders (or the Collateral Agent on its behalf), whether by purchase and sale, foreclosure, or deed in lieu of foreclosure or in any other way, or by a successor to the Administrative Agent (or the Collateral Agent on its behalf), including without limitation a purchaser at a foreclosure sale, then in each case subject to any applicable law or Gaming License, (i) the interests of the lessee in the Project Assets subject to the Lease Transaction shall continue in full force and effect and shall not be terminated or disturbed, except in accordance with the lease documentation applicable to the Lease Transaction, and (ii) the lessee in the Lease Transaction shall attorn to and be bound to the Administrative Agent on behalf of the Lenders (or the Collateral Agent on its behalf), its successors and assigns under all terms, covenants and conditions of the lease documentation applicable to the Lease Transaction. Such agreement shall also contain such other provisions that are commercially customary and that will not materially and adversely affect the Lien granted by the Collateral Documents (other than pursuant to the terms of the applicable non-disturbance agreement) as certified to the Administrative Agent by a Responsible Officer of ACEP. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) any representation or warranty made or deemed made by any Group Member herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) (i) any Group Member shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 6.4(a), Section 6.5(b), Section 6.7(a), Section 6.6(b) and (c) or Section 7 of this Agreement or Section 4 of the Pledge and Security or (ii) an "Event of Default" under and as defined in any Mortgage shall have occurred and be continuing; or (d) any Group Member shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue 74 unremedied for a period of 30 days after notice to ACEP from the Administrative Agent or the Majority Lenders (or in the case of any default in the observance or performance of any agreement contained in Section 6.9, 10 days); or (e) any Group Member: (i) defaults in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) defaults in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) defaults in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or to become subject to a mandatory offer to purchase by the obligor thereunder or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless the items described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount equal to or in excess of $5,000,000, in the aggregate; or (f) (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv)any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or 75 (g) (i) any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan except for any prohibited transaction resulting from the making of a Loan where the representation made by the Agents or any Lender in Section 3.16 shall prove to have been inaccurate, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Single Employer Plan or any Lien in favor of the PBGC or a Single Employer Plan shall arise on the assets of any Group Member or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is reasonably likely to result in the termination of such Single Employer Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) any Group Member or any Commonly Controlled Entity shall incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $5,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) any of the Collateral Documents shall cease, for any reason, to be in full force and effect, or any Group Member or any Affiliate of any Group Member shall so assert, or any Lien created by any of the Collateral Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) the guarantee under Article 10 hereof shall cease, for any reason, to be in full force and effect or any Group Member or any Affiliate of any Group Member shall so assert; or (k) (i) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of ACEP and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act) other than the Sponsor or a Related Party; (ii) the adoption of a plan relating to the liquidation or dissolution of the Borrower; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any "person" (as defined above), other than the Sponsor or the Related Parties, becomes the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting power of ACEP; or (iv) after an initial public offering of ACEP or any direct or indirect parent of ACEP (in either case, the "public company"), the first day on which a majority of the members of the board of directors of the public company are not Continuing Directors. For purposes of this clause (k), any holding company whose only significant asset is the Capital Stock of ACEP shall be disregarded and the beneficial ownership of such holding company shall be attributed to ACEP and any Person which has entered into an agreement to acquire any Capital Stock of ACEP shall not be deemed to have any beneficial ownership of such Capital Stock until the closing of such acquisition; or 76 (l) the Liens securing the Senior Second Lien Notes or the guarantees thereof shall cease, for any reason, to be validly subordinated to the Liens securing the Obligations or the obligations of the Restricted Subsidiaries under its guarantee hereunder, as the case may be, as provided in the Intercreditor Agreement, or any Group Member, any Affiliate of any Group Member, the Trustee or the holders of at least 25% in aggregate principal amount of the Senior Second Lien Notes shall so assert; or (m) revocation, termination, suspension or other cessation of effectiveness of any Gaming License, which results in the cessation or suspension of gaming operations for a period of more than 30 consecutive days at any of the Key Properties (other than as a result of an Asset Sale); then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to ACEP declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate or exercise such other remedies under any of the Loan Document; and (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to ACEP, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to 105% of the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by each Borrower. SECTION 9. THE AGENTS 9.1. Appointment. Each Lender hereby irrevocably designates and appoints each Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes such Agent, in such capacity, to take such action on its 77 behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. In addition, each Lender hereby approves the appointment by the Administrative Agent of the Collateral Agent pursuant to the terms set forth in the Intercreditor Agreement and authorizes the Administrative Agent to as the "First Lien Agent" under (and as defined in) the Intercreditor Agreement. 9.2. Delegation of Duties. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 9.3. Exculpatory Provisions. Neither any Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Group Member or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Group Member a party thereto to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Group Member. 9.4. Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Group Members), independent accountants and other experts selected by such Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Agents shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance 78 with a request of the Majority Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 9.5. Notice of Default. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent has received notice from a Lender or ACEP referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6. Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Group Member or any affiliate of a Group Member, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Group Members and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Group Members and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Group Member or any affiliate of a Group Member that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 9.7. Indemnification. The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by a Group Member and without limiting the obligation of the Group Members to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, 79 the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. 9.8. Agent in Its Individual Capacity. Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Group Member as though such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 9.9. Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and ACEP. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Majority Lenders shall appoint the Syndication Agent, or if the Syndication Agent does not accept such appointment, such other Lender as a successor agent for the Lenders, which successor agent shall (unless the Syndication Agent is appointed or an Event of Default shall have occurred and be continuing) be subject to approval by ACEP (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Majority Lenders appoint a successor agent as provided for above. The Syndication Agent may, at any time, by notice to the Lenders and the Administrative Agent, resign as Syndication Agent hereunder, whereupon the duties, rights, obligations and responsibilities of the Syndication Agent hereunder shall automatically be assumed by, and inure to the benefit of, the Administrative Agent, without any further act by the Syndication Agent, the Administrative Agent or any Lender. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 9.10. Agents Generally. Except as expressly set forth herein, no Agent shall have any duties or responsibilities hereunder in its capacity as such. 9.11. The Lead Arranger. The Lead Arranger, in its capacity as such, shall have no duties or responsibilities, and shall incur no liability, under this Agreement and other Loan Documents. 80 SECTION 10. GUARANTEE 10.1. Guarantee(a) . (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by each Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 10.2). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 10 or affecting the rights and remedies of any Agent or any Lender hereunder. (d) The guarantee contained in this Section 10 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of this Agreement the Borrower may be free from any Borrower Obligations. (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by any Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. 10.2. Rights of Reimbursement, Contribution and Subrogation. In case any payment is made on account of the Obligations by any Guarantor or is received or collected on account of the Obligations from any Guarantor or its property: (a) If such payment is made by the Borrower or from its property, then, if and to the extent such payment is made on account of Obligations arising from or relating to a Loan made to the Borrower or a Letter of Credit issued for account of the Borrower, the Borrower shall not be entitled (A) to demand or enforce reimbursement or contribution in respect of such payment from any other Guarantor or (B) to be subrogated to any claim, interest, right or remedy of any Lender against any other Person, including any other Guarantor or its property. (b) If such payment is made by a Guarantor or from its property, such Guarantor shall be entitled, subject to and upon payment in full of the Obligations, (A) to demand and enforce reimbursement for the full amount of such payment from the Borrower and (B) to 81 demand and enforce contribution in respect of such payment from each other Guarantor which has not paid its fair share of such payment, as necessary to ensure that (after giving effect to any enforcement of reimbursement rights provided hereby) each Guarantor pays its fair share of the unreimbursed portion of such payment. For this purpose, the fair share of each Guarantor as to any unreimbursed payment shall be determined based on an equitable apportionment of such unreimbursed payment among all Guarantors based on the relative value of their assets and any other equitable considerations deemed appropriate by the court. (c) If and whenever (after payment in full of the Obligations) any right of reimbursement or contribution becomes enforceable by any Guarantor against any other Guarantor under Sections 10.2(a) and 10.2(b), such Guarantor shall be entitled, subject to and upon payment in full of the Obligations, to be subrogated (equally and ratably with all other Guarantors entitled to reimbursement or contribution from any other Guarantor as set forth in this Section 10.2) to any security interest that may then be held by the Administrative Agent upon any Collateral granted to it under any Loan Document. Such right of subrogation shall be enforceable solely against the Guarantors, and not against the Lenders or the Agent, and neither the Administrative Agent nor any other Lender or Agent shall have any duty whatsoever to warrant, ensure or protect any such right of subrogation or to obtain, perfect, maintain, hold, enforce or retain any Collateral for any purpose related to any such right of subrogation. If subrogation is demanded by any Guarantor, then (after payment in full of the Obligations) the Administrative Agent shall deliver to the Guarantors making such demand, or to a representative of such Guarantors or of the Guarantors generally, an instrument satisfactory to the Administrative Agent transferring, on a quitclaim basis without any recourse, representation, warranty or obligation whatsoever, whatever security interest the Administrative Agent then may hold in whatever Collateral may then exist that was not previously released or disposed of by the Administrative Agent. (d) All rights and claims arising under this Section 10.2 or based upon or relating to any other right of reimbursement, indemnification, contribution or subrogation that may at any time arise or exist in favor of any Guarantor as to any payment on account of the Obligations made by it or received or collected from its property shall be fully subordinated in all respects to the prior payment in full of all of the Obligations. Until payment in full of the Obligations, no Guarantor shall demand or receive any collateral security, payment or distribution whatsoever (whether in cash, property or securities or otherwise) on account of any such right or claim. If any such payment or distribution is made or becomes available to any Guarantor in any bankruptcy case or receivership, insolvency or liquidation proceeding, such payment or distribution shall be delivered by the person making such payment or distribution directly to the Administrative Agent, for application to the payment of the Obligations. If any such payment or distribution is received by any Guarantor, it shall be held by such Guarantor in trust, as trustee of an express trust for the benefit of the Lenders and the Agent, and shall forthwith be transferred and delivered by such Guarantor to the Administrative Agent, in the exact form received and, if necessary, duly endorsed. (e) The obligations of the Guarantors under the Loan Documents, including their liability for the Obligations and the enforceability of the security interests granted thereby, are not contingent upon the validity, legality, enforceability, collectibility or sufficiency of any right of reimbursement, contribution or subrogation arising under this Section 10.2. The invalidity, insufficiency, unenforceability or uncollectibility of any such right shall not in any respect diminish, affect or impair any such obligation or any other claim, interest, right or remedy at any time held by any Lender or Agent against any Guarantor or its property. No Lender or Agent 82 makes any representations or warranties in respect of any such right and shall have no duty to assure, protect, enforce or ensure any such right or otherwise relating to any such right. Each Guarantor reserves any and all other rights of reimbursement, contribution or subrogation at any time available to it as against any other Guarantor, but (i) the exercise and enforcement of such rights shall be subject to Section 10.2(d) and (ii) neither the Administrative Agent nor any other Lender or Agent shall ever have any duty or liability whatsoever in respect of any such right, except as provided in Section 10.2(c). 10.3. Amendments, etc. with respect to the Borrower Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by any Lender or Agent may be rescinded by such Lender or Agent and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by any Lender or Agent, and this Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the requisite Lenders or all Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Lender or Agent for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. No Lender or Agent shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 10 or any property subject thereto. 10.4. Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by any Agent or any Lender upon the guarantee contained in this Section 10 or acceptance of the guarantee contained in this Section 10; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 10; and all dealings between any Group Member, on the one hand, and the Lenders and Agents, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 10. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon each Borrower or any of the Guarantors with respect to the Borrower Obligations, notice of a Default or an Event of Default, notice of the amount of the Borrower Obligations, subject, however, to such Guarantor's right to make inquiry of Administrative Agent to ascertain the amount of the Borrower Obligations at any reasonable time, notice of any adverse change in the financial condition of the Borrower or of any other fact that might increase such Guarantor's risk hereunder, any other notice or demand that any Guarantor may otherwise be entitled to receive, and the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement thereof (and any act that shall defer or delay the operation of any statute of limitations applicable to the Borrower Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to such Guarantor's liability hereunder (to the extent that the benefit of such statute of limitations may not be waived under applicable law)). Each Guarantor understands and agrees that the guarantee contained in this Section 10 shall be construed as a continuing, absolute and unconditional guarantee of payment 83 without regard to (1) the validity or enforceability of this Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Secured Party, (2) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against any Lender or Agent, or (3) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 10, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, any Lender or Agent may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by any Lender or Agent to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of any Lender or Agent against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 10.5. Reinstatement. The guarantee contained in this Section 10 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by any Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 10.6. Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars in immediately available funds at the Funding Office specified in this Agreement. SECTION 11. MISCELLANEOUS 11.1. Amendments and Waivers. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 11.1. The Majority Lenders and each Group Member party to the relevant Loan Document may, or, with the written consent of the Majority Lenders, the Administrative Agent and each Group Member party to the relevant Loan Document may, from time to time: (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Group Members hereunder or thereunder or 84 (b) waive, on such terms and conditions as the Majority Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall: (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, reduce the stated rate of any interest or fee payable hereunder (except (x) in connection with the waiver of applicability of any post-default increase in interest rates, which waiver shall be effective with the consent of the Majority Lenders) and (y) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or fees for purposes of this clause (i)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the written consent of each Lender directly affected thereby; (ii) eliminate or reduce the voting rights of any Lender under this Section 11.1 without the written consent of such Lender; (iii) modify the definition of Majority Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Restricted Subsidiaries from their obligations hereunder, in each case without the written consent of all Lenders; (iv) amend, modify or waive any provision of Section 9 without the written consent of each Agent adversely affected thereby; or (v) amend, modify or waive any provision of Sections 2.5 to 2.12 without the written consent of the Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Group Members, the Lenders, the Agents and all future holders of the Loans. In the case of any waiver, the Group Members, the Lenders and the Agents shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 11.2. Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower and the Agents, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto: 85 The Borrower: American Casino & Entertainment Properties LLC 2000 Las Vegas Boulevard South Las Vegas, NV 89104 Phone: (702)380-7777 Fax: (702)383-4738 Attention: Chief Financial Officer with a copy to: Piper Rudnick LLP 1251 Avenue of the Americas New York, New York 10020-1104 Phone: (212)835-6040 Fax: (212)884-8530 Attention: James Seery The Administrative Agent and the Syndication Agent: Bear, Stearns & Co. Inc. 83 Madison Avenue 8th Floor New York, NY 10179 Phone: (212) 272-0920 Fax: (212) 272-4844 Attention: Evan Kaufman email: ekaufman@bear.com with a copy to: Bear, Stearns & Co. Inc. 383 Madison Avenue 8th Floor New York, NY 10179 Phone: (212)272-9430 Fax: (212)272-9184 Attention: Steve O'Keefe email: sokeefe@bear.com provided that any notice, request or demand to or upon any Agent, the Issuing Lender or the Lenders shall not be effective until received. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or ACEP may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. 11.3. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The 86 rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4. Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder. 11.5. Payment of Expenses and Taxes. Each Borrower agrees: (a) to pay or reimburse each Agent for all its out-of-pocket costs and expenses reasonably incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of counsel to such Agent and filing and recording fees and expenses, with statements with respect to the foregoing to be submitted to ACEP prior to the Closing Date or the Availability Date, as the case may be (in the case of amounts to be paid on such date) and from time to time thereafter on a quarterly basis or such other periodic basis as such Agent shall deem appropriate; (b) to pay or reimburse each Lender and Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to such Agent; (c) to pay, indemnify, and hold each Lender and Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and Agent and their respective officers, directors, employees, affiliates, agents and controlling persons (each, an "Indemnitee") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or the unauthorized use by Persons of information or other materials sent through electronic, telecommunications or other information transmission systems that are intercepted by such Persons and the reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by any Indemnitee against any Group Member under any Loan Document (all the foregoing in this clause (d)), collectively, the "Indemnified Liabilities"), provided, that no Borrower shall have any obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross 87 negligence or willful misconduct of such Indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, each Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section 11.5 shall be payable not later than 10 days after written demand therefor. Statements payable by the Borrower pursuant to this Section 11.5 shall be submitted to the Borrower as set forth in Section 11.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent. The agreements in this Section 11.5 shall survive repayment of the Loans and all other amounts payable hereunder. 11.6. Successors and Assigns; Participations and Assignments (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any affiliate of the Issuing Lender that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section (and any such attempted assignment or transfer in violation of the provisions of this Section 11.6 shall be null and void). (b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees (each, an "Assignee") all or a portion of its rights and obligations under this Agreement (including all or a pro rata portion of its Commitment, Reimbursement Obligations and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of: (A) ACEP, provided that no consent of ACEP shall be required for an assignment to a Lender, an affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other Person; and (B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment to an Assignee that is a Lender, an Affiliate of a Lender or an Approved Fund immediately prior to giving effect to such assignment. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender, an affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender's Commitments, Reimbursement Obligations or Loans, the amount of the Commitments, Reimbursement Obligations or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 unless each of ACEP and the Administrative Agent otherwise consent, provided that (1) no such consent of ACEP shall be required if an Event of Default has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its affiliates or Approved Funds, if any; 88 (B) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that the Lead Arranger shall not be required to pay any such fee; (C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire; (D) in the case of an assignment to a CLO, the assigning Lender shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement and the other Loan Documents, provided that the Assignment and Assumption between such Lender and such CLO may provide that such Lender will not, without the consent of such CLO, agree to any amendment, modification or waiver that (1) requires the consent of each Lender directly affected thereby pursuant to the proviso to the second sentence of Section 9.1 and (2) directly affects such CLO; (E) each of the Lenders hereunder shall have expressly consented in writing to any assignment or transfer of the Loans to any Related Party or any Affiliate thereof; and (F) each of the Lenders hereunder shall have expressly consented in writing to the acquisition by any Related Party or any Affiliate of the right to vote as a Lender hereunder or the Trustee's replacing the First Lien Agent (as defined in the Intercreditor Agreement) as the Controlling Party (as defined in the Intercreditor Agreement). Anything contained herein to the contrary notwithstanding, neither the payment of any fees shall nor the consent of any Person shall be required if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of the assigning Lender. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Assumption the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.9, 3.10, 3.11 and 11.5). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 11.6 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Lender and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for 89 inspection by the Borrower, the Issuing Lender and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an Assignee, the Assignee's completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c) (i) Any Lender may, without the consent of ACEP or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitments, Reimbursement Obligations and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Lender and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement, and shall not provide that such Lender shall withhold its agreement with or consent to any such amendment, modification or waiver or any such enforcement action without the consent of such Participant; provided that such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that (1) requires the consent of each Lender directly affected thereby pursuant to the proviso to the second sentence of Section 11.1 and (2) directly affects such Participant. Subject to paragraph (c)(ii) of this Section, each Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.9, 3.10 or 3.11 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.7(b) as though it were a Lender, provided such Participant shall be subject to Section 11.7(a) as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 3.9 or 3.10 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with ACEP's prior written consent. Any Participant that is a Non-U.S. Lender shall not be entitled to the benefits of Section 3.10 unless such Participant complies with Section 3.10(d). Anything contained herein to the contrary notwithstanding, no Lender may sell or otherwise transfer a participation in any portion of such Lender's rights or obligations hereunder to a Related Party or to an Affiliate of any Related Party, and any such attempted sale or other transfer of any such participation in violation of the provisions of this Agreement shall be null and void. (d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or 90 assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for such Lender as a party hereto. (e) Each Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (d) above. (f) Notwithstanding the foregoing, any Conduit Lender may assign any or all of the Loans it may have funded hereunder to its designating Lender without the consent of ACEP or the Administrative Agent and without regard to the limitations set forth in Section 11.6(b). Each Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance. 11.7. Adjustments; Set-off (a) Except to the extent that this Agreement expressly provides for payments to be allocated to a particular Lender or to the Lenders, if any Lender (a "Benefitted Lender") shall, at any time after the Loans and other amounts payable hereunder shall immediately become due and payable pursuant to Section 8, receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by each Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower, as the case may be. Each Lender agrees promptly to notify ACEP and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 91 11.8. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with ACEP and the Administrative Agent. 11.9. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.10. Integration. This Agreement and the other Loan Documents represent the entire agreement of the Group Members, the Agents and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by any Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 11.11. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 11.12. Submission To Jurisdiction; Waivers. Each Group Member hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, New York County, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Group Member at its address set forth in Section 11.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and 92 (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 11.13. Acknowledgments. Each Group Member hereby acknowledges that: (i) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (ii) no Agent or Lender has any fiduciary relationship with or duty to any Group Member arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Agents and Lenders, on one hand, and the Group Members, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (iii) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Group Members and the Lenders. 11.14. Releases of Guarantees and Liens (a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each Lender (without requirement of notice to or consent of any Lender except as expressly required by Section 11.1) to take any action requested by a Group Member having the effect of releasing any Collateral or guarantee obligations (i) to the extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in accordance with Section 11.1 or (ii) under the circumstances described in paragraph (b) below. (b) At such time as the Loans, the Reimbursement Obligations and the other obligations under the Loan Documents (other than obligations under or in respect of Hedge Agreements) shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens securing the Obligations created by the Collateral Documents and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent (or the Collateral Agent on its behalf) under the Collateral Documents shall terminate, all without delivery of any instrument or performance of any act by any Person. 11.15. Confidentiality. Each Agent and each Lender agrees to keep confidential all non-public information provided to it by any Group Member pursuant to this Agreement that is designated by such Group Member as confidential; provided that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to any Agent, any other Lender or any Lender Affiliate, (b) subject to an agreement to comply with the provisions of this Section, to any actual or prospective Transferee or any direct or indirect counterparty to any Hedge Agreement (or any professional advisor to such counterparty), (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency 93 that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. 11.16. WAIVERS OF JURY TRIAL. EACH GROUP MEMBER, THE AGENTS AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 11.17. Additional Guarantors. Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to Section 6.10 and 6.11 of this Agreement shall become a Guarantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of a Guarantor Addendum in the form of Exhibit H hereto. 11.18. Gaming Laws. All rights, remedies and powers provide in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable mandatory provision of the Gaming Laws and all provisions of this Agreement are intended to be subject to all such provisions of the Gaming Laws and to be limited solely to the extent necessary to not render the provisions of this Agreement invalid or unenforceable, in whole or in part. 94 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, a Delaware limited liability company By:: /s/ Richard P. Brown ------------------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer 95 BEAR, STEARNS & CO. INC., as Sole Lead Arranger and Sole Bookrunner By: /s/ Keith C. Barnish ------------------------------------- Name: Keith C. Barnish Title: Senior Managing Director BEAR STEARNS CORPORATE LENDING INC., as Administrative Agent and as a Lender By: /s/ Keith C. Barnish ------------------------------------- Name: Keith C. Barnish Title: Executive Vice President 96 BEAR STEARNS CORPORATE LENDING INC., as Syndication Agent By: /s/ Keith C. Barnish ------------------------------------- Name: Keith C. Barnish Title: Executive Vice President 97 EX-10.2 10 y99320exv10w2.txt PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.2 EXECUTION COPY ================================================================================ PLEDGE AND SECURITY AGREEMENT made by AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. STRATOSPHERE CORPORATION STRATOSPHERE GAMING CORP. STRATOSPHERE LAND CORPORATION STRATOSPHERE LEASING, LLC STRATOSPHERE DEVELOPMENT, LLC STRATOSPHERE ADVERTISING AGENCY ARIZONA CHARLIE'S, LLC FRESCA, LLC CHARLIE'S HOLDING LLC and THE OTHER GRANTORS FROM TIME TO TIME PARTY HERETO in favor of EXECUTION COPY BEAR STEARNS CORPORATE LENDING, INC., in its capacity as Collateral Agent, for the benefit of the Secured Parties Dated as of May 26, 2004 ================================================================================ TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINED TERMS................................................................ 3 1.1 Definitions..................................................................... 3 1.2 Terms Defined Elsewhere......................................................... 12 1.3 Other Definitional Provisions................................................... 13 SECTION 2. GRANT OF SECURITY INTERESTS.................................................. 13 2.1 Security Grant for Bank Secured Parties......................................... 13 2.2 Security Grant for Note Secured Parties......................................... 15 2.3 Grantor Liability............................................................... 15 SECTION 3. REPRESENTATIONS AND WARRANTIES............................................... 15 3.1 Organization; Good Standing; Enforceability; Authority; No Conflict............. 15 3.2 Title; No Other Liens........................................................... 16 3.3 Perfected Liens................................................................. 16 3.4 Name; Jurisdiction of Organization, Etc. ....................................... 17 3.5 Inventory, Equipment and Books and Records...................................... 17 3.6 Farm Products................................................................... 17 3.7 Investment Property............................................................. 18 3.8 Receivables..................................................................... 19 3.9 Contracts....................................................................... 19 3.10 Intellectual Property........................................................... 20 3.11 Vehicles........................................................................ 22 3.12 Letter of Credit Rights......................................................... 22 3.13 Commercial Tort Claims.......................................................... 22 SECTION 4. COVENANTS.................................................................... 22 4.1 Delivery and Control of Instruments, Chattel Paper, Negotiable Documents, Investment Property and Deposit Accounts........................................ 22 4.2 Maintenance of Insurance........................................................ 24 4.3 Payment of Obligations.......................................................... 24 4.4 Maintenance of Perfected Security Interests; Further Documentation.............. 24 4.5 Changes in Locations, Name, Jurisdiction of Organization, Etc. ................. 25 4.6 Notices ........................................................................ 25 4.7 Investment Property............................................................. 26 4.8 Receivables..................................................................... 27 4.9 Contracts....................................................................... 28 4.10 Intellectual Property........................................................... 28 4.11 Vehicles........................................................................ 31 4.12 Non-Deliverable Collateral...................................................... 31 4.13 Disposal of Collateral.......................................................... 31
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PAGE ---- SECTION 5. REMEDIAL PROVISIONS.......................................................... 31 5.1 Gaming Laws and Intercreditor Agreement......................................... 31 5.2 Certain Matters Relating to Receivables......................................... 31 5.3 Communications with Obligors; Grantors Remain Liable............................ 32 5.4 Pledged Securities.............................................................. 32 5.5 Proceeds to be Turned Over To Collateral Agent.................................. 33 5.6 Application of Proceeds......................................................... 34 5.7 Code and Other Remedies......................................................... 34 5.8 Sales of Pledged Securities..................................................... 36 5.9 Waiver; Deficiency.............................................................. 36 SECTION 6. THE COLLATERAL AGENT......................................................... 36 6.1 Collateral Agent's Appointment as Attorney-in-Fact, Etc. ....................... 36 6.2 Duty of Collateral Agent........................................................ 38 6.3 Filing of Financing Statements.................................................. 39 6.4 Authority of Collateral Agent................................................... 39 6.5 Appointment of Co-Collateral Agents............................................. 39 6.6 Replacement of Collateral Agent................................................. 39 SECTION 7. MISCELLANEOUS................................................................ 39 7.1 Amendments in Writing........................................................... 39 7.2 Notices ........................................................................ 40 7.3 No Waiver by Course of Conduct; Cumulative Remedies............................. 41 7.4 Enforcement Expenses; Indemnification........................................... 41 7.5 Successors and Assigns.......................................................... 42 7.6 Set-Off......................................................................... 42 7.7 Counterparts.................................................................... 42 7.8 Severability ................................................................... 42 7.9 Section Headings ............................................................... 42 7.10 Integration..................................................................... 42 7.11 Governing Law .................................................................. 43 7.12 Submission to Jurisdiction; Waivers............................................. 43 7.13 Acknowledgments................................................................. 43 7.14 Additional Grantors............................................................. 44 7.15 Releases........................................................................ 44 7.16 Waiver Of Jury Trial............................................................ 45 7.17 Regulatory Matters.............................................................. 45 7.18 Responsibilities of Collateral Agent............................................ 46
ii PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT, dated as of May 26, 2004 (as the same may be amended, supplemented or otherwise modified from time to time, this "Agreement"), is made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "Grantors"), in favor of Bear Stearns Corporate Lending, Inc., in its capacity as the collateral agent under the Intercreditor Agreement (as defined below) (in such capacity, and together with its successors, substitutes and assigns in such capacity, the "Collateral Agent"), for the benefit of the Secured Parties (as defined below). RECITALS: WHEREAS, pursuant to that certain Indenture, dated as of January 15, 2004 (as the same may be amended, supplemented or otherwise modified from time to time, the "Indenture"), by and among American Casino & Entertainment Properties LLC, a Delaware limited liability company ("ACEP"), American Casino & Entertainment Properties Finance Corp., a Delaware corporation (together with ACEP, the "Issuers"), the other Grantors party thereto and Wilmington Trust Company, a Delaware banking company, as trustee (together with any substitutes, successors, assignees or additional trustees under the Indenture, the "Trustee"), for the benefit of the registered holders (the "Holders") of the Notes (as defined below), the Issuers issued $215,000,000 aggregate principal amount of their 7.85% Senior Secured Notes due 2012 (as they may be amended, supplemented, replaced or exchanged from time to time, and including any Additional Notes (as defined in the Indenture) issued from time to time under the Indenture, the "Notes"); WHEREAS, pursuant to the Indenture, the Grantors party thereto (other than the Issuers) have guaranteed all obligations of the Issuers under the Indenture, the Notes, the Note Collateral Documents (as defined below) and each other document related to any of the foregoing (the "Note Guarantees"); WHEREAS, the net proceeds of the Notes together with certain other funds (and with any interest accrued thereon, the "Net Proceeds") have been placed in an escrow account (the "Note Proceeds Account") pursuant to that certain Escrow and Security Agreement, dated as of January 29, 2004 (the "Escrow and Security Agreement"), by and among the Issuers, American Real Estate Holdings Limited Partnership, a Delaware limited partnership, the Trustee, and Fleet National Bank, a national banking association organized under the laws of the United States, as, among other capacities, escrow agent; WHEREAS, pursuant to that certain Credit Agreement, dated as of January 29, 2004 (as amended, supplemented or otherwise modified from time to time in accordance with the Intercreditor Agreement (as defined below), the "Credit Agreement"), by and among the Issuers, as borrowers, the other Grantors from time to time a party thereto, as guarantors, Bear, Stearns & Co. Inc., as sole lead arranger and sole bookrunner (in such capacities, the "Arranger"), the several lenders from time to time party thereto (the "Banks"), Bear Stearns Corporate Lending, Inc., as administrative agent (together with any substitutes, successors or assignees in such 1 capacity, the "Administrative Agent"), and Bear Stearns Corporate Lending Inc., as syndication agent (together with any substitutes, successors or assignees in such capacity, the "Syndication Agent"), the Banks have agreed to provide to Issuers a secured revolving bank credit facility of up to $20,000,000; WHEREAS, pursuant to the Credit Agreement, the Grantors from time to time a party thereto have guaranteed the obligations of the Issuers under the Credit Agreement, the Bank Collateral Documents (as defined below), and each other document related to any of the foregoing (the "Credit Agreement Guarantees"); WHEREAS, pursuant to the Credit Agreement and the Indenture, all obligations of the Issuers under the Credit Agreement, the Indenture, the Notes, the Collateral Documents (as defined below) and each other document related to any of the foregoing are to be secured by the Collateral (as defined below) of each Issuer; WHEREAS, the Note Guarantees and the Credit Agreement Guarantees are to be secured by the Collateral of each Grantor providing a Note Guarantee or a Credit Agreement Guarantee; WHEREAS, the Administrative Agent, for the benefit of the Banks, the Trustee, for the benefit of the Holders, and the Collateral Agent have entered into that certain Intercreditor Agreement, dated as of January 29, 2004 (as amended, supplemented or otherwise modified from time to time, the "Intercreditor Agreement"), pursuant to which the Collateral Agent will, among other things, hold the Collateral, for the benefit of the Secured Parties, and act as specified under the Intercreditor Agreement, this Agreement and certain of the other Collateral Documents; WHEREAS, it is a condition precedent to the release of the Net Proceeds from the Note Proceeds Account under the Escrow and Security Agreement and a covenant under the Indenture that the Grantors shall have executed and delivered this Agreement to the Collateral Agent; WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and to the release of any funds under the Credit Agreement and a covenant under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Collateral Agent; WHEREAS, ACEP is the direct or indirect parent entity of each other Grantor; and WHEREAS, the Issuers and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the release of the Net Proceeds from the Note Proceeds Account, the effectiveness of the Credit Agreement and the release of funds under the Credit Agreement. NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees with the Collateral Agent, for the benefit of the Secured Parties, as follows: 2 SECTION 1. DEFINED TERMS 1.1 Definitions. (a) The following terms that are defined in the Current New York UCC are used herein as so defined: Accounts, Account Debtor, Certificated Security, Commodity Account, Commodity Contract, Commodity Intermediary, Documents, Electronic Chattel Paper, Entitlement Order, Equipment, Farm Products, Financial Asset, Goods, Instruments, Inventory, Letters of Credit, Letter of Credit Rights, Payment Intangible, Securities Account, Securities Intermediary, Security, Security Entitlement, Supporting Obligation, Tangible Chattel Paper, and Uncertificated Security. (b) The following terms shall have the following meanings: "ACEP" has the meaning given to it in the Recitals hereof. "Administrative Agent" has the meaning given to it in the Recitals hereof. "Agreement" has the meaning given to it in the Preamble hereof. "Arranger" has the meaning given to it in the Recitals hereof. "Bank Collateral Documents" means the "Collateral Documents" as such term is defined in the Credit Agreement. "Bankruptcy Law" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute thereto or any similar federal or state law for the relief of debtors. "Bank Secured Parties" means the Collateral Agent, the Banks, the Arranger, the Administrative Agent and the Syndication Agent and the Permitted Counterparties (as defined in the Intercreditor Agreement). "Banks" has the meaning given to it in the Recitals hereof. "Collateral" has the meaning given to it in Section 2 hereof. "Collateral Account" mean any collateral account established by the Collateral Agent as provided in Section 5.2 or 5.5. "Collateral Agent" has the meaning given to it in the Preamble hereof. "Collateral Documents" means, collectively, (a) the Bank Collateral Documents, and (b) the Note Collateral Documents. "Contracts" mean the contracts and agreements listed in Schedule 7 as the same may be amended, supplemented, replaced or otherwise modified from time to time including, without limitation, (i) all rights of any Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of any Grantor to receive proceeds 3 of any insurance, indemnity, warranty or guaranty with respect thereto, (iii) all rights of any Grantor to damages arising thereunder, (iv) all rights of any Grantor to cancel, terminate, or suspend such Contracts or the performance of work thereunder and to perform and compel performance of, such Contracts and to exercise all remedies thereunder; and (v) all rights of any Grantor to amend or modify such Contracts and to consent to any sale, assignment or disposition (by operation of law or otherwise) by the counterparty thereto of any part of such counterparty's interest in any such Contract. "Copyright Licenses" means any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 6), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. "Copyrights" means (i) all domestic and foreign copyrights, whether or not the underlying works of authorship have been published, including, but not limited to, copyrights in software and databases, all Mask Works (as defined in 17 U.S.C. 901 of the U.S. Copyright Act) and all works of authorship and other intellectual property rights therein, all copyrights of works based on, incorporated in, derived from or relating to works covered by such copyrights, all right, title and interest to make and exploit all derivative works based on or adopted from works covered by such copyrights, and all copyright registrations and copyright applications, and any renewals or extensions thereof, including, without limitation, each registration and application identified in Schedule 6, (ii) the rights to print, publish and distribute any of the foregoing, (iii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (iv) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all Copyright Licenses entered into in connection therewith, payments arising out of any other sale, lease, license, or other disposition thereof and damages and payments for past, present or future infringements thereof), and (v) all other rights of any kind whatsoever accruing thereunder or pertaining thereto. "Credit Agreement" has the meaning given to it in the Recitals hereof. "Credit Agreement Guarantee" has the meaning given to it in the Recitals hereof. "Current New York UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Deposit Account" means all "deposit accounts" as defined in Article 9 of the Uniform Commercial Code of any applicable jurisdiction and, in any event, including without limitation (i) all other accounts maintained with any financial institution (other than Securities Accounts or Commodity Accounts) and (ii) all of the accounts listed on Schedule 2 hereto under the heading "Deposit Accounts" (as such schedule may be amended from time to 4 time) together, in each case, with all funds held therein and all certificates or instruments representing any of the foregoing. "Escrow and Security Agreement" has the meaning given to it in the Recitals hereof. "Event of Default" means any of the following: (i) the occurrence of one or more "Events of Default" as such term is defined in the Indenture and (ii) the occurrence of one or more "Events of Default" as such term is defined in the Credit Agreement. "Excluded Assets" means (i) the Note Proceeds Account (it being understood that the Note Proceeds Account has been pledged to the Trustee pursuant to the Escrow and Security Agreement), (ii) any tangible property or tangible assets (but in no event including Cash or Cash Equivalents) acquired by the Grantors in the future that are neither (a) located on the Properties (as defined in the Indenture) nor (b) necessary for the operation of the Properties in the ordinary course of business, (iii) any assets the acquisition of which was financed by Indebtedness permitted by Section 4.09 of the Indenture and Section 7.2 of the Credit Agreement to the extent that the terms of such Indebtedness prohibit additional Liens on such assets (but only to the extent and only so long as so prohibited, provided that Excluded Assets shall not include (and accordingly Collateral shall include) any and all proceeds of any such assets), (iv) any assets held by an Unrestricted Subsidiary or an Excluded Foreign Subsidiary (provided that the Lien of the Collateral Agent (on behalf of the Trustee and the Administrative Agent) is not required to attach or is required to be released in accordance with the terms of the Indenture and the Credit Agreement), (v) any Excluded Foreign Subsidiary Voting Stock; provided that the applicable Grantor is not required to pledge such Excluded Foreign Subsidiary Voting Stock to the Collateral Agent (on behalf of the Trustee and the Administrative Agent) in accordance with the terms of the Indenture and the Credit Agreement; (vi) Gaming Reserves and (vii) any Contract or Permit, solely in the event and to the extent that a grant of a Lien on such Contract or Permit is prohibited by law (including any Gaming Law), results in a breach or termination of the terms of, constitutes a default under, or termination of any such Contract or Permit, or requires a consent (or in the case of a Permit, that would require a finding of suitability or other similar approval or procedure by any of the Gaming Authorities or any other Governmental Authority, to the extent such finding or approval has not been obtained) to such Lien (other than to the extent that any such prohibition or consent requirement would be rendered ineffective pursuant to Section 9-406, 9-407, or 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction) and, in any event, immediately upon the ineffectiveness, lapse or termination of any such terms or default under such Contract or Permit, the Excluded Assets shall not include, and the applicable Grantor shall be deemed to have granted security interests in, each such Contract or Permit as if such terms or provisions had never been in effect; provided, however, that Excluded Assets shall not include (and, accordingly, Collateral shall include) any and all property or assets acquired with the proceeds of any disposition of any property or assets constituting Collateral; and provided, further, that, any Contract or Permit qualifying as an Excluded Asset under this clause no longer shall constitute an Excluded Asset (and instead shall constitute Collateral) from and after such time as the lessor, licensor, applicable Governmental Authority or other Person consents to or approves the grant of a Lien in favor of Collateral Agent 5 in such Contract or Permit or the prohibition against granting a Lien therein in favor of Collateral Agent shall cease to be effective. "Excluded Foreign Subsidiary" means any Subsidiary organized under the laws of any jurisdiction outside the United States of America. "Excluded Foreign Subsidiary Voting Stock" means the voting Capital Stock of any Excluded Foreign Subsidiary. "Gaming Laws" means the gaming laws, rules, regulations or ordinances, and the laws, regulations and ordinances governing the sale and distribution of alcoholic beverages, of any jurisdiction or jurisdictions to which any Grantor is, or may be at any time after the date of the Indenture, subject, including, without limitation, the Nevada Gaming Control Act, codified as Chapter 463 of the Nevada Revised Statutes and the regulations of the Nevada Gaming Commission promulgated thereunder. "Gaming Reserves" means any mandatory gaming security reserves or other reserves required under applicable Gaming Laws or by directive of the Chairman of the Nevada State Gaming Control Board. "General Intangibles" means all "general intangibles" as such term is defined in Section 9-102(a)(42) of the Current New York UCC and, in any event, including, without limitation, with respect to any Grantor, all rights and interests in, to and under contracts, agreements, instruments and indentures, including, without limitation, the Contracts, and all Permits in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may be amended, supplemented, or otherwise modified from time to time, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect thereto, (iii) all rights of such Grantor to damages arising thereunder, (iv) all rights of such Grantor to receive any tax refunds, and (v) all rights of such Grantor to terminate and to perform, compel performance and to exercise all remedies thereunder. "Governmental Authority" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity, (including the Gaming Authorities, any zoning authority, the FDIC, the Comptroller of the Currency or the Federal Reserve Board, any central bank or any comparable authority), any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government or any arbitrator with authority to bind a party at law. "Grantors" has the meaning given to it in the Preamble hereof. "Guarantor Obligations" means, with respect to any Guarantor, all obligations and liabilities of such Guarantor that may arise under or in connection with (i) this Agreement, (ii) any other Collateral Document to which such Guarantor is a party or by which it 6 is bound, (iii) the Indenture or any other agreement associated with the Indenture to which such Guarantor is a party or by which it is bound (including, without limitation, all indemnity agreements), (iv) the Credit Agreement, including, without limitation the Obligations (as defined in the Credit Agreement) of such Guarantor, or any other agreement associated with the Credit Agreement to which such Guarantor is a party or by which it is bound (including, without limitation, all indemnity agreements and guaranty agreements), in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel of the Collateral Agent or the Secured Parties that are required to be paid by such Guarantor pursuant to the terms of the Indenture, the Credit Agreement, this Agreement or any other Collateral Document or any agreement associated with any of the foregoing). "Guarantors" means the collective reference to each Grantor other than the ACEP. "Holders" has the meaning given to it in the Recitals hereof. "Indenture" has the meaning given to it in the Recitals hereof. "Insurance" means (i) all insurance policies covering any or all of the Collateral (regardless of whether the Collateral Agent is the loss payee thereof) and (ii) any key man life insurance policies. "Intellectual Property" means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets and the Trade Secret Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all Proceeds and damages therefrom. "Intercompany Note" means any promissory note evidencing loans made by any Grantor to the Issuers or any of the other Grantors. "Intercreditor Agreement" has the meaning given to it in the Recitals hereof. "Investment Property" means the collective reference to (i) all "investment property" as such term is defined in Section 9-102(a)(49) of the Current New York UCC in effect including, without limitation, all Certificated Securities and Uncertificated Securities, all Security Entitlements, all Securities Accounts, all Commodity Contracts and all Commodity Accounts, (other than any Excluded Foreign Subsidiary Voting Stock excluded from the definition of "Pledged Equity Interests"), (ii) security entitlements, in the case of any United States Treasury book-entry securities, as defined in 31 C.F.R. section 357.2, or, in the case of any United States federal agency book-entry securities, as defined in the corresponding United States federal regulations governing such book-entry securities, and (iii) whether or not constituting "investment property" as defined in the Current New York UCC, all Pledged Notes, 7 all Pledged Equity Interests, all Pledged Security Entitlements, all Pledged Debt Securities and all Pledged Commodity Contracts. "Issuers" has the meaning given to it in the Recitals hereof. "Issuers Obligations" means the collective reference to the payment and performance by the Issuers of each covenant, agreement, obligation and liability of the Issuers contained in (i) the Indenture and the Notes including, without limitation, the due and punctual payment of the principal of and interest and Liquidated Damages (as defined in the Indenture), if any, on the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest and Liquidated Damages (to the extent permitted by law), if any, on the Notes and performance of all other obligations of the Company under the Indenture and the Notes according to the terms thereunder, (ii) the Credit Agreement, including, without limitation, the Borrower Obligations (as defined in the Credit Agreement) (iii) each Collateral Document to which either of the Issuers is a party or by which it is bound and (iv) each other document related to any of the foregoing to which either of the Issuers is a party or by which it is bound. "Material Adverse Effect" means a material adverse condition or material adverse change in or affecting (i) the business, assets, liabilities, property, condition (financial or otherwise), results of operations, or prospects of the Issuers and the other Grantors taken as a whole, (ii) the validity or enforceability of this Agreement, the Indenture, the Credit Agreement, or any of the Collateral Documents, (iii) the validity, enforceability or priority of the Liens purported to be created by the Collateral Documents, or (iv) the rights or remedies of the Collateral Agent and the Secured Parties under the Indenture, the Credit Agreement, this Agreement or any of the other Collateral Documents. "Net Proceeds" has the meaning given to it in the Recitals hereof. "New York UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York. "Non-Deliverable Collateral" has the meaning given to it in Section 3.8 hereof. "Note Collateral Documents" means "Collateral Documents" as such term is defined in the Indenture. "Note Guarantees" has the meaning given to it in the Recitals hereof. "Note Proceeds Account" has the meaning given to it in the Recitals hereof. "Notes" has the meaning given to it in the Recitals hereof. "Note Secured Parties" means, collectively, the Collateral Agent, the Trustee and the Holders. 8 "Obligations" means (i) in the case of the Issuers, the Issuers Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "Patent License" means all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 6. "Patents" means (i) all patents, patent applications and patentable inventions, including, without limitation, each issued patent and patent application identified in Schedule 6, all certificates of invention or similar intellectual property rights, (ii) all inventions and improvements described and claimed therein, (iii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (iv) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all Patent Licenses entered into in connection therewith, payments arising out of any other sale, lease, license or other disposition thereof and damages and payments for past, present or future infringement thereof), and (v) all reissues, divisions, continuations, continuations-in-part, substitutes, renewals, and extensions thereof, all improvements thereon and all other rights of any kind whatsoever accruing thereunder or pertaining thereto. "Permits" mean all licenses, permits, approvals, franchises, concessions, entitlements, registrations, findings or suitability and other authorizations issued by any Governmental Authority. "Permitted Lien" means any Lien permitted to be incurred under both the Indenture and the Credit Agreement (to the extent such documents are in effect). "Person" means any individual, corporation, partnership, limited liability company or partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government, or any agency or political subdivision thereof or any other entity. "Pledged Alternative Equity Interests" means all interests of any Grantor in participation or other interests in any equity or profits of any business entity and the certificates, if any, representing such interests and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such interests and any other warrant, right or option to acquire any of the foregoing; provided, however, that Pledged Alternative Equity Interests shall not include any Pledged Stock, Pledged Partnership Interests, Pledged LLC Interests and Pledged Trust Interests. "Pledged Commodity Contracts" means all commodity contracts listed on Schedule 2 (as such Schedule may be amended from time to time) and all other commodity contracts to which any Grantor is party from time to time. "Pledged Debt Securities" means all debt securities now owned or hereafter acquired by any Grantor, including, without limitation, the debt securities listed on Schedule 2 (as such Schedule may be amended from time to time) together with any other 9 certificates, options, rights or Security Entitlements of any nature whatsoever in respect of the debt securities of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; provided, however, that Pledged Debt Securities shall not include Pledged Notes. "Pledged Equity Interests" means all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests, Pledged Trust Interests and Pledged Alternative Equity Interests. "Pledged Gaming Equity Interests" has the meaning given to it in Section 7.17 hereof. "Pledged LLC Interests" means all interests of any Grantor now owned or hereafter acquired in any limited liability company including, without imitation, all limited liability company interests listed on Schedule 2 hereto under the heading "Pledged LLC Interests" (as such Schedule may be amended from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests and any other warrant, right or option to acquire any of the foregoing. "Pledged Notes" means all promissory notes now owned or hereafter acquired by any Grantor including, without limitation, those listed on Schedule 2 (as such Schedule may be amended from time to time), all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor. "Pledged Partnership Interests" means all interests of any Grantor now owned or hereafter acquired in any general partnership, limited partnership, limited liability partnership or other partnership including, without limitation, all partnership interests listed on Schedule 2 hereto under the heading "Pledged Partnership Interests" (as such Schedule may be amended from time to time) and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests and any other warrant, right or option to acquire any of the foregoing. "Pledged Securities" means the collective reference to the Pledged Debt Securities, the Pledged Notes and the Pledged Equity Interests. "Pledged Security Entitlements" means all Security Entitlements with respect to the financial assets listed on Schedule 2 (as such Schedule may be amended from time to time) and all other security entitlements of any Grantor. "Pledged Security Issuers" means the collective reference to each issuer of a Pledged Security. 10 "Pledged Stock" means all shares of corporate stock now owned or hereafter acquired by any Grantor, including, without limitation, all shares of corporate stock described on Schedule 2 hereto under the heading "Pledged Stock" (as such Schedule may be amended from time to time), and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares and any other warrant, right or option to acquire any of the foregoing; provided, however, that in no event shall more than 65% of the total outstanding Excluded Foreign Subsidiary Voting Stock be required to be pledged hereunder. "Pledged Trust Interests" means all interests of any Grantor now owned or hereafter acquired in a Delaware business trust or other trust including, without limitation, all trust interests listed on Schedule 2 hereto under the heading "Pledged Trust Interests" (as such Schedule may be amended from time to time) and the certificates, if any, representing such trust interests and any interest of such Grantor on the books and records of such trust or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such trust interests and any other warrant, right or option to acquire any of the foregoing. "Proceeds" means all "proceeds" as such term is defined in Section 9-102(a)(64) of the Current New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto. "Receivable" means any right to payment for goods or other property sold, leased, licensed or otherwise disposed of or for services rendered, whether or not such right is evidenced by an Instrument, Tangible Chattel Paper or Intangible Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account or Payment Intangible). References herein to a Receivable shall include any Supporting Obligation or collateral securing such Receivable. "Requirement of Law" means, as to any Person, the governing documents or other constituent documents of such Person, and any law, treaty, order, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Secured Parties" means, collectively, and without duplication, the Bank Secured Parties and the Note Secured Parties. "Securities Act" means the Securities Act of 1933, as amended. "Syndication Agent" has the meaning set forth in the Recitals hereof. 11 "Trademark License" means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 6. "Trademarks" means (i) all domestic and foreign trademarks, service marks, trade names, corporate names, company names, business names, trade dress, trade styles, logos, or other indicia of origin or source identification, internet domain names, trademark and service mark registrations, and applications for trademark or service mark registrations and any renewals thereof, including, without limitation, each registration and application identified in Schedule 6, (ii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (iii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all Trademark Licenses entered into in connection therewith, and damages and payments for past, present or future infringements thereof), and (iv) all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together in each case with the goodwill of the business connected with the use of, and symbolized by, each of the above. "Trade Secret License" means any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trade Secret, including, without limitation, any of the foregoing referred to in Schedule 6. "Trade Secrets" means (i) all trade secrets and all confidential and proprietary information, including know-how, manufacturing and production processes and techniques, inventions, research and development information, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information, including, without limitation, any of the foregoing referred to in Schedule 6, (ii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (iii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments arising out of the sale, lease, license, assignment or other disposition thereof, and damages and payments for past, present or future infringements thereof), and (iv) all other rights of any kind whatsoever of any Grantor accruing thereunder or pertaining thereto. "Trustee" has the meaning given to it in the Recitals hereof. "UETA" has the meaning given to it in the Section 3.3(a) hereof. "Vehicles" means all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any jurisdiction and, in any event including, without limitation, the vehicles listed on Schedule 8 and all tires and other appurtenances to any of the foregoing. 1.2 Terms Defined Elsewhere. The following terms shall have the meaning given to them in the Credit Agreement (or, in the event the Credit Agreement is terminated, the meanings given to such item in the Credit Agreement immediately prior to such termination): Business Day Capital Stock 12 Cash Equivalents Gaming Authority Lien Subsidiary Termination Date Unrestricted Subsidiary 1.3 Other Definitional Provisions. (a) The words "hereof", "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. (d) The expressions "payment in full," "paid in full" and any other similar terms or phrases when used herein with respect to the Issuers Obligations or the Guarantor Obligations shall mean the unconditional, final and irrevocable payment in full, in immediately available funds, of all of the Issuers Obligations or the Guarantor Obligations, as the case may be. SECTION 2. GRANT OF SECURITY INTERESTS 2.1 Security Grant for Bank Secured Parties. Each Grantor, subject to Section 7.17 and except with respect to Excluded Assets, hereby assigns and transfers to the Collateral Agent, for the benefit of the Bank Secured Parties, and hereby grants to the Collateral Agent, for the benefit of the Bank Secured Parties, a security interest on a first priority basis in all of the personal property of such Grantor, including, without limitation, the following property, in each case, wherever located and now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "Collateral"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor's Obligations to the Bank Secured Parties: (a) all Accounts; (b) all Chattel Paper; (c) all Contracts; (d) all Deposit Accounts; 13 (e) all Documents; (f) all Equipment; (g) all General Intangibles (including, without limitation, Payment Intangibles); (h) all Instruments; (i) all Intellectual Property; (j) all Inventory; (k) all Investment Property; (l) all Letters of Credit and Letter of Credit Rights; (m) all money; (n) all Vehicles; (o) all Goods and other property not otherwise described above; (p) all bank accounts, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such bank accounts; (q) all books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and other electronic storage media and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; (r) all Permits; (s) all Insurance and all loss proceeds and other amounts payable thereunder and all eminent domain proceeds; and (t) to the extent not otherwise included, all other personal property of the Grantor and Proceeds, accessions and products of any kind and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing (including, without limitation, Supporting Obligations). Notwithstanding anything to the contrary in this Agreement, the term "Collateral" shall not include any of the Excluded Assets. 14 2.2 Security Grant for Note Secured Parties. Each Grantor, subject to Section 7.17 and except with respect to Excluded Assets, hereby assigns and transfers to the Collateral Agent, for the benefit of the Note Secured Parties, and hereby grants to the Collateral Agent, for the benefit of the Note Secured Parties, a security interest on a second priority basis in the Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor's Obligations to the Note Secured Parties. 2.3 Grantor Liability. Notwithstanding anything herein to the contrary, (a) each Grantor shall remain liable for all obligations under the Collateral and nothing contained herein is intended or shall be a delegation of duties to the Collateral Agent or any Secured Party, (b) each Grantor shall remain liable under and each of the agreements included in the Collateral, including, without limitation, any Receivables, any Contracts and any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other document related thereto nor shall the Collateral Agent nor any Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including, without limitation, any agreements relating to any Receivables, any Contracts, Pledged Partnership Interests or Pledged LLC Interests, and (c) the exercise by the Collateral Agent or any Secured Party of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral. SECTION 3. REPRESENTATIONS AND WARRANTIES Each Grantor hereby represents and warrants to the Collateral Agent, for the benefit of the Secured Parties, that: 3.1 Organization; Good Standing; Enforceability; Authority; No Conflict. (a) Such Grantor (i) is duly formed or organized, validly existing and in good standing under the laws of the jurisdiction of its formation or organization, (ii) has the organizational power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (iii) is duly qualified as a foreign organization and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to do so does not and could not, in the aggregate, have a Material Adverse Effect and (iv) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith does not and could not, in the aggregate, have a Material Adverse Effect. (b) Such Grantor has the organizational power and authority, and the legal right, to make, deliver and perform this Agreement and every Collateral Document to which it is a party and has taken all necessary action to authorize the execution, delivery and 15 performance of this Agreement and every Collateral Document to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement or any Collateral Document to which such Grantor is a party. This Agreement and each other Collateral Document to which it is a party has been duly executed and delivered on behalf of such Grantor. This Agreement and each Collateral Document to which it is a party constitute, legal, valid and binding obligations of such Grantor enforceable against such Grantor in accordance with their terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Agreement and each Collateral Document to which such Grantor is a party will not violate any Requirement of Law or any obligation under any Contract of such Grantor and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or obligation (other than pursuant to this Agreement). (d) No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of such Grantor, threatened by or against such Grantor or against any of its properties or revenues (i) with respect to this Agreement or any Collateral Document or any of the transactions contemplated hereby or thereby, or (ii) that has had or could reasonably be expected to have a Material Adverse Effect. 3.2 Title; No Other Liens. Such Grantor owns each item of the Collateral free and clear of any and all Liens or claims, including, without limitation, Liens arising as a result of such Grantor becoming bound (as a result of merger or otherwise) as Grantor under a security agreement entered into by another Person, except for Permitted Liens. No effective financing statement, mortgage or other instrument similar in effect with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Collateral Agent pursuant to this Agreement or as are otherwise permitted by, the Indenture and the Credit Agreement. 3.3 Perfected Liens. (a) The security interests granted pursuant to this Agreement (i) constitute valid and, subject only to the filing of the financing statements and the taking of the other actions listed on Schedule 3 hereto, fully perfected first priority security interest in all of the Collateral in favor of the Collateral Agent, for the benefit of the Bank Secured Parties, and fully perfected second priority interest in all of the Collateral in favor of the Collateral Agent, for the benefit of the Note Secured Parties, as collateral security for such Grantor's Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and (ii) are subject to no other Liens on the Collateral except for Permitted Liens. Without limiting the foregoing, each Grantor has taken all actions necessary or desirable, including, without limitation, those specified in Section 4.4 to: (i) establish the Collateral Agent's "control" (within the meanings of Sections 8-106 and 9-106 of the New York UCC) over any portion of the Investment Property constituting Certificated Securities, Uncertificated Securities, Securities 16 Accounts, Securities Entitlements or Commodity Accounts (each as defined in the New York UCC), (ii) establish the Collateral Agent's "control" (within the meaning of Section 9-104 of the New York UCC) over all Deposit Accounts, (iii) establish the Collateral Agent's "control" (within the meaning of Section 9-107 of the New York UCC) over all Letter of Credit Rights, (iv) establish the Collateral Agent's control (within the meaning of Section 9-105 of the New York UCC) over all Electronic Chattel Paper and (v) establish the Collateral Agent's "control" (within the meaning of Section 16 of the Uniform Electronic Transaction Act as in effect in the applicable jurisdiction "UETA") over all "transferable records" (as defined in UETA). (b) No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body (except those that have been made or obtained) is required for either (i) the pledge or grant by any Grantor of the security interests purported to be created in favor of the Collateral Agent hereunder or (ii) the exercise by the Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created hereunder or created or provided for by applicable law), except (A) for filings and actions specified on Schedule 3 and (B) as may be required, in connection with the disposition of any Investment Property, by laws generally affecting the offering and sale of securities. 3.4 Name; Jurisdiction of Organization, Etc. On the date hereof, such Grantor's exact legal name (as indicated on the public record of such Grantor's jurisdiction of formation or organization), jurisdiction of organization, organizational i.d. number, if any, and the location of such Grantor's chief executive office or sole place of business are specified on Schedule 4. Each Grantor is organized solely under the law of the jurisdiction so specified and has not filed any certificates of domestication, transfer or continuance in any other jurisdiction. Except as otherwise indicated on Schedule 4, the jurisdiction of each such Grantor's organization of formation is required to maintain a public record showing the Grantor to have been organized or formed. Except as specified on Schedule 4, such Grantor has not changed its name, jurisdiction of organization, chief executive office or sole place of business or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the previous five-year period and has not within such period become bound (whether as a result of merger or otherwise) as grantor under a security agreement entered into by another Person, which has not heretofore been terminated. 3.5 Inventory, Equipment and Books and Records. On the date hereof, the Inventory and the Equipment (other than mobile goods) and the books and records pertaining to the Collateral are kept at the locations listed on Schedule 5. No material Inventory or Equipment (in the aggregate) of such Grantor is in the possession of an issuer of a negotiable document (as defined in Section 7-104 of the New York UCC) therefor that has not been delivered to the Collateral Agent or is otherwise in the possession of any bailee or warehouseman. 3.6 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 17 3.7 Investment Property. (a) Schedule 2 hereto (as such schedule may be amended from time to time) sets forth under the headings "Pledged Stock, "Pledged LLC Interests," "Pledged Partnership Interests" and "Pledged Trust Interests," respectively, all of the Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests owned by any Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on Schedule 2. Schedule 2 (as such Schedule may be amended from time to time) sets forth under the heading "Pledged Debt Securities" or "Pledged Notes" all of the Pledged Debt Securities and Pledged Notes owned by any Grantor and all of such Pledged Debt Securities and Pledged Notes have been duly authorized, authenticated or issued, and delivered and the legal, valid and binding obligations of the issuers thereof enforceable in accordance with their terms and are not in default and constitute all of the issued and outstanding indebtedness evidenced by an instrument or certificated security of the respective issuers thereof owing to such Grantor. Schedule 2 hereto (as such Schedule may be amended from time to time) sets forth under the headings "Securities Accounts," "Commodities Accounts," and "Deposit Accounts" respectively, all of the Securities Accounts, Commodities Accounts and Deposit Accounts in which each Grantor has an interest. Each Grantor is the sole entitlement holder or customer of each such account, and such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Collateral Agent pursuant hereto or as otherwise permitted under the Indenture and the Credit Agreement) having "control" (within the meanings of Sections 8-106, 9-106 and 9-104 of the New York UCC) over, or any other interest in, any such Securities Account, Commodity Account or Deposit Account or any securities, commodities or other property credited thereto. (b) The shares of Pledged Equity Interests pledged by such Grantor hereunder constitute all of the issued and outstanding shares of all classes of the Capital Stock of each Issuers owned by such Grantor or, in the case of Excluded Foreign Subsidiary Voting Stock, 65% of the outstanding Excluded Foreign Subsidiary Voting Stock of each relevant Pledged Security Issuer. (c) All the shares of the Pledged Equity Interests of such Grantor have been duly and validly issued and, with respect to corporate stock, are fully paid and nonassessable. (d) Each Pledged LLC Interest and Pledged Partnership Interest owned by such Grantor and included in the Pledged Equity Interests is certificated (and each Grantor covenants that it will not issue or cause or permit its Subsidiaries to issue any Capital Stock in uncertificated form or seek to convert all or any part of its existing Capital Stock into uncertificated form) and the terms of such certificated Pledged LLC Interests and Pledged Partnership Interests expressly provide that they are securities governed by Article 8 of the Uniform Commercial Code in effect from time to time in the applicable jurisdiction. (e) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except Permitted Liens and there are 18 no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests. (f) Each Pledged Security Issuer that is not a Grantor hereunder but is an Affiliate of any Grantor has executed and delivered to the Collateral Agent an Acknowledgment and Agreement, in substantially the form of Exhibit A, to the pledge of the Pledged Securities pursuant to this Agreement. 3.8 Receivables. (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Tangible Chattel Paper that has not been delivered to the Collateral Agent or constitutes Electronic Chattel Paper that has not been subjected to the control (within the meaning of Section 9-105 of the New York UCC) of the Collateral Agent (other than Receivables evidenced by Instruments representing (i) extensions of credit by such Grantor to individual customers of its gaming operations in the ordinary course of business or (ii) loans to employees expressly permitted under the Indenture and the Credit Agreement (the "Non-Deliverable Collateral")). (b) None of the obligors on any Receivables is a Governmental Authority. (c) The amounts represented by such Grantor to the Collateral Agent or the Secured Parties from time to time as owing to such Grantor in respect of the Receivables will at such times be materially accurate. (d) Except as could not reasonably be expected to have a Material Adverse Effect, each Receivable (i) representing an unsatisfied obligation of such Account Debtor is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, (ii) is and will be enforceable in accordance with its terms, (iii) is not and will not be subject to any set-offs, defenses, deferral, dispute, cancellation, deficiencies, taxes and counterclaims, and (iv) is and will be in compliance with all applicable laws and regulations. 3.9 Contracts. (a) No Contract prohibits assignment by the applicable Grantor or requires or purports to require the consent of any party (other than such Grantor) to such Contract in connection with the execution, delivery and performance of this Agreement, including, without limitation, the exercise of remedies by the Collateral Agent with respect to such Contract. (b) Except as expressly permitted by the Indenture and the Credit Agreement, and except as could not reasonably be expected to have a Material Adverse Effect, each Contract is in full force and effect and constitutes a valid and legally enforceable obligation of the parties thereto, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and general equitable principles (whether considered in a proceeding in equity or at law). 19 (c) Except for Excluded Assets, no consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Contracts by any party thereto other than those that have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Contract to any material adverse limitation, either specific or general in nature. (d) Neither such Grantor nor (to the best of such Grantor's knowledge) any of the other parties to the Contracts is in default in the performance or observance of any of the terms thereof, other than those defaults that have not and could not reasonably be expected to have a Material Adverse Effect. (e) The right, title and interest of such Grantor in, to and under the Contracts are not subject to any defenses, offsets, counterclaims or claims that, in the aggregate, have or could reasonably be expected to have a Material Adverse Effect. (f) Such Grantor has delivered to the Collateral Agent a complete and correct copy of each material Contract, including all amendments, supplements and other modifications thereto. (g) No amount payable to such Grantor under or in connection with any Contract is evidenced by any Instrument or Tangible Chattel Paper that has not been delivered to the Collateral Agent or constitutes Electronic Chattel Paper that is not under the control of the Collateral Agent. (h) None of the parties to any Contract is a Governmental Authority. 3.10 Intellectual Property. (a) Schedule 6 lists all Intellectual Property owned by such Grantor in its own name on the date hereof. Except as set forth in Schedule 6, such Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property and is otherwise entitled to use all such Intellectual Property, without limitation, subject only to the license terms of the licensing or franchise agreements referred to in Section 3.10(c) below. (b) On the date hereof, all of such Grantor's Intellectual Property is valid, subsisting, unexpired and enforceable, has not been abandoned and neither the operation of such Grantor's business as currently conducted or as contemplated to be conducted nor the use of the Intellectual Property in connection therewith conflict with, infringe, misappropriate, dilute, misuse or otherwise violate the intellectual property rights of any other Person. (c) Except as set forth in Schedule 6 on the date hereof (i) none of such Grantor's Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor, and (ii) there are no other agreements, obligations, orders or judgments that affect the use of any Intellectual Property. (d) The rights of such Grantor in or to the Intellectual Property do not conflict with or infringe upon the rights of any third party, and no claim has been asserted that 20 the use of such Intellectual Property does or may infringe upon the rights of any third party. To such Grantor's knowledge, there is currently no infringement or unauthorized use of any item of Intellectual Property. (e) No holding, decision or judgment has been rendered by any Governmental Authority that would limit, cancel or question the validity or enforceability of, or such Grantor's rights in, any of such Grantor's Intellectual Property. Such Grantor is not aware of any uses of any item of its Intellectual Property that could reasonably be expected to lead to such item becoming invalid or unenforceable including, without limitation, unauthorized uses by third parties and uses that were not supported by the goodwill of the business connected with Trademarks and Trademark Licenses. (f) Other than those actions or proceedings that could not reasonably be expected to have a Material Adverse Effect, no action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any of such Grantor's Intellectual Property or such Grantor's ownership interest therein, (ii) alleging that any services provided by, processes used by, or products manufactured or sold by such Grantor infringe any patent, trademark, copyright, or any other right of any third party, or (iii) alleging that any material Intellectual Property of such Grantor is being licensed, sublicensed or used in violation of any patent, trademark, copyright or any other right of any third party. To the knowledge of such Grantor, no Person is engaging in any activity that infringes upon such Grantor's Intellectual Property or upon its rights therein other than such infringements that could not reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 6 hereto, such Grantor has not granted any license, or any release, covenant not to sue, non-assertion assurance, or other right to any Person with respect to any part of its Intellectual Property. The consummation of the transactions contemplated by this Agreement will not result in the termination or impairment of any of the Intellectual Property of such Grantor. (g) Except as could not reasonably be expected to have a Material Adverse Effect, with respect to each Copyright License, Trademark License and Patent License: (i) such license is valid and binding and in full force and effect and represents the entire agreement between the respective licensor and licensee with respect to the subject matter of such license; (ii) such license will not cease to be valid and binding and in full force and effect on terms identical to those currently in effect as a result of the rights and interests granted herein, nor will the grant of such rights and interests constitute a breach or default under such license or otherwise give the licensor or licensee a right to terminate such license; (iii) such Grantor has not received any notice of termination or cancellation under such license; (iv) such Grantor has not received any notice of a breach or default under such license, which breach or default has not been cured; (v) such Grantor has not granted to any other third party any rights, adverse or otherwise, under such license; and (vi) such Grantor is not in breach or default in any respect, and no event has occurred that, with notice and/or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under such license. (h) Except as could not reasonably be expected to have a Material Adverse Effect, such Grantor has performed all acts and has paid all required fees and taxes to maintain each and every item of its Intellectual Property in full force and effect and to protect 21 and maintain its interest therein. Such Grantor has used proper statutory notice in connection with its use of each Patent, Trademark and Copyright included in its Intellectual Property. (i) Except as could not reasonably be expected to have a Material Adverse Effect, none of the Trade Secrets of such Grantor has been used, divulged, disclosed or appropriated to the detriment of such Grantor for the benefit of any other Person; (ii) no employee, independent contractor or agent of such Grantor has misappropriated any trade secrets of any other Person in the course of the performance of his or her duties as an employee, independent contractor or agent of such Grantor; and (iii) no employee, independent contractor or agent of such Grantor is in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of inventions agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of such Grantor's Intellectual Property. (j) Except as could not reasonably be expected to have a Material Adverse Effect, such Grantor has made all filings and recordations necessary to adequately protect its interest in its Intellectual Property including, without limitation, recordation of its interests in the Patents and Trademarks with the United States Patent and Trademark Office and in corresponding national and international patent offices, and recordation of any of its interests in the Copyrights with the United States Copyright Office and in corresponding national and international copyright offices. (k) Except as could not reasonably be expected to have a Material Adverse Effect, no Grantor is subject to any settlement or consents, judgment, injunction, order, decree, covenants not to sue, non-assertion assurances or releases that would impair the validity or enforceability of, or such Grantor's rights in, any Intellectual Property. 3.11 Vehicles. Schedule 8 is a complete and correct list of all Vehicles owned by such Grantor on the date hereof. 3.12 Letter of Credit Rights. Schedule 9 is a complete and correct list of all Letters of Credit under which such Grantor is a beneficiary on the date hereof. 3.13 Commercial Tort Claims. No Grantor has any commercial tort claims. SECTION 4. COVENANTS Each Grantor covenants and agrees with the Collateral Agent, for the benefit of the Secured Parties, that, from and after the date of this Agreement until the Obligations shall have been paid in full: 4.1 Delivery and Control of Instruments, Chattel Paper, Negotiable Documents, Investment Property and Deposit Accounts. (a) If any of the Collateral is or shall become evidenced or represented by any Instrument, Certificated Security, Tangible Chattel Paper or Negotiable Document, such Instrument (other than checks in the ordinary course of business), Certificated Security, Tangible Chattel Paper or Negotiable Document shall be promptly delivered to the Collateral Agent, duly 22 endorsed in a manner satisfactory to the Collateral Agent, to be held as Collateral pursuant to this Agreement (other than Non-Deliverable Collateral). (b) If any of the Collateral is or shall become Electronic Chattel Paper, such Grantor shall ensure that (i) a single authoritative copy exists that is unique, identifiable, unalterable (except as provided in clauses (iii), (iv) and (v) of this Section 4.1(b)), (ii) that such authoritative copy identifies the Collateral Agent as the assignee and is communicated to and maintained by the Collateral Agent or its designee, (iii) that copies or revisions that add or change the assignee of the authoritative copy can only be made with the participation of the Collateral Agent, (iv) that each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy and not the authoritative copy and (v) any revision of the authoritative copy is readily identifiable as an authorized or unauthorized revision. (c) If any of the Collateral shall become evidenced or represented by an Uncertificated Security, such Grantor shall cause the Pledged Security Issuer thereof to agree in writing with such Grantor and the Collateral Agent that such Pledged Security Issuer will comply with instructions with respect to such Uncertificated Security originated by the Collateral Agent without further consent of such Grantor, such agreement to be in substantially the form of Exhibit C or in such other form as may be satisfactory to the Collateral Agent. Notwithstanding the foregoing, each Grantor covenants that (i) the representations and warranties contained in Section 3.7(c) shall at all times be true and correct and (ii) it will not issue or cause or permit its Subsidiaries to issue any Capital Stock in uncertificated form or seek to convert all or any part of its existing Capital Stock into uncertificated form. (d) Each Grantor shall maintain Securities Entitlements, Securities Accounts and Deposit Accounts only with financial institutions that have agreed to comply with Entitlement Orders and instructions issued or originated by the Collateral Agent without further consent of such Grantor, such agreement to be substantially in the form of Exhibit D or in such other form as shall be satisfactory to the Collateral Agent. (e) If any of the Collateral is or shall become evidenced or represented by a Commodity Contract, such Grantor shall cause the Commodity Intermediary with respect to such Commodity Contract to agree in writing with such Grantor and the Collateral Agent that such Commodity Intermediary will apply any value distributed on account of such Commodity Contract as directed by the Collateral Agent without further consent of such Grantor, such agreement to be in substantially the form of Exhibit E or in such other form as may be satisfactory to the Collateral Agent. (f) In addition to and not in lieu of the foregoing, if any Pledged Security Issuer of any Investment Property is organized under the law of, or has its chief executive office in, a jurisdiction outside of the United States, each Grantor shall take such additional actions, including, without limitation, causing such Pledged Security Issuer to register the pledge on its books and records, as may be necessary or advisable or as may be reasonably requested by the Collateral Agent under the laws of such jurisdiction to insure the validity, perfection and priority of the security interests of the Collateral Agent. 23 4.2 Maintenance of Insurance. (a) Each Grantor shall maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same business. All insurance shall provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by Collateral Agent of written notice thereof. (b) Such Grantor will deliver to the Collateral Agent (i) on the date such Grantor becomes a Grantor under this Agreement, a certificate dated such date showing the amount and types of insurance coverage as of such date, (ii) upon request of the Collateral Agent from time to time, full information as to the insurance carried, (iii) promptly following receipt of notice from any insurer, a copy of any notice of cancellation or material change in coverage, (iv) forthwith, notice of any cancellation or nonrenewal of coverage by such Grantor, and (v) promptly after such information is available to such Grantor, full information as to any claim for an amount in excess of $1,000,000 with respect to any property and casualty insurance policy maintained by such Grantor. The Collateral Agent shall be named as additional insured on all such liability insurance policies of such Grantor and the Collateral Agent shall be named as loss payee on all property and casualty insurance policies of such Grantor. (c) From time to time at the request of the Collateral Agent or the Administrative Agent (but no more frequently than once in any 12 month period), the Grantors shall deliver to the Collateral Agent a report of a reputable insurance broker with respect to such insurance. 4.3 Payment of Obligations. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the imminent sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 4.4 Maintenance of Perfected Security Interests; Further Documentation. (a) Such Grantor shall maintain the security interests created by this Agreement as perfected security interests having at least the priority described in Section 3.3 and shall defend such security interests against the claims and demands of all Persons. (b) Such Grantor will furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports 24 in connection with the assets and property of such Grantor as the Collateral Agent may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly authorize, execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property, Deposit Accounts and any other relevant Collateral, taking any actions necessary to enable the Collateral Agent to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto, including without limitation, executing and delivering and causing the relevant depositary bank or securities intermediary to execute and deliver a Control Agreement in the form attached hereto as Exhibit D or in such other form as may be satisfactory to the Collateral Agent. Nothing set forth in this Section 4.4 shall be construed to limit such Grantor's obligations to take such actions absent any request of the Collateral Agent including, without limitation, such Grantor's obligations to take the actions set forth in Section 4.1 hereof. 4.5 Changes in Locations, Name, Jurisdiction of Organization, Etc. Such Grantor will not, except upon 15 days' prior written notice to the Collateral Agent and delivery to the Collateral Agent of duly authorized and, where required, executed copies of (a) all additional financing statements and other documents reasonably requested by the Collateral Agent to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 5 showing any additional location at which Inventory or Equipment (other than mobile goods) or books and records pertaining to the Collateral shall be kept: (i) permit any of the Inventory or Equipment (other than mobile goods) or books and records pertaining to the Collateral to be kept at a location other than those listed on Schedule 5; (ii) without limiting the prohibitions on mergers involving the Grantors contained in the Indenture or the Credit Agreement, change its legal name, jurisdiction of organization or the location of its chief executive office or sole place of business from that referred to in Section 3.4; or (iii) change its legal name, identity or structure to such an extent that any financing statement filed by the Collateral Agent in connection with this Agreement would become misleading. 4.6 Notices. Such Grantor will advise the Collateral Agent promptly, in reasonable detail, of: 25 (a) any Lien (other than any Permitted Lien) on any of the Collateral that would adversely affect the ability of the Collateral Agent to exercise any of its remedies hereunder; and (b) the occurrence of any other event that could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 4.7 Investment Property. (a) Subject to compliance with applicable Gaming Laws, if such Grantor shall become entitled to receive or shall receive any stock or other ownership certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Pledged Security Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of or other ownership interests in the Pledged Equity Interests, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Secured Parties, hold the same in trust for the Secured Parties and deliver the same forthwith to the Collateral Agent in the exact form received, duly endorsed by such Grantor to the Collateral Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Collateral Agent so requests, signature guaranteed, to be held by the Collateral Agent, for the benefit of the Secured Parties, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Pledged Security Issuer shall be paid over to the Collateral Agent to be held by it hereunder as additional collateral for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Pledged Security Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to (i) a perfected security interest on a first priority basis in favor of the Collateral Agent, for the benefit of the Bank Secured Parties, and (ii) a perfected security interest on a second priority basis in favor of the Collateral Agent, for the benefit of the Note Credit Parties, be delivered to the Collateral Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Collateral Agent, hold such money or property in trust for the Secured Parties, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Such Grantor will not (i) vote to enable, or take any other action to permit, any Pledged Security Issuer to issue any Capital Stock or to issue any other securities convertible into or granting the right to purchase or exchange for any Capital Stock of any Pledged Security Issuer (except pursuant to a transaction permitted by the Indenture and the Credit Agreement (to the extent such documents are in effect)), (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any of the Investment Property or Proceeds thereof or any interest therein (except pursuant to a transaction permitted 26 by the Indenture and the Credit Agreement (to the extent such documents are in effect)), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement and Permitted Liens, (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Collateral Agent to sell, assign or transfer any of the Investment Property or Proceeds thereof or any interest therein (except pursuant to a transaction permitted by the Indenture and the Credit Agreement (to the extent such documents are in effect)), or (v) cause or permit any Pledged Security Issuer of any Pledged Partnership Interests or Pledged LLC Interests that are not securities (for purposes of the New York UCC) on the date hereof to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as anything other than securities for purposes of the New York UCC; provided, however, notwithstanding the foregoing, if any Pledged Security Issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (v), such Grantor shall promptly notify the Collateral Agent in writing of any such election or action and, in such event, shall take all steps necessary or advisable to establish the Collateral Agent's "control" thereof. (c) In the case of each Grantor which is a Pledged Security Issuer, such Pledged Security Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in Section 4.7(a) with respect to the Pledged Securities issued by it and (iii) the terms of Sections 5.4(c) shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 5.4(c) with respect to the Pledged Securities issued by it. In addition, each Grantor which is either a Pledged Security Issuer or an owner of any Pledged Security hereby consents to the grant by each other Grantor of the security interests hereunder in favor of the Collateral Agent and to the transfer of any Pledged Security to the Collateral Agent or its nominee following an Event of Default and to the substitution of the Collateral Agent or its nominee as a partner, member or shareholder of the Pledged Security Issuer of the related Pledged Security. 4.8 Receivables. (a) Other than in the ordinary course of business consistent with customary gaming practices and so long as no Event of Default shall have occurred and be continuing, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could materially adversely affect the value thereof. (b) Such Grantor will deliver to the Collateral Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables. 27 (c) Such Grantor shall perform and comply in all material respects with all of its obligations with respect to the Receivables. 4.9 Contracts. (a) Such Grantor will perform and comply in all material respects with all its obligations under all Contracts, except where the failure to comply could not reasonably be expected to have a Material Adverse Effect. (b) Such Grantor will not amend, modify, terminate, waive or fail to enforce any provision of any Contract in any manner that could reasonably be expected to materially adversely affect the value of such Contract as Collateral or otherwise have a Material Adverse Effect. (c) Except to the extent the failure to exercise any such right could not reasonably be expected to have a Material Adverse Effect, such Grantor will exercise promptly and diligently each and every right that it may have under each Contract (other than any right of termination). (d) Such Grantor will deliver to the Collateral Agent a copy of each material demand, notice or document received by it relating in any way to any Contract and shall also deliver to the Collateral Agent a copy of all new material contracts entered into after the date of this Agreement. 4.10 Intellectual Property. (a) Such Grantor (either itself or through licensees) will (i) except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect, continue to use each of its material Trademarks on each and every trademark class of goods necessary in order to maintain such Trademark (in the trademark classes of goods in which it is used) in full force free from any claim of abandonment for non-use, (ii) except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect, maintain as in the past the quality of products and services offered under such Trademark and take all necessary steps to ensure that all licensed users of such Trademark maintain as in the past such quality, (iii) except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect, use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark that is confusingly similar or a colorable imitation of such Trademark unless the Collateral Agent, for the benefit of the Secured Parties, shall obtain perfected security interests in such mark (with the same priority for such Secured Parties as set forth in Section 2 hereof) pursuant to this Agreement and the Intellectual Property Security Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way. (b) Except to the extent the same could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public. 28 (c) Except to the extent the same could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) (i) will employ each of its material Copyrights and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any act whereby any material Copyright may fall into the public domain. (d) Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person. (e) Except to the extent the same could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) will use proper statutory notice in connection with the use of each material Patent, Trademark and Copyright included in its Intellectual Property. (f) Such Grantor will notify the Collateral Agent promptly if it knows or has reason to know, that any application or registration relating to any of its material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (g) To the extent desirable in the exercise of its reasonable prudent business judgment, promptly upon such Grantor's acquisition or creation of any copyrightable work, invention, trademark or other similar property that is material to its business, such Grantor shall apply for registration thereof with the United States Copyright Office, the United States Patent and Trademark Office and other appropriate office. Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Collateral Agent within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Collateral Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Collateral Agent may request to evidence its security interests for the benefit of the Bank Secured Parties and the Note Secured Parties in any Copyright, Patent, Trademark or other Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (h) Except to the extent the same could not reasonably be expected to have a Material Adverse Effect, such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the 29 relevant registration) and to maintain each registration of its material Intellectual Property, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the United States Patent and Trademark Office and the United States Copyright Office, the filing of applications for renewal or extension, the filing of affidavits of use and affidavits of incontestability, the filing of divisional, continuation, continuation-in-part, reissue, and renewal applications or extensions, the payment of maintenance fees, and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings. (i) Such Grantor (either itself or through licensees) will not discontinue use of or otherwise abandon any of its Intellectual Property, or abandon any application or any right to file an application for letters patent, trademark, or copyright, unless such Grantor shall have previously determined that such use or the pursuit or maintenance of such Intellectual Property is no longer desirable in the conduct of such Grantor's business and that the loss thereof could not reasonably be expected to have a Material Adverse Effect and, in which case, such Grantor shall give prompt notice of any such abandonment to the Collateral Agent in accordance herewith. (j) In the event that any of its material Intellectual Property is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Collateral Agent after it learns thereof and sue for infringement, misappropriation or dilution (as applicable), seek injunctive relief where appropriate and recover any and all damages awarded for any such infringement, misappropriation or dilution as may be deemed appropriate in the exercise of such Grantor's reasonable prudent business judgment. (k) Such Grantor agrees that, should it obtain an ownership interest in any item of intellectual property that is not now a part of the Intellectual Property Collateral (the "After-Acquired Intellectual Property"), (i) the provisions of Section 2 shall automatically apply thereto, (ii) any such After-Acquired Intellectual Property, and in the case of trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Intellectual Property Collateral, (iii) it shall give prompt (and, in any event within five Business Days after the last day of the fiscal quarter in which such Grantor acquires such ownership interest) written notice thereof to the Collateral Agent in accordance herewith, and (iv) it shall provide the Collateral Agent promptly (and, in any event within five Business Days after the last day of the fiscal quarter in which such Grantor acquires such ownership interest) with an amended Schedule 6 hereto and take the actions specified in Section 4.10(m). (l) Such Grantor agrees to execute an Intellectual Property Security Agreement with respect to its Intellectual Property in substantially the form of Exhibit B-1 in order to record the security interests granted herein to the Collateral Agent, for the benefit of the Secured Parties, with the United States Patent and Trademark Office, the United States Copyright Office, and any other applicable Governmental Authority. (m) Promptly after filing an application for the registration of any After-Acquired Intellectual Property with the United States Patent and Trademark Office, the 30 United States Copyright Office, or any similar office or agency in any other county or any political subdivision thereof, such Grantor agrees to execute an After-Acquired Intellectual Property Security Agreement with respect to such After-Acquired Intellectual Property in substantially the form of Exhibit B-2 in order to record the security interests granted herein to the Collateral Agent, for the benefit of the Secured Parties, with the United States Patent and Trademark Office, the United States Copyright Office, or other Governmental Authority (as applicable). (n) Such Grantor shall take all steps reasonably necessary to protect the secrecy of all material Trade Secrets, including, without limitation, entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents. 4.11 Vehicles. (a) No Vehicle shall be removed from the state which has issued the certificate of title or ownership therefor for a period in excess of four months, except where such removal could not reasonably be expected to have a Material Adverse Effect. (b) With respect to any Vehicles acquired by such Grantor subsequent to the date hereof, within 30 days after the date of acquisition thereof, all applications for certificates of title or ownership indicating the Collateral Agent's first priority security interest for the benefit of the Bank Secured Parties and second priority interest for the benefit of the Note Secured Parties in the Vehicle covered by such certificate, and any other necessary documentation, shall be filed in each office in each jurisdiction that the Collateral Agent shall deem advisable to perfect its security interests in the Vehicles. 4.12 Non-Deliverable Collateral. At no time shall any item of Non-Deliverable Collateral be delivered to or held by any Person (other than the Collateral Agent) as collateral security for any obligation of any Grantor. 4.13 Disposal of Collateral. Except to the extent permitted by the Indenture and the Credit Agreement (to the extent such documents are in effect), no Grantor shall dispose of any portion of the Collateral. SECTION 5. REMEDIAL PROVISIONS 5.1 Gaming Laws and Intercreditor Agreement. Each of the provisions of this Section 5 shall be subject to compliance with (i) applicable Gaming Laws and (ii) applicable provisions of the Intercreditor Agreement. 5.2 Certain Matters Relating to Receivables. The Collateral Agent hereby authorizes each Grantor to collect such Grantor's Receivables subject to the Collateral Agent's direction and control, and each Grantor hereby agrees to continue to collect all amounts due or to become due to such Grantor under the Receivables and any Supporting Obligation and diligently exercise each material right it may have under any Receivable and any Supporting Obligation, in each case, at its own expense; provided that the Collateral Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If 31 required by the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (a) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly endorsed by such Grantor to the Collateral Agent if required, in a Collateral Account maintained under the sole dominion and control of the Collateral Agent, subject to withdrawal by the Collateral Agent for the account of the Secured Parties only as provided in Section 5.6, and (b) until so turned over, shall be held by such Grantor in trust for the Secured Parties, segregated from other funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. 5.3 Communications with Obligors; Grantors Remain Liable. (a) The Collateral Agent in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables and parties to the Contracts to verify with them to the Collateral Agent's satisfaction the existence, amount and terms of any Receivables or Contracts. (b) The Collateral Agent may at any time notify, or require any Grantor to so notify, the counterparty on any Contract of the security interests of the Collateral Agent therein. In addition, after the occurrence and during the continuance of an Event of Default, the Collateral Agent may upon written notice to the applicable Grantor, notify, or require any Grantor to notify, the Account Debtor or counterparty to make all payments under the Receivables and/or Contracts directly to the Collateral Agent. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any agreement giving rise to any Receivable or Contract by reason of or arising out of this Agreement or the receipt by any Secured Party of any payment relating thereto, nor shall the Collateral Agent nor any Secured Party be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any agreement giving rise to any Receivable or Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts that may have been assigned to it or to that it may be entitled at any time or times. 5.4 Pledged Securities. (a) Unless an Event of Default shall have occurred and be continuing, each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Equity Interests and all payments made in respect of the Pledged Notes and Pledged Debt Securities, to the extent permitted in the Indenture and the Credit Agreement (to the extent such documents are in effect) and to exercise all voting and corporate or other ownership rights with respect to the Pledged Securities; provided, however, that, except to the extent required to 32 comply with applicable Gaming Laws, no vote shall be cast or corporate or other ownership right exercised or other action taken that would be reasonably expected to impair the Collateral or that would be inconsistent with or result in any violation of any provision of the Indenture, the Credit Agreement (to the extent such documents are in effect), this Agreement or any other Collateral Document. (b) Subject to applicable provisions of Gaming Laws, if an Event of Default shall occur and be continuing, (i) the Collateral Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in the order set forth in Section 5.6, and (ii) any or all of the Pledged Securities shall be registered in the name of the Collateral Agent or its nominee, and the Collateral Agent or its nominee may thereafter exercise (A) all voting, corporate or other ownership and other rights pertaining to such Pledged Securities at any meeting of shareholders or other equity holders of the relevant Pledged Security Issuer or otherwise and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate or other structure of any Pledged Security Issuer, or upon the exercise by any Grantor or the Collateral Agent of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may determine), all without liability except to account for property actually received by it, but the Collateral Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) Each Grantor hereby authorizes and instructs each Pledged Security Issuer of any Pledged Securities pledged by such Grantor hereunder to comply with any instruction received by it from the Collateral Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that Issuers shall be fully protected in so complying. 5.5 Proceeds to be Turned Over To Collateral Agent. In addition to the rights of the Collateral Agent and the Secured Parties specified in Section 5.2, and subject to applicable provisions of Gaming Laws, with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, Cash Equivalents, checks and other near-cash items shall be held by such Grantor in trust for the Secured Parties, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Collateral Agent in the exact form received by such Grantor (duly endorsed by such Grantor to the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder shall be held by the Collateral Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Collateral Agent in a Collateral Account (or by such Grantor in trust for the Secured Parties) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 5.6. 33 5.6 Application of Proceeds. If an Event of Default shall have occurred and be continuing, at any time at the Collateral Agent's election, the Collateral Agent may, notwithstanding any provisions of the Indenture and the Credit Agreement to the contrary, apply all or any part of the net Proceeds constituting Collateral realized through the exercise by the Collateral Agent of its remedies hereunder, whether or not held in any Collateral Account, in payment of the Obligations in the following order: First, to the Collateral Agent, to pay incurred and unpaid fees and expenses of the Collateral Agent under this Agreement and the Collateral Documents; Second, to the Collateral Agent, for application by it towards payment of amounts then due and owing and remaining unpaid in respect of the Obligations in accordance with the Intercreditor Agreement; Third, to the Collateral Agent, for application by it towards prepayment of the Obligations, in accordance with the Intercreditor Agreement; and Fourth, any balance of such Proceeds remaining after the Obligations shall have been paid in full shall be paid over to the Grantors or to whomsoever may be lawfully entitled to receive the same. 5.7 Code and Other Remedies. (a) If an Event of Default shall occur and be continuing, the Collateral Agent, for the benefit of the Secured Parties, may exercise (subject to obtaining any required approvals from any Governmental Authorities that may not be waived by the Grantors), in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC (whether or not the New York UCC applies to the affected Collateral) or its rights under any other applicable law or in equity. Without limiting the generality of the foregoing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below that may not be waived by Grantors) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, license, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Collateral Agent or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Parties shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal 34 that it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Collateral Agent may sell the Collateral without giving any warranties as to the Collateral. The Collateral Agent may specifically disclaim or modify any warranties of title or the like. This procedure will not be considered to adversely effect the commercial reasonableness of any sale of the Collateral. Each Grantor agrees that it would not be commercially unreasonable for the Collateral Agent to dispose of the Collateral or any portion thereof by using Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. Each Grantor hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree. Each Grantor further agrees, at the Collateral Agent's request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Collateral Agent shall apply the net Proceeds of any action taken by it pursuant to this Section 5.7, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as set forth in Section 5.6, and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-615(a) of the New York UCC, need the Collateral Agent account for the surplus, if any, to any Grantor. If the Collateral Agent sells any of the Collateral upon credit, the Grantor will be credited only with payments actually made by purchaser and received by the Collateral Agent and applied to indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, the Collateral Agent may resell the Collateral and the Grantor shall be credited with the net Proceeds of the sale. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against any Secured Party arising out of the exercise by them of any rights hereunder. (b) In the event of any sale or transfer of any of the Intellectual Property, the goodwill of the business connected with and symbolized by any Trademarks subject to such sale or transfer shall be included, and the applicable Grantor shall supply the Collateral Agent or its designee with such Grantor's know-how and expertise, and with documents and things embodying the same, relating to the manufacture, distribution, advertising and sale of products or the provision of services relating to any Intellectual Property subject to such sale or transfer, and such Grantor's customer lists and other records and documents relating to such Intellectual Property and to the manufacture, distribution, advertising and sale of such products and services. 35 5.8 Sales of Pledged Securities. (a) Each Grantor recognizes that the Collateral Agent may be unable to effect a public sale of any or all the Pledged Securities, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Gaming Laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers that will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof and to comply with or satisfy all requirements of the applicable Gaming Laws. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Collateral Agent shall be under no obligation to delay a sale of any of the Pledged Securities for the period of time necessary to permit the Pledged Security Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Pledged Security Issuer would agree to do so. (b) Each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Securities pursuant to this Section 5.8 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 5.8 will cause irreparable injury to the Secured Parties, that the Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 5.8 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing under the Indenture or a defense of payment. 5.9 Waiver; Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the reasonable fees and disbursements of any attorneys employed by the Collateral Agent or any of the Secured Parties to collect such deficiency. SECTION 6. THE COLLATERAL AGENT 6.1 Collateral Agent's Appointment as Attorney-in-Fact, Etc. (a) Subject to compliance with applicable Gaming Laws, each Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Collateral Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following: 36 (i) in the name of such Grantor or its own name, or otherwise, take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or Contract or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any Receivable or Contract or with respect to any other Collateral whenever payable; (ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Collateral Agent may request to evidence the Collateral Agent's security interests in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 5.7 or 5.8, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (v) (A) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (B) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (F) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Collateral Agent may deem appropriate; (G) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall in its sole discretion determine; and (H) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent's option and such Grantor's expense, at any time, or from time to time, all acts and things that the Collateral Agent deems 37 necessary to protect, preserve or realize upon the Collateral and the Collateral Agent's security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Anything in this Section 6.1(a) to the contrary notwithstanding, the Collateral Agent agrees that, except as provided in Section 6.1(b), it will not exercise any rights under the power of attorney provided for in this Section 6.1(a) unless and until an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Collateral Agent incurred in connection with actions undertaken as provided in this Section 6.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due interest pursuant to the Credit Agreement (unless paid for directly or indirectly by the Trustee or any Holder, in which case such rate shall be that set forth in Indenture), from the date of payment by the Collateral Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Collateral Agent on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 6.2 Duty of Collateral Agent. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 or 9-208 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. Neither the Collateral Agent nor any Secured Party nor any of their respective officers, directors, partners, employees, agents, attorneys and other advisors, attorneys-in-fact or Affiliates shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Collateral Agent hereunder are solely to protect the Secured Parties' interests in the Collateral and shall not impose any duty upon Collateral Agent or any of the Secured Parties to exercise any such powers. The Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, partners, employees, agents, attorneys and other advisors, attorneys-in-fact or affiliates shall be responsible to any Grantor for any act or failure to act hereunder, except to the extent that any such act or failure to act is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted solely and proximately from their own gross negligence or willful misconduct in breach of a duty owed to such Grantor. 38 6.3 Filing of Financing Statements. Each Grantor acknowledges that pursuant to Section 9-509(b) of the New York UCC and any other applicable law, each Grantor authorizes the Collateral Agent to file or record financing or continuation statements, and amendments thereto, and other filing or recording documents or instruments with respect to the Collateral in such form and in such offices as the Collateral Agent reasonably determines appropriate to perfect or maintain the perfection of the security interests of the Collateral Agent under this Agreement. Each Grantor agrees that such financing statements may describe the collateral in the same manner as described in the Collateral Documents or as "all assets" or "all personal property" of the undersigned, whether now owned or hereafter existing or acquired by the undersigned or such other description as the Collateral Agent, in its sole judgment, determine is necessary or advisable. If and to the extent permitted by applicable law, a photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 6.4 Authority of Collateral Agent. Each Grantor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent, the Administrative Agent, on behalf and for the benefit of the Banks, and the Trustee, on behalf and for the benefit of the Holders, be governed by the Intercreditor Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Grantors, the Collateral Agent shall be conclusively presumed to be acting as agent for the Administrative Agent, on behalf and for the benefit of the Banks, and the Trustee, on behalf and for the benefit of the Holders, with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 6.5 Appointment of Co-Collateral Agents. At any time or from time to time, in order to comply with any Requirement of Law or otherwise, the Collateral Agent may appoint another bank or trust company or one of more other Persons, either to act as bailee, co-agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and which may be specified in the instrument of appointment (which may, in the discretion of the Collateral Agent, include provisions for indemnification and similar protections of such co-agent or separate agent). 6.6 Replacement of Collateral Agent. The Collateral Agent may be replaced at any time and from time to time by the Secured Parties pursuant to the Intercreditor Agreement. In the event that the Collateral Agent is replaced as Collateral Agent under the Intercreditor Agreement any entity that succeeds to such role shall be entitled to the benefits of this Agreement. SECTION 7. MISCELLANEOUS 7.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with the terms of the Intercreditor Agreement. 39 7.2 Notices. Any notice or communication by the Issuers, any other Grantor or the Collateral Agent to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Issuers: American Casino & Entertainment Properties LLC American Casino & Entertainment Properties Finance Corp. 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Attn: Chief Financial Officer Telephone No.: (702) 380-7777 Facsimile No.: (702) 383-4738 With a copy to Piper Rudnick LLP 1251 Avenue of the Americas New York, New York 10020 Attn: Steven L. Wasserman, Esq. Facsimile No.: (212) 884-8448 If to the Collateral Agent: Bear Stearns Corporate Lending, Inc. 383 Madison Avenue New York, New York 10179 Attn: Telephone No.: (212) 272-2000 Facsimile No.: (212) 272-9743 With a copy to Latham & Watkins LLP 885 Third Avenue, Suite 1000 New York, New York 10022-4802 Attn: Raymond Y. Lin, Esq. Telephone No.: (212) 906-1200 Facsimile No.: (212) 751-4864 If to any Grantor other than the Issuers, At the address set forth for such Grantor on Schedule 1 hereto. The Issuers, any Grantor or the Collateral Agent, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and 40 communications will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. If a notice or communication is mailed in the manner provided herein within the time prescribed, it is duly given, whether or not the addressee receives it. 7.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral Agent nor any of the Secured Parties shall by any act (except by a written instrument pursuant to Section 7.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Collateral Agent, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Secured Parties of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that the Secured Parties would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 7.4 Enforcement Expenses; Indemnification. (a) Each Grantor agrees to pay or reimburse the Collateral Agent, on behalf and for the benefit of the Secured Parties, for all costs and expenses incurred in enforcing or preserving any rights under this Agreement, the Indenture, the Credit Agreement and the Collateral Documents to which such Grantor is a party, including, without limitation, the reasonable fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to any such party. (b) Each Grantor agrees to pay, and to save the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other similar taxes that may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) Each Grantor agrees to pay, and to save the Secured Parties harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Issuers would be required to indemnify any Secured Party under Section 7.07 of the Indenture and the under Section 9.7 of the Credit Agreement. (d) The agreements in this Section 7.4 shall survive repayment of the Obligations and all other amounts payable under the Indenture, the Notes, the Credit Agreement, the Collateral Documents and any other agreement related to any of the foregoing. 41 7.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Collateral Agent, for the benefit of the Secured Parties and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement. 7.6 Set-Off. Each Grantor hereby irrevocably authorizes the Collateral Agent, at any time and from time to time while an Event of Default shall have occurred and be continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Secured Parties to or for the credit or the account of such Grantor, or any part thereof in such amounts as the Secured Parties may elect, against and on account of the obligations and liabilities of such Grantor to the Secured Parties hereunder and claims of every nature and description of the Secured Parties against such Grantor, in any currency, arising hereunder, under the Indenture, any Collateral Document as the Secured Parties may elect, whether or not the Secured Parties have made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Collateral Agent shall notify such Grantor promptly of any such set-off and the application made by such Secured Party of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Secured Parties under this Section 7.4 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Secured Parties may have. 7.7 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 7.8 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction (including by reason of the application of Gaming Laws or non-approval of the Gaming Authorities as set forth in Section 7.17) shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7.9 Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 7.10 Integration. This Agreement, the Indenture, the Credit Agreement and the Collateral Documents represent the agreement of the Grantors and the Secured Parties, with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by any of the Secured Parties relative to subject matter hereof and thereof not expressly set forth or referred to herein, or in the Indenture the Credit Agreement, or the Collateral Documents. 42 7.11 Governing Law. SUBJECT TO COMPLIANCE WITH APPLICABLE GAMING LAWS AND MANDATORY PROVISIONS OF NEW YORK LAW THAT MAY REQUIRE APPLICATION OF NEVADA OR DELAWARE LAW AS TO CERTAIN ISSUES OF PERFECTION, THE EFFECT OF PERFECTION OR NON-PERFECTION, AND THE PRIORITY OF SECURITY INTERESTS, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 7.12 Submission to Jurisdiction; Waivers. Each Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, the Indenture, the Credit Agreement and the Collateral Documents and any other agreement related to any of the foregoing to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the County of New York, in the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 7.2 or at such other address of which the Collateral Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 7.12 any exemplary or punitive damages. 7.13 Acknowledgments. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, the Indenture, the Credit Agreement and the Collateral Documents to which it is a party; (b) The Secured Parties have no fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement, the Indenture, the Credit Agreement, the Collateral Documents, and the relationship between the Grantors, on the one hand, and the Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and 43 (c) no joint venture is created hereby or by the Indenture, the Credit Agreement, or the Collateral Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantors and the Secured Parties. 7.14 Additional Grantors. Each Subsidiary of the Issuers that is required to become a party to this Agreement pursuant to Section 4.20 of the Indenture or Section 11.18 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 7.15 Releases. (a) On the Termination Date or at such time after the Termination Date that the Grantors' Obligations to the Bank Secured Parties shall have been paid in full in accordance with the terms of the Credit Agreement, whichever is later, the Collateral shall be released from the Liens created by Section 2.1 hereof; provided that such release shall not affect the rights of the Note Secured Parties hereunder. At the request and sole expense of any Grantor following any such release, the Collateral Agent shall execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such release. Following any such release, any references to the Administrative Agent and the Credit Agreement (other than Section 1.2) shall be deemed deleted. (b) Upon the payment in full of all Grantors' Obligations to the Note Secured Parties, the Collateral shall be released from the Liens created by Section 2.2 hereof; provided that such release shall not affect the right of the Bank Secured Parties hereunder. At the request and sole expense of any Grantor following any such release, the Collateral Agent shall execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such release. (c) When the Liens created by both Sections 2.1 and 2.2 have been released, at the request and sole expense of any Grantor, the Collateral Agent shall deliver to such Grantor any of such Grantor's Collateral held by the Collateral Agent. (d) Upon the termination of the security interests of the Bank Secured Parties in accordance with Section 7.15(a) above, the appointment of Collateral Agent shall terminate and all duties, rights and remedies vested in Collateral Agent shall thereupon be vested in the Trustee. (e) If any of the Collateral shall be transferred or sold by any Grantor in a transaction not prohibited by the Indenture or the Credit Agreement, then the Collateral Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Issuers, a Guarantor shall be released from its obligations hereunder in the event that all the Capital Stock of such Guarantor shall be transferred or sold in a transaction not prohibited by the Indenture or the Credit Agreement; provided that the Issuers shall have delivered to the Collateral Agent, at least ten (10) Business Days prior to the date of the proposed release, a written request for release identifying the relevant Guarantor and the terms of such sale or transfer in reasonable detail, 44 including the price thereof and any expenses in connection therewith, together with a certification by the Issuers stating that such transaction is in compliance with the Indenture, the Credit Agreement, this Agreement and the other Collateral Documents and that the Proceeds of such sale or transfer will be applied in accordance therewith. (f) Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement originally filed in connection herewith subject to such Grantor's rights under Section 9-509(d)(2) of the New York UCC. 7.16 Waiver Of Jury Trial. EACH GRANTOR AND THE COLLATERAL AGENT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE INDENTURE, THE CREDIT AGREEMENT, OR ANY COLLATERAL DOCUMENT AND FOR ANY COUNTERCLAIM ARISING OUT OF THE FOREGOING. 7.17 Regulatory Matters. The Collateral Agent, on behalf of the Secured Parties, acknowledges and agrees that: (a) At such time as any Grantor becomes subject to the jurisdiction of the Gaming Authorities as a licensee or registered company under the Gaming Laws (or prior to such time in furtherance of any Grantor's application to become a licensee or registered company under the Gaming Laws), the pledge of any Pledged Equity Interests issued by such Grantor ("Pledged Gaming Equity Interests") under this Agreement and any restrictions on transfer and agreements not to encumber the Pledged Equity Interests or other equity securities of any corporations licensed by or registered with the Gaming Authorities will require the approval of the Gaming Authorities in order to remain effective, and any subsequent amendment of this Agreement shall not be effective until all required approvals of the Gaming Authorities have been obtained. (b) In the event that the Collateral Agent exercises a remedy set forth in this Agreement with respect to any Pledged Gaming Equity Interests, that is a foreclosure, transfer of a possessory security interest in such Collateral, the exercise of voting and consensual rights with respect thereto afforded hereunder and/or re-registration of such Collateral, such exercise of remedies would be deemed a separate transfer of such Collateral and would require the separate and prior approval of the Gaming Authorities pursuant to applicable Gaming Laws as in effect on the date hereof and the licensing of the Collateral Agent or other transferee, unless such licensing requirement is waived by the Gaming Authorities. (c) In the event that the Secured Parties exercise a remedy set forth in this Agreement with respect to Collateral consisting of gaming devices, cashless wagering systems and associated equipment (as those terms are defined in the Gaming Laws) and a transfer, sale, distribution, or other disposition of such Collateral occurs, such transfer, sale, distribution, or other disposition of such Collateral would require the separate and prior approval of the Gaming Authorities pursuant to applicable Gaming Laws as in effect on the date hereof or the licensing of the Secured Parties or other transferee. 45 (d) The approval by the applicable Gaming Authorities of this Agreement shall not act or be construed as the approval, either express or implied, for the Secured Parties to take any actions or steps provided for in this Agreement for which prior approval of the Gaming Authorities is required, without first obtaining such prior and separate approval of the applicable Gaming Authorities to the extent then required applicable Gaming Laws. (e) The physical location of all certificates evidencing Pledged Gaming Equity Interests shall at all times remain within the territory of the State of Nevada at a location designated to the Gaming Authorities, and each of such certificates shall be made available for inspection by agents of the Gaming Authorities immediately upon request during normal business hours. Neither the Collateral Agent nor any agent of the Collateral Agent shall surrender possession of the Pledged Gaming Equity Interests to any Person other than the Grantor pledging such Pledged Gaming Equity Interests without the prior approval of the Gaming Authorities or as otherwise permitted by applicable Gaming Laws. (f) The Secured Parties shall cooperate with the Gaming Authorities in connection with the administration of their regulatory jurisdiction over certain of the Grantors, including, without limitation, through the provision of such documents or other information as may be requested by the Gaming Authorities relating to the Secured Parties or such Grantors. (g) The Secured Parties and their respective assignees are subject to being called forward by the Gaming Authorities, in their discretion, for licensing or a finding of suitability in order to remain entitled to the benefits of this Agreement as it relates to Pledged Gaming Equity Interests. 7.18 Responsibilities of Collateral Agent. The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral granted for the benefit of the Secured Parties and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral, it being understood that the Collateral Agent shall have no responsibility for (a) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Collateral) to preserve the rights against any parties with respect to any Collateral or (b) taking any necessary steps to collect or realize upon the Obligations or any guarantee therefor, or any part thereof, or any of the Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which such Person accords its own property of like kind. 46 IN WITNESS WHEREOF, each of the undersigned has caused this Pledge and Security Agreement to be duly executed and delivered as of the date first written above. AMERICAN CASINO & ENTERTAINMENT AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC PROPERTIES FINANCE CORP. By: /s/ Richard P. Brown By: /s/ Richard P. Brown ---------------------------------- ------------------------------- Name: Richard P. Brown Name: Richard P. Brown Title: President and Chief Executive Title: President and Chief Officer Executive Officer ARIZONA CHARLIE'S, LLC By: /s/ Denise Barton -------------------------------- Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer CHARLIE'S HOLDING LLC FRESCA, LLC By: American Casino & Entertainment By: Charlie's Holding LLC, Properties LLC, its sole member its sole member By: /s/ Richard P. Brown By: American Casino & Entertainment ------------------------------ Properties LLC, Name: Richard P. Brown its sole member Title: President and Chief Executive Officer By: /s/ Richard P. Brown ----------------------- Name: Richard P. Brown Title: President and Chief Executive Officer PLEDGE AND SECURITY AGREEMENT 1 OF 2 STRATOSPHERE CORPORATION STRATOSPHERE GAMING CORP. By: /s/ Richard P. Brown By: /s/ Richard P. Brown ----------------------------------- ------------------------------- Name: Richard P. Brown Name: Richard P. Brown Title: President and Chief Executive Title: President and Chief Officer Executive Officer STRATOSPHERE LAND CORPORATION STRATOSPHERE ADVERTISING AGENCY By: /s/ Denise Barton By: /s/ Denise Barton ----------------------------------- ------------------------------ Name: Denise Barton Name: Denise Barton Title: Secretary and Treasurer Title: Chief Financial Officer, Secretary and Treasurer STRATOSPHERE DEVELOPMENT, LLC STRATOSPHERE LEASING, LLC By: Stratosphere Corporation, member By: Stratosphere Corporation, its sole member By: /s/ Richard P. Brown ------------------------------ Name: Richard P. Brown By: /s/Richard P. Brown Title: President and Chief ------------------------------ Executive Officer Name: Richard P. Brown Title: President and Chief Executive Officer By: Arizona Charlie's, LLC, member By: /s/ Denise Barton ------------------------------ Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer By: Fresca, LLC, member By: Charlie's Holding LLC, its sole member By: American Casino & Entertainment Properties LLC, its sole member By: /s/ Richard P. Brown --------------------------- Name: Richard P. Brown Title: President and Chief Executive Officer PLEDGE AND SECURITY AGREEMENT 2 OF 2 BEAR STEARNS CORPORATE LENDING, INC., as Collateral Agent By: /s/ Victor Bulzacchelli --------------------------- Name: Victor Bulzacchelli Title: Vice-President S-3 EX-10.4 11 y99320exv10w4.txt EMPLOYMENT AGREEMENT Exhibit 10.4 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 May __, 2004, as of April 1, 2004 Mr. Richard P. Brown Stratosphere Corporation 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 Dear Mr. Brown: Effective March 31, 2004, your employment agreement, entered into in December 2002, with Stratosphere Corporation expired. You and American Casino & Entertainment Properties LLC (the "Company"), the parent of, among others, Stratosphere Corporation, have agreed upon the terms of your employment agreement for the period commencing April 1, 2004. This letter (the "Agreement") sets forth the terms upon which you shall be employed by the Company. You ("Employee") and the Company agree as follows: 1. Employment Upon the terms and conditions hereinafter set forth, the Company hereby agrees to employ Employee and Employee hereby agrees to become employed by the Company. During the Term of Employment (as hereinafter defined), Employee shall be employed in the position of President and Chief Executive Officer of the Company and each of its operating subsidiaries, and such other executive positions with the Company and/or any of its subsidiaries as are decided upon from time to time by the Board of Directors of the Company ("Board"). Employee shall serve in all such capacities at the pleasure of the Board. Employee shall report to and be under the supervision of the Board. During the Term of Employment, Employee shall devote his professional attention to the business and affairs of the Company and its subsidiaries, shall use his best efforts to advance the best interests of the Company and shall comply with the reasonable policies of the Company, including, without limitation, such policies with respect to conflict of interest, confidentiality and business ethics from time to time in effect. Employee understands that the Company may make Employee's time, skill and services available to affiliated entities of the Company, including GB Holdings, Inc. and its subsidiaries and should it do so, the Company would be entitled to be reimbursed therefore by the affiliated entity. Except as specifically provided herein, during the Term of Employment, the Employee shall not, without the prior written consent of the Company, render services, whether or not compensated, to any other person or entity as an employee, independent contractor or otherwise, provided, however, that nothing contained herein shall restrict the Employee from rendering services in charitable organizations, or being involved in the business of racing/breeding of thoroughbred horses (provided that Employee devotes his full professional attention to the business and affairs of the Company, its subsidiaries and of any affiliated entities to which the Company has made his services available) subject to the terms and conditions set forth herein and in such manner as shall not interfere with the performance by the Employee of this duties hereunder. 2. Term The employment period shall commence as of April 1, 2004 ("Commencement Date") and shall continue, unless the parties otherwise agree in writing, throughout the term (the "Term of Employment") ending on March 31, 2006 ("Expiration Date" or "expiration") or such later date as the parties may agree upon in writing. 3. Compensation For all services to be performed by Employee under this Agreement, during the Term of Employment, the Employee shall be compensated in the following manner: (a) Base Compensation The Company will pay Employee a salary (the "Base Salary") initially at an annual rate of $500,000. The Base Salary shall be payable in accordance with the normal payroll practice of the Company (but no less frequently than bi-weekly). (b) Bonus Compensation During the Term of Employment, Employee shall be entitled to receive an annual bonus (the "Annual Bonus"), if any, as computed based upon the following formula: For the purposes of computing the bonus, the EBITDA for Stratosphere, Fresca LLC, Arizona Charlie's LLC and GB Holdings, Inc. shall be added together. For calendar 2004, the EBITDA Plan shall be $74.5 million. For calendar 2005, the EBITDA Plan shall be that number as is agreed between Employee and the Company prior to December 31, 2004, or, if they cannot agree, then such number as determined by the Board. Employee shall be paid his annual bonus on March 31, 2005 and 2006 as follows: If Combined EBITDA equals or exceeds EBITDA Plan by less than 7.5%, the bonus shall be equal to $75,000. If Combined EBITDA exceeds EBITDA Plan by 7.5% but less than 15%, the bonus shall be equal to $150,000. If Combined EBITDA exceeds EBITDA Plan by 15% or more, the bonus shall be $250,000. The allocation of the bonus expense shall be made by the Audit Committee of the General Partner of American Real Estate Partners, LP among all or some of the four properties, as determined to be fair and equitable by the Audit Committee. If the Audit Committee fails, for whatever reason, to make such allocation, it shall be made by the Board of Directors of the General Partner of American Real Estate Partners, LP. (c) Taxes All amounts paid by the Company to Employee under or pursuant to this Agreement, including, without limitation, Base Salary and Bonuses, or any other compensation or benefits, whether in cash or in kind, shall be subject to normal withholding and deductions imposed by any one or more of local, state and federal governments. 4. Termination This Agreement shall terminate and the Term of Employment shall end, on the first to occur of (each a "Termination Event"): (a) The Expiration Date; (b) The death of Employee or the total or partial disability that renders Employee unable to perform in his position with the Company for a period of at least 90 consecutive business days; The discharge of Employee by the Company with or without Cause (as defined below); or (c) The voluntary resignation of Employee (and without limiting the effect of such resignation, Employee agrees to provide the Company with not less than 21 days prior written notice of his resignation). As used herein, "Cause" is defined as Employee's: (i) personal misconduct, (ii) substance abuse, (iii) negligence or failure to perform work duties or other obligations to the Company, (iv) conviction of a crime or being charged with a felony, (v) commission of a fraudulent act; (vi) federal or state criminal indictment for securities law violation, (vii) commission of an act of moral ineptitude or dishonesty, (viii) failure to comply with any of the terms of this Agreement; (ix) willful disclosure, not required by any law or court order, of any trade secrets or confidential corporate information of the Company to persons not authorized to know same; (x) any revocation or suspension by any state or local authority of Employee's license to be the Chief Executive Officer (or similar position) of any of the Company's subsidiary or affiliated entity or (xi) any other event which could cause the gaming authorities, having jurisdiction over the Company or its affiliates, to seek any redress or remedy against Employee, the Company or its affiliates as a result of Employee's acts or failure to not. 5. Effect of Termination (a) In the event that Employee's employment is terminated prior to the Expiration Date (i) for any of the reasons set forth in Section 4(b) above (i.e., death or disability) or (ii) for any of the reasons set forth in Section 4(d) above (i.e., voluntary resignation) or (iii) due to the discharge of Employee by the Company with Cause; then, in lieu of any other payments of any kind (including, without limitation, any severance payments), Employee shall be entitled to receive, within thirty (30) days following the date on which the Termination Event in question occurred (the "Termination Date") any amounts of Base Salary and previously earned bonus due and unpaid to Employee from the Company as of the Termination Date in question. (b) In the event that Employee's employment is terminated prior to the Expiration Date (i) due to the discharge of Employee by the Company without Cause or (ii) in the event that Employee ceases to be employed by the Company except such cessation of employment that is (A) due to the discharge of Employee by the Company with Cause or (B) for any of the reasons set forth in Section 4(b) above (i.e., death or disability) or in Section 4(d) above (i.e., voluntary resignation); then, in lieu of any other payments of any kind (including, without limitation, any severance payments), Employee shall be entitled to receive, within thirty (30) days following the applicable Termination Date ____________________ cessation of employment date: i. any amounts of Base Salary and previously earned bonus due and unpaid to Employee from the Company as of the Termination Date in question; and ii. a lump-sum payment in the amount equal to then current Base Salary. For the purpose of this Paragraph 5, the annual bonus shall be deemed earned with respect to any year on the last business day of March of the year following the year with respect to which the Combined EBITDA is computed, so that by way of example, the bonus with respect to the 2004 Combined EBITDA shall be deemed earned on March 31, 2005. 6. Non-Disclosure During the term of this Agreement and at all times thereafter, Employee shall hold in a fiduciary capacity for the benefit of the Company and its affiliates, respectively, all secret or confidential information, knowledge or data, including without limitation trade secrets, investments, contemplated investments, business opportunities, valuation models and methodologies, relating to the business of the Company or its affiliates, and their respective businesses, (i) obtained by Employee during Employee's employment by the Company and (ii) not otherwise in the public domain. Employee shall not, without prior written consent of the Company, except to the extent compelled pursuant to the order of a court or other body having jurisdiction over such matter or based upon the advice of counsel; communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by the Company, provided, however, that Employee will assist the Company, at the Company's expense, in obtaining a protective order, other appropriate remedy or other reliable assurance that confidential treatment will be accorded such information disclosed pursuant too the terms of this Agreement. All processes, technologies, investments, contemplated investments, business opportunities, valuation models and methodologies, and inventions (collectively, "Inventions"), including without limitation new contributions, improvements, ideas, business plans, discoveries, trademarks and trade names, conceived, developed, invented, made or found by Employee, alone or with others, during the Term of Employment, whether or not patentable and whether or not on the Company's time or with the use of the Company's facilities or materials, shall be the property of the Company and shall be promptly and fully disclosed by Employee to the Company. Employee shall perform all necessary acts (including, without limitation, executing and delivering any confirmatory assignments, documents, or instruments requested by the Company) to vest title to any such Invention in the Company and to enable the Company, at its expense, to secure and maintain domestic and/or foreign patents or any other rights for such Inventions. Employee also agrees to keep confidential and not disclose to third persons any personal information regarding any controlling person of the Company and any member of the immediate family of such person. Employee is scheduled to receive potential bonuses and base salary increases under this Agreement, which will benefit Employee based upon the performance of the Company's business. Employee represents to the Company that the enforcement of the restrictions contained in this section would not be unduly burdensome to Employee. Employee agrees that the remedy at law for any breach by Employee of the provisions of this section may be inadequate and that the Company shall be entitled to injunctive relief, without posting any bond. This section constitutes an independent and separable covenant that shall be enforceable notwithstanding any right or remedy that the Company may have under any other provision of this Agreement or otherwise. From the date hereof through March 31, 2007, Employee agrees that he will not, if he is, for whatever reason, no longer employed by the Company or any of its affiliates, employ or offer employment to or suggest to or cause any other entity to employ or offer employment to any person who is then employed by the Company or any of its affiliates or who was employed by the Company or any of its affiliates during any period that Employee was so employed and whose employment by the Company or any such affiliate has ceased for a period of less than one year. This provision shall not apply to Joanne Lamond, Employee's current secretary. 7. Benefits During the Term of Employment, Employee shall be entitled (i) to receive certain healthcare and other employee benefits comparable to those received by other employees at a similar pay level and/or position with the Company; and (ii) 20 business days paid vacation per calendar year, at the rate of 1.67 days per each calendar month. 8. Miscellaneous (a) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous written, and all previous or contemporaneous oral negotiations, understandings, arrangements, and agreements. (b) This Agreement and all of the provisions hereof shall inure to the benefit of and be binding upon the legal representatives, heirs, distributes, successors (whether by merger, operation of law or otherwise) and assigns of the parties hereto; provided, however, that Employee may not delegate any of Employee's duties hereunder, and may not assign any of Employee's rights hereunder, without the prior written consent of the Company. (c) This Agreement will be interpreted and the rights of the parties determined in accordance with the laws of the United States applicable thereto and the internal laws of the State of Nevada. (d) Employee covenants and represents that he is not a party to any contract, commitment or agreement, not is he subject to, or bound by, any order, judgment, decree, law, statute, ordinance, rule, regulation or other restriction of any kind or character, which would prevent or restrict him from entering into and performing his obligations under this Agreement. (e) This Agreement and all of its provisions, other than provisions of Section 5 and Section 6 hereunder, shall terminate upon Employee ceasing to be Employee of the Company for any reason. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC By: American Entertainment Properties Corp., it's sole member By: /s/ Keith Meister --------------------------------- KEITH MEISTER, DIRECTOR EMPLOYEE: /s/ Richard Brown --------------------------------------- RICHARD BROWN EX-10.6 12 y99320exv10w6.txt FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.6 EXECUTION VERSION ================================================================================ FIRST AMENDMENT to CREDIT AGREEMENT Dated as of January 29, 2004 among AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, as the Borrower, Certain Subsidiaries of the Borrower From Time To Time Party Hereto, as Guarantors, The Several Lenders from Time to Time Parties Hereto, BEAR STEARNS CORPORATE LENDING INC., as Syndication Agent, and BEAR STEARNS CORPORATE LENDING INC., as Administrative Agent Dated as of May 26, 2004 BEAR, STEARNS & CO. INC., as Sole Lead Arranger and Sole Bookrunner - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS..................................................... 1 1.01 Definitions.................................................... 1 SECTION 2. AMENDMENTS...................................................... 1 2.01 Amendment of Defined Terms..................................... 1 SECTION 3. CONDITIONS PRECEDENT............................................ 1 3.01 Consent........................................................ 1 3.02 Amendment...................................................... 2 SECTION 4. MISCELLANEOUS................................................... 2 4.01 Execution of this Agreement.................................... 2 4.02 No Waiver; Cumulative Remedies................................. 2 4.03 Counterparts................................................... 2 4.04 Integration.................................................... 2 4.05 Ratification................................................... 2 4.06 Severability................................................... 3 4.07 GOVERNING LAW.................................................. 3 4.08 Headings....................................................... 3
ii This FIRST AMENDMENT dated as of May 26, 2004 (this "Agreement") among AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, a Delaware limited liability company ("ACEP" or the "Borrower"), THE FOOTHILL GROUP, INC., as Issuing Lender, and BEAR STEARNS CORPORATE LENDING INC., as administrative agent (in such capacity, the "Administrative Agent") for the financial institutions party to the Credit Agreement (as defined below) as lenders (collectively, the "Lenders"), to the Credit Agreement dated as of January 29, 2004, among the Borrower, certain Subsidiaries of the Borrower from time to time party to such agreement (the "Guarantors"), the Lenders, BEAR, STEARNS & CO. INC., as sole lead arranger and sole bookrunner, BEAR STEARNS CORPORATE LENDING INC., as syndication agent and the Administrative Agent. W I T N E S S E T H WHEREAS, the parties hereto wish to amend the Credit Agreement to give effect to the foregoing and to acknowledge the designation of Wells Fargo Foothill, Inc. and its affiliates ("Foothill") as the Issuing Lender, and WHEREAS, Foothill has agreed to accept such designation. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. DEFINITIONS 1.01 Definitions. Except as otherwise expressly provided, capitalized terms used in this Agreement and its exhibits shall have the meanings given in Section 1.1 of the Credit Agreement. SECTION 2. AMENDMENTS 2.01 Amendment of Defined Terms (a) "Issuing Lender" is hereby amended by replacing the definition in its entirety with the following: "Issuing Lender": Wells Fargo Foothill, Inc., and any of its affiliates. SECTION 3.CONDITIONS PRECEDENT The effectiveness of this Agreement shall be subject to the satisfaction of each of the following conditions precedent: 3.01 Consent. 1 The Administrative Agent shall have received, from the Majority Lenders, consents in writing with respect to this Amendment. 3.02 Amendment. The Administrative Agent shall have executed this Agreement and each of the Borrower and the Issuing Lender shall have delivered to the Administrative Agent duly executed counterparts of this Agreement. SECTION 4. MISCELLANEOUS 4.01 Execution of this Agreement. This Agreement is executed and shall be construed as an Amendment to the Credit Agreement, and, as provided in the Credit Agreement, this Agreement forms a part thereof. 4.02 No Waiver; Cumulative Remedies. This Agreement is made in amendment and modification of the obligations set forth in the Credit Agreement and the other Loan Documents and, except as specifically modified pursuant to the terms of this Agreement, the terms and conditions of the Credit Agreement and the other Loan Documents remain in full force and effect. No failure to exercise and no delay in exercising, on the part of any Agent or any Lender, any right, remedy, power or privilege under this Agreement, the Credit Agreement or the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 4.03 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with ACEP and the Administrative Agent. 4.04 Integration. This Agreement, the Credit Agreement and the other Loan Documents represent the entire agreement of the Group Members, the Agents and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by any Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the Credit Agreement or in the other Loan Documents. 4.05 Ratification. 2 Each of the Loan Documents shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. 4.06 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 4.08 Headings. Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC, a Delaware limited liability company By: /s/ Denise Barton ------------------------------------ Name: Denise Barton Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer [FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT] BEAR STEARNS CORPORATE LENDING INC., as Administrative Agent By: /s/ Steve O'Keefe ------------------------------------ Name: Steve O'Keefe Title: Vice President [FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT] WELLS FARGO FOOTHILL, INC., as Issuing Lender By: The Foothill Group, Inc., as Lender /s/ R. Michael Bohannon ----------------------------------------- Name: R. Michael Bohannon Title: Senior Vice President [FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT] EX-12.1 13 y99320exv12w1.txt STATEMENTS RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC RATIO OF EARNINGS TO FIXED CHARGES (amounts in thousands)
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------- ---------------------- 1999 2000 2001 2002 2003 2003 2004 ---------- ---------- --------- ---------- --------- ---------- ---------- Income (loss) before income taxes and extraordinary items 8,996 9,781 6,602 5,770 18,884 9,485 17,132 Fixed Charges: Interest Expense 2,116 3,197 5,418 5,246 5,389 2,755 9,333 Amortized capitalized expenses related to indebtedness 223 97 553 744 - - - Estimated interest within rental expense 491 337 319 326 295 172 116 Amortization of capitalized interest 551 600 475 257 256 129 129 ---------- ---------- --------- ---------- --------- ---------- ---------- Earnings as defined 12,377 14,012 13,367 12,343 24,824 12,541 26,710 ========== ========== ========= ========== ========= ========== ========== Fixed Charges (including capitalized items) Interest Expense 2,116 3,197 5,418 5,246 5,389 2,755 9,333 Interest Capitalized - 458 1,857 - - - - Amortized capitalized expenses related to indebtedness 223 97 553 744 - - - Estimated interest within rental expense 491 337 319 326 295 172 116 ---------- ---------- --------- ---------- --------- ---------- ---------- Fixed charges as defined 2,830 4,089 8,147 6,316 5,684 2,927 9,449 ========== ========== ========= ========== ========= ========== ========== Ratio of Earnings to Fixed Charges 4.4 3.4 1.6 2.0 4.4 4.3 2.8 ========== ========== ========= ========== ========= ========== ==========
EX-21.1 14 y99320exv21w1.txt SUBSIDIARIES Exhibit 21.1 Set forth below is a list of subsidiaries of American Casino & Entertainment Properties LLC. Each of the listed subsidiaries is directly or indirectly wholly-owned by American Casino & Entertainment Properties LLC. SUBSIDIARIES OF AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC
NAME OF ADDITIONAL REGISTRANT STATE OF INCORPORATION ----------------------------- ------------------------ American Casino & Entertainment Properties Finance Corp. Delaware Stratosphere Corporation Delaware Stratosphere Gaming Corp. Nevada Arizona Charlie's, LLC Nevada Fresca, LLC Nevada Charlie's Holding LLC Delaware Stratosphere Advertising Agency Nevada Stratosphere Land Corporation Nevada Stratosphere Development LLC Delaware Stratosphere Leasing, LLC Delaware JetSet Tours LLC Nevada
EX-23.1 15 y99320exv23w1.txt CONSENT OF KPMG LLP Exhibit 23.1 Consent of Independent Registered Public Accounting Firm The Member American Casino & Entertainment Properties LLC: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the Prospectus. /s/ KPMG LLP Los Angeles, California August 6, 2004 EX-25.1 16 y99320exv25w1.txt STATEMENT OF ELIGIBILITY OF TRUSTEE EXHIBIT 25.1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) ------------ WILMINGTON TRUST COMPANY (Exact name of Trustee as specified in its charter) DELAWARE 51-0055023 (Jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization if not a U.S. national bank) Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 (Address of principal executive offices) (Zip Code) CYNTHIA L. CORLISS VICE PRESIDENT AND ASSISTANT GENERAL COUNSEL WILMINGTON TRUST COMPANY 1100 NORTH MARKET STREET WILMINGTON, DELAWARE 19890-0001 (302) 651-8516 (Name, address and telephone number of agent for service) AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC (Exact name of obligor as specified in its charter) DELAWARE 20-0573058 (State or other jurisdiction or (I.R.S. Employer Identification No.) incorporation or organization) AMERICAN CASINO & ENTERTAINMENT PROPERTIES FINANCE CORP. (Exact name of obligor as specified in its charter) DELAWARE 20-0572981 (State or other jurisdiction or (I.R.S. Employer Identification No.) incorporation or organization) 2000 Las Vegas Boulevard South Las Vegas, Nevada 89104 (Address of principal executive offices) (Zip Code) SEE TABLE OF ADDITIONAL REGISTRANTS ---------------------- 7.85% SENIOR SECURED NOTES DUE 2012 GUARANTEES OF 7.85% SENIOR SECURED NOTES DUE 2012 (Title of the Indenture Securities) ================================================================================ TABLE OF ADDITIONAL REGISTRANTS
State or other jurisdiction of Principal Standard I.R.S. Employer of incorporation or Industrial Classification Identification Name of Additional Registrants formation Code Number Number - -------------------------------------------------------------------------------------------------------------------------------- Stratosphere Corporation Delaware 7999 88-0292318 Stratosphere Gaming Corp. Nevada 7999 88-0320164 Arizona Charlies, LLC Nevada 7999 90-0160341 Fresca, LLC Nevada 7999 88-0452576 Charlie's Holding LLC Delaware 7999 11-3716851 Stratosphere Advertising Agency Nevada 7311 88-0357430 Stratosphere Land Corporation Nevada 6519 88-0357732 Stratosphere Development LLC Delaware 1541 88-0466636 Stratosphere Leasing, LLC Delaware 6519 88-0473554
2 ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Deposit Insurance Co. State Bank Commissioner Five Penn Center Dover, Delaware Suite #2901 Philadelphia, PA (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each affiliation: Based upon an examination of the books and records of the trustee and upon information furnished by the obligor, the obligor is not an affiliate of the trustee. ITEM 16. LIST OF EXHIBITS. List below all exhibits filed as part of this Statement of Eligibility and Qualification. 1. Copy of the Charter of Wilmington Trust Company, which includes the certificate of authority of Wilmington Trust Company to commence business and the authorization of Wilmington Trust Company to exercise corporate trust powers. 4. Copy of By-Laws of Wilmington Trust Company. 6. Consent of Wilmington Trust Company required by Section 321(b) of Trust Indenture Act. 7. Copy of most recent Report of Condition of Wilmington Trust Company published pursuant to law or the requirements of its supervising or examining authority. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 28th day of July, 2004. WILMINGTON TRUST COMPANY [SEAL] Attest: /s/ Michael G. Oller, Jr. By: /s/ Roseline K. Maney ------------------------- --------------------- Assistant Secretary Name: Roseline K. Maney Title: Vice President 3 EXHIBIT 1 AMENDED CHARTER WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON MAY 9, 1987 AMENDED CHARTER OR ACT OF INCORPORATION OF WILMINGTON TRUST COMPANY WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows: FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY. SECOND: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority. THIRD: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.: (1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created. (2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere. (3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business. (4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches. (5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property. (6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality. (7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations. (8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or 2 decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere. (9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere; and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment. (10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation. (11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real 3 and personal property of any name and nature and any estate or interest therein. (b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers: (1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world. (2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated. (4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments. (5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place. (6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers. FOURTH: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of: 4 (1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as "Common Stock"). (b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed. (5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale 5 of assets, dissolution or winding-up, of the Corporation. (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and (7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine. (c) (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article FOURTH), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article FOURTH), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article FOURTH, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed in accordance with the provisions of section (b) of this Article FOURTH), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article FOURTH, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders. (d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities 6 convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article FOURTH and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article FOURTH that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock. (f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. FIFTH: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in 7 office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board. (b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. (d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (e) Each notice under subsection (d) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of 8 stock of the Corporation which are beneficially owned by each such nominee. (f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. SIXTH: - The Directors shall choose such officers, agents and servants as may be provided in the By-Laws as they may from time to time find necessary or proper. SEVENTH: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled "An Act Providing a General Corporation Law", approved March 10, 1899, as from time to time amended. EIGHTH: - This Act shall be deemed and taken to be a private Act. NINTH: - This Corporation is to have perpetual existence. TENTH: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. ELEVENTH: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever. TWELFTH: - The Corporation may transact business in any part of the world. THIRTEENTH: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). 9 FOURTEENTH: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them. FIFTEENTH: - (a) (1) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article FIFTEENTH: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or (C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or (D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or (E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder, shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. 10 (2) The term "business combination" as used in this Article FIFTEENTH shall mean any transaction which is referred to in any one or more of clauses (A) through (E) of paragraph 1 of the section (a). (b) The provisions of section (a) of this Article FIFTEENTH shall not be applicable to any particular business combination and such business combination shall require only such affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation or By-Laws if such business combination has been approved by a majority of the whole Board. (c) For the purposes of this Article FIFTEENTH: (1) A "person" shall mean any individual, firm, corporation or other entity. (2) "Interested Stockholder" shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction: (A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or (B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or (C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be the "beneficial owner" of any Voting Shares: (A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or (B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, 11 or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation. (4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise. (5) "Affiliate" and "Associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981. (6) "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (d) majority of the directors shall have the power and duty to determine for the purposes of this Article FIFTEENTH on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more. (e) Nothing contained in this Article FIFTEENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SIXTEENTH: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any 12 provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter or Act of Incorporation. SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended. (b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification." 13 EXHIBIT 4 BY-LAWS WILMINGTON TRUST COMPANY WILMINGTON, DELAWARE AS EXISTING ON JANUARY 16, 2003 BY-LAWS OF WILMINGTON TRUST COMPANY ARTICLE I STOCKHOLDERS' MEETINGS Section 1. Annual Meeting. The annual meeting of stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time or place as may be designated by resolution by the Board of Directors. Section 2. Special Meetings. Special meetings of stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. Section 3. Notice. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting. Section 4. Quorum. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a smaller number of shares may adjourn from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each share of stock registered in the stockholder's name on the books of the Company on the record date for any such meeting as determined herein. ARTICLE 2 DIRECTORS Section 1. Management. The affairs and business of the Company shall be managed by or under the direction of the Board of Directors. Section 2. Number. The authorized number of directors that shall constitute the Board of Directors shall be fixed from time to time by or pursuant to a resolution passed by a majority of the Board of Directors within the parameters set by the Charter of the Company. No more than two directors may also be employees of the Company or any affiliate thereof. Section 3. Qualification. In addition to any other provisions of these Bylaws, to be qualified for nomination for election or appointment to the Board of Directors, a person must have not attained the age of sixty-nine years at the time of such election or appointment, provided however, the Nominating and Corporate Governance Committee may waive such qualification as to a particular candidate otherwise qualified to serve as a director upon a good faith determination by such committee that such a waiver is in the best interests of the Company and its stockholders. The Chairman of the Board and the Chief Executive Officer shall not be qualified to continue to serve as directors upon the termination of their service in those offices for any reason. Section 4. Meetings. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors, the Chief Executive Officer or the President. Section 5. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the Chief Executive Officer or the President, and shall be called upon the written request of a majority of the directors. Section 6. Quorum. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 7. Notice. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting. Section 8. Vacancies. In the event of the death, resignation, removal, inability to act or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director's successor shall have been duly elected and qualified. Section 9. Organization Meeting. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Executive Committee, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, and shall elect from its own members a Chairman of the Board, a Chief Executive Officer and a President, who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Chief Financial Officer, who may be the same person, and may appoint at any time such committees as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. The Board of Directors, the Executive Committee or another committee designated by the Board of Directors may elect or appoint such other officers as they may deem advisable. Section 10. Removal. The Board of Directors may at any time remove, with or without cause, any member of any committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor. Section 11. Responsibility of Officers. The Board of Directors may designate an officer to be in charge of such departments or divisions of the Company as it may deem advisable. 2 Section 12. Participation in Meetings. The Board of Directors or any committee of the Board of Directors may participate in a meeting of the Board of Directors or such committee, as the case may be, by conference telephone, video facilities or other communications equipment. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all of the members of the Board of Directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the Board of Directors or such committee. ARTICLE 3 COMMITTEES OF THE BOARD OF DIRECTORS Section 1. Executive Committee. (A) The Executive Committee shall be composed of not more than nine (9) members, who shall be selected by the Board of Directors from its own members, and who shall hold office at the pleasure of the Board of Directors. (B) The Executive Committee shall have and may exercise, to the fullest extent permitted by law, all of the powers of the Board of Directors when it is not in session to transact all business for and on behalf of the Company that may be brought before it. (C) The Executive Committee shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Executive Committee, the Chairman of the Board, the Chief Executive Officer or the President. The majority of its members shall be necessary to constitute a quorum for the transaction of business. Special meetings of the Executive Committee may be held at any time when a quorum is present. (D) Minutes of each meeting of the Executive Committee shall be kept and submitted to the Board of Directors at its next meeting. (E) In the event of an emergency of sufficient severity to prevent the conduct and management of the affairs and business of the Company by its directors and officers as contemplated by these Bylaws, any two available members of the Executive Committee as constituted immediately prior to such emergency shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Company in accordance with the provisions of Article 3 of these Bylaws. In the event of the unavailability, at such time, of a minimum of two members of the Executive Committee, any three available directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Company in accordance with the foregoing provisions of this Section. This Bylaw shall be subject to implementation by resolutions of the Board of Directors presently existing or hereafter passed from time to time for that purpose, and any provisions of these Bylaws (other than this Section) and any resolutions which are contrary 3 to the provisions of this Section or to the provisions of any such implementing resolutions shall be suspended during such a disaster period until it shall be determined by any interim Executive Committee acting under this Section that it shall be to the advantage of the Company to resume the conduct and management of its affairs and business under all of the other provisions of these Bylaws. Section 2. Audit Committee. (A) The Audit Committee shall be composed of not more than five (5) members, who shall be selected by the Board of Directors from its own members, none of whom shall be an officer or employee of the Company, and shall hold office at the pleasure of the Board. (B) The Audit Committee shall have general supervision over the Audit Services Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Services Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable. (C) The Audit Committee shall meet whenever and wherever its Chairperson, the Chairman of the Board, the Chief Executive Officer, the President or a majority of the Committee's members shall deem it to be proper for the transaction of its business. A majority of the Committee's members shall constitute a quorum for the transaction of business. The acts of the majority at a meeting at which a quorum is present shall constitute action by the Committee. Section 3. Compensation Committee. (A) The Compensation Committee shall be composed of not more than five (5) members, who shall be selected by the Board of Directors from its own members, none of whom shall be an officer or employee of the Company, and shall hold office at the pleasure of the Board of Directors. (B) The Compensation Committee shall in general advise upon all matters of policy concerning compensation, including salaries and employee benefits. (C) The Compensation Committee shall meet whenever and wherever its Chairperson, the Chairman of the Board, the Chief Executive Officer, the President or a majority of the Committee's members shall deem it to be proper for the transaction of its business. A majority of the Committee's members shall constitute a quorum for the transaction of business. The acts of the majority at a meeting at which a quorum is present shall constitute action by the Committee. SECTION 4. NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. 4 (A) The Nominating and Corporate Governance Committee shall be composed of not more than five members, who shall be selected by the Board of Directors from its own members, none of whom shall be an officer or employee of the Company, and shall hold office at the pleasure of the Board of Directors. (B) The Nominating and Corporate Governance Committee shall provide counsel and make recommendations to the Chairman of the Board and the full Board with respect to the performance of the Chairman of the Board and the Chief Executive Officer, candidates for membership on the Board of Directors and its committees, matters of corporate governance, succession planning for the Company's executive management and significant shareholder relations issues. (C) The Nominating and Corporate Governance Committee shall meet whenever and wherever its Chairperson, the Chairman of the Board, the Chief Executive Officer, the President, or a majority of the Committee's members shall deem it to be proper for the transaction of its business. A majority of the Committee's members shall constitute a quorum for the transaction of business. The acts of the majority at a meeting at which a quorum is present shall constitute action by the Committee. Section 5. Other Committees. The Company may have such other committees with such powers as the Board may designate from time to time by resolution or by an amendment to these Bylaws. Section 6. Associate Directors. (A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve at the pleasure of the Board of Directors. (B) Associate directors shall be entitled to attend all meetings of directors and participate in the discussion of all matters brought to the Board of Directors, but will not have a right to vote. Section 7. Absence or Disqualification of Any Member of a Committee. In the absence or disqualification of any member of any committee created under Article III of these Bylaws, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE 4 OFFICERS 5 Section 1. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and shall have such further authority and powers and shall perform such duties the Board of Directors may assign to him from time to time. Section 2. Chief Executive Officer. The Chief Executive Officer shall have the powers and duties pertaining to the office of Chief Executive Officer conferred or imposed upon him by statute, incident to his office or as the Board of Directors may assign to him from time to time. In the absence of the Chairman of the Board, the Chief Executive Officer shall have the powers and duties of the Chairman of the Board. Section 3. President. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute, incident to his office or as the Board of Directors may assign to him from time to time. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall have the powers and duties of the Chairman of the Board. Section 4. Duties. The Chairman of the Board, the Chief Executive Officer or the President, as designated by the Board of Directors, shall carry into effect all legal directions of the Executive Committee and of the Board of Directors and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office. Section 5. Vice Presidents. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all of the duties of the Chairman of the Board, the Chief Executive Officer and/or the President and such other powers and duties incident to their respective offices or as the Board of Directors, the Executive Committee, the Chairman of the Board, the Chief Executive Officer or the President or the officer in charge of the department or division to which they are assigned may assign to them from time to time. Section 6. Secretary. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the committees thereof, to the keeping of accurate minutes of all such meetings, recording the same in the minute books of the Company and in general notifying the Board of Directors of material matters affecting the Company on a timely basis. In addition to the other notice requirements of these Bylaws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any such meeting. He shall have custody of the corporate seal, affix the same to any documents requiring such corporate seal, attest the same and perform other duties incident to his office. Section 7. Chief Financial Officer. The Chief Financial Officer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all transactions of the Company. He shall have general supervision of the expenditures of the Company and periodically shall report to the Board of Directors the condition of the Company, and perform such other duties incident to his office or as the 6 Board of Directors, the Executive Committee, the Chairman of the Board, the Chief Executive Officer or the President may assign to him from time to time. Section 8. Controller. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors or the Audit Committee at appropriate times a report relating to the general condition and internal operations of the Company and perform other duties incident to his office. There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller. Section 9. Audit Officers. The officer designated by the Board of Directors to be in charge of the Audit Services Division of the Company, with such title as the Board of Directors shall prescribe, shall report to and be directly responsible to the Audit Committee and the Board of Directors. There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Services Division. Section 10. Other Officers. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office of Assistant Secretary of the Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to which they are assigned. Section 11. Powers and Duties of Other Officers. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Executive Committee, the Chairman of the Board, the Chief Executive Officer or the President and the officer in charge of the department or division to which they are assigned. Section 12. Number of Offices. Any one or more offices of the Company may be held by the same person, except that (A) no individual may hold more than one of the offices of Chief Financial Officer, Controller or Audit Officer and (B) none of the Chairman of the Board, the Chief Executive Officer or the President may hold any office mentioned in Section 12(A). ARTICLE 5 STOCK AND STOCK CERTIFICATES 7 Section 1. Transfer. Shares of stock shall be transferable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded. Section 2. Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Company by the Chairman of the Board, the Chief Executive Officer or the President or a Vice President, and by the Secretary or an Assistant Secretary, of the Company, certifying the number of shares owned by him in the Company. The corporate seal affixed thereto, and any of or all the signatures on the certificate, may be a 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 Company with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors or the Executive Committee. Section 3. Record Date. The Board of Directors is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment of rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent. ARTICLE 6 SEAL The corporate seal of the Company shall be in the following form: Between two concentric circles the words "Wilmington Trust Company" within the inner circle the words "Wilmington, Delaware." ARTICLE 7 FISCAL YEAR The fiscal year of the Company shall be the calendar year. ARTICLE 8 EXECUTION OF INSTRUMENTS OF THE COMPANY 8 The Chairman of the Board, the Chief Executive Officer, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors or the Executive Committee, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors and/or the Executive Committee. ARTICLE 9 COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be authorized by the Company to perform such special services as the Board of Directors may from time to time determine in accordance with any guidelines the Board of Directors may adopt for such services, and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors. ARTICLE 10 INDEMNIFICATION Section 1. Persons Covered. The Company shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director of the Company or is or was serving at the request of the Company as a director, officer, employee, fiduciary or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or non-profit entity that is not a subsidiary or affiliate of the Company, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Company shall be required to indemnify such a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors. 9 The Company may indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or threatened to be made a party or is otherwise involved in any proceeding by reason of the fact that he, or a person for whom he is the legal representative, is or was an officer, employee or agent of the Company or a director, officer, employee or agent of a subsidiary or affiliate of the Company, against all liability and loss suffered and expenses reasonably incurred by such person. The Company may indemnify any such person in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. Section 2. Advance of Expenses. The Company shall pay the expenses incurred in defending any proceeding involving a person who is or may be indemnified pursuant to Section 1 in advance of its final disposition, provided, however, that the payment of expenses incurred by such a person in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by that person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article 10 or otherwise. Section 3. Certain Rights. If a claim under this Article 10 for (A) payment of expenses or (B) indemnification by a director or person who is or was serving at the request of the Company as a director, officer, employee, fiduciary or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity that is not a subsidiary or affiliate of the Company, including service with respect to employee benefit plans, is not paid in full within sixty days after a written claim therefor has been received by the Company, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. Section 4. Non-Exclusive. The rights conferred on any person by this Article 10 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Section 5. Reduction of Amount. The Company's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit entity. Section 6. Effect of Modification. Any amendment, repeal or modification of the foregoing provisions of this Article 10 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such amendment, repeal or modification. 10 ARTICLE 11 AMENDMENTS TO THE BYLAWS These Bylaws may be altered, amended or repealed, in whole or in part, and any new Bylaw or Bylaws adopted at any regular or special meeting of the Board of Directors by a vote of a majority of all the members of the Board of Directors then in office. ARTICLE 12 MISCELLANEOUS Whenever used in these Bylaws, the singular shall include the plural, the plural shall include the singular unless the context requires otherwise and the use of either gender shall include both genders. 11 EXHIBIT 6 SECTION 321(b) CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. WILMINGTON TRUST COMPANY Dated: July 28, 2004 By: /s/ Roseline K. Maney --------------------- Name: Roseline K. Maney Title: Vice President EXHIBIT 7 NOTICE This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. R E P O R T O F C O N D I T I O N Consolidating domestic subsidiaries of the WILMINGTON TRUST COMPANY WILMINGTON - ---------------------------------------- of ------------------ Name of Bank City in the State of DELAWARE, at the close of business on March 31, 2004. ASSETS
Thousands of dollars -------------------- Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coins ............ 173,842 Interest-bearing balances ...................................... 0 Held-to-maturity securities ............................................. 3,355 Available-for-sale securities ........................................... 1,624,384 Federal funds sold in domestic offices .................................. 485,666 Securities purchased under agreements to resell ......................... 13,700 Loans and lease financing receivables: Loans and leases held for sale .............. 0 Loans and leases, net of unearned income..... 5,839,156 LESS: Allowance for loan and lease losses .. 80,750 Loans and leases, net of unearned income, allowance, and reserve 5,758,406 Assets held in trading accounts ......................................... 0 Premises and fixed assets (including capitalized leases) ................ 141,663 Other real estate owned ................................................. 1,061 Investments in unconsolidated subsidiaries and associated companies ..... 1,755 Customers' liability to this bank on acceptances outstanding ............ 0 Intangible assets: a. Goodwill ................................................... 157 b. Other intangible assets .................................... 11,615 Other assets ............................................................ 151,998 Total assets ............................................................ 8,367,602
CONTINUED ON NEXT PAGE LIABILITIES Deposits: In domestic offices .......................................................................... 6,716,153 Noninterest-bearing ......................................... 1,056,474 Interest-bearing ............................................ 5,659,679 Federal funds purchased in domestic offices .................................................. 79,544 Securities sold under agreements to repurchase ............................................... 190,877 Trading liabilities (from Schedule RC-D) ..................................................... 0 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases: 596,427 Bank's liability on acceptances executed and outstanding ..................................... 0 Subordinated notes and debentures ............................................................ 0 Other liabilities (from Schedule RC-G) ....................................................... 116,370 Total liabilities ............................................................................ 7,699,371
EQUITY CAPITAL Perpetual preferred stock and related surplus ................................................ 0 Common Stock ................................................................................. 500 Surplus (exclude all surplus related to preferred stock) ..................................... 112,358 a. Retained earnings ........................................................................ 565,939 b. Accumulated other comprehensive income ................................................... (10,566) Total equity capital ......................................................................... 668,231 Total liabilities, limited-life preferred stock, and equity capital .......................... 8,367,602
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