<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NOS. 333-49717 AND 333-49717-01
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALADDIN GAMING HOLDINGS, LLC
(Exact name of Registrant as specified in its Articles of Organization)
------------------------
<TABLE>
<CAPTION>
NEVADA 6719 88-0379607
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
831 Pilot Road
Las Vegas, Nevada 89119
(702) 736-7114
(Address, including zip code, and telephone number, including area code,
of Registrant's Principal Executive Offices)
------------------------
RICHARD J. GOEGLEIN
CHIEF EXECUTIVE OFFICER
ALADDIN GAMING HOLDINGS, LLC
831 PILOT ROAD
LAS VEGAS, NEVADA 89119
(702) 736-7114
(Name, address including zip code, and telephone number, including area code, of
agent for service)
COPY TO:
WALLACE L. SCHWARTZ, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------------
<TABLE>
<CAPTION>
PRIMARY STANDARD I.R.S.
JURISDICTION INDUSTRIAL EMPLOYER
OF CLASSI- IDENTIFICATION
NAME OF ADDITIONAL REGISTRANT INCORPORATION FICATION NUMBER NUMBER
- --------------------------------------------------------------------- ------------- ---------------- --------------
<S> <C> <C> <C>
Aladdin Capital Corp.*............................................... Nevada 9999 88-0379606
</TABLE>
- ------------------------
* Address and telephone number of principal executive offices are same as
Aladdin Gaming Holdings, LLC.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
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. / /
------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
[LOGO]
OFFER FOR ALL OUTSTANDING
13 1/2% SERIES A SENIOR DISCOUNT NOTES DUE 2010
IN EXCHANGE FOR
13 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2010,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OF
ALADDIN GAMING HOLDINGS, LLC
ALADDIN CAPITAL CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 25,
1998 UNLESS EXTENDED.
------------
Aladdin Gaming Holdings, LLC, a Nevada limited-liability company
("Holdings"), and Aladdin Capital Corp, a Nevada corporation ("Capital" and,
together with Holdings, the "Issuers"), hereby offer, upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer") to exchange an
aggregate amount at maturity of up to $221.5 million of 13 1/2% Series B Senior
Discount Notes due 2010 (the "New Notes") of the Issuers, which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of the issued and outstanding 13 1/2% Series A
Senior Discount Notes Due 2010 (the "Old Notes" and, together with the New
Notes, the "Notes") of the Issuers from the holders (the "Holders") thereof. The
terms of the New Notes are identical in all material respects to the Old Notes,
except for certain transfer restrictions and registration rights relating to the
Old Notes and except that the Old Notes provide that, if a Registration Default
(as defined herein) has occurred, damages ("Liquidated Damages") shall accrue at
a rate of 0.25% per annum with respect to the first 90-day period immediately
following the occurrence of the first Registration Default and that the amount
of Liquidated Damages increases by an additional 0.25% per annum with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of 1.00% per annum.
On February 26, 1998 (the "Issue Date") the Issuers issued $221.5 million
aggregate amount at maturity of Old Notes together with 2,215,000 Warrants (the
"Warrants") to purchase 2,215,000 shares of Class B non-voting Common Stock, no
par value (the "Common Stock") of Aladdin Gaming Enterprises, Inc., a Nevada
corporation ("Enterprises" and, together with the Issuers, the "Aladdin
Parties"). The Old Notes and the Warrants were issued together as Units (the
"Units") pursuant to an offering (the "Offering") exempt from registration under
the Securities Act and applicable state securities laws.
The initial Accreted Value (as defined herein) of the Notes was $519.40 per
$1,000 principal amount at maturity of the Notes. The Notes will mature on March
1, 2010. The Notes accrete at 13 1/2% (computed on a semi-annual bond equivalent
basis) based on the initial Accreted Value, calculated from February 26, 1998.
Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter,
cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on
the Accreted Value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003. The Old Notes were offered at an original issue discount for federal
income tax purposes. See "Description of the Notes" and "Certain United States
Federal Income Tax Considerations."
The Notes are joint and several obligations of the Issuers and will be
redeemable at the option of the Issuers, in whole or in part, at any time on or
after March 1, 2003 at the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages, if applicable, thereon to the date of
redemption. In addition, in the event of a Qualified Public Offering (as defined
herein) prior to March 1, 2001, which results in aggregate net proceeds of at
least $50.0 million, the Issuers may, at their option, redeem up to 35% of the
Accreted Value of the Notes with the net proceeds therefrom at a redemption
price equal to 113 1/2% of the Accreted Value plus Liquidated Damages, if
applicable, to the date of redemption. Upon the occurrence of a Change of
Control (as defined herein), the holders of the Notes will have the right to
require the Issuers to purchase their Notes at a price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, and Liquidated
Damages, if applicable, thereon to the date of purchase. There can be no
assurance that the Issuers will have sufficient funds to purchase the Notes
after a Change of Control. See "Risk Factors--Change of Control."
The net proceeds from the Offering, together with the proceeds from the
other Funding Transactions (as defined herein), including a $410.0 million new
bank credit facility (the "Bank Credit Facility") entered into by Aladdin
Gaming, LLC (the "Company"), a Nevada limited-liability company and a wholly
owned subsidiary of Holdings, and $80.0 million available under the FF&E
Financing (as defined herein) will be used to finance the development,
construction and opening of a new hotel and casino, the Aladdin Hotel and Casino
(the "Aladdin") in Las Vegas, Nevada. Pursuant to the Disbursement Agreement (as
defined herein), all of the proceeds from the Offering must be expended before
any of the proceeds of the Bank Credit Facility may be disbursed. The Company is
in the development stage and will have no assets or operations other
(CONTINUED ON THE NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH HOLDERS OF THE NOTES AND PROSPECTIVE PURCHASERS OF THE NOTES SHOULD
CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND PURCHASE OF THE NOTES.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL BOARD
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT
MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The date of this Prospectus is July 23, 1998.
<PAGE>
(CONTINUED FROM COVER)
than its interests in the Aladdin and activities in connection with the
Aladdin's development. Therefore, the Company will have no revenues until the
Aladdin becomes operational. It is expected that the Aladdin will become
operational in the first four months of the year 2000. The Notes will be joint
and several senior obligations of the Issuers, will rank PARI PASSU in right of
payment with all current and future senior Indebtedness (as defined herein) of
the Issuers and will rank senior in right of payment to all current and future
subordinated Indebtedness of the Issuers. The Notes will be secured by a first
priority pledge of all amounts in the Note Construction Disbursement Account (as
defined herein), until disbursed in accordance with the Disbursement Agreement,
and by a first priority pledge of all of the issued and outstanding Series A
preferred membership interests (the "Series A Preferred Interests") of the
Company. The liquidation preference of the Series A Preferred Interests will at
all times equal the Accreted Value of the Notes. The Notes will not be
guaranteed by any of Holdings' subsidiaries. Therefore, the Notes will be
effectively subordinated to all Indebtedness and other liabilities of Holdings'
subsidiaries (including, without limitation, to the Company's obligations under
the Bank Credit Facility). The Issuers do not and may not in the future have any
material assets other than Holdings' ownership of 100% of the Common Membership
Interests in the Company and its ownership of the Series A Preferred Interests
in the Company, and do not and may not in the future have any material
operations or revenues (other than income derived from its interests in the
Company). Accordingly, the Issuers' ability to pay principal interest, premium,
if any, or any other payment obligation on the Notes will be completely
dependent on the operations of the Company. The only outstanding indebtedness of
the Issuers is, and upon consummation of the Exchange Offer will be, the Notes.
Upon completion of the Aladdin, the Company is expected to have $430.0 million
of outstanding Indebtedness, including $410.0 million outstanding under the Bank
Credit Facility and an aggregate of $20.0 million outstanding under the loan
portion of the FF&E Financing. The FF&E Financing will also consist of $60.0
million of operating leases. Upon the opening of the Aladdin, the Company is
expected to have an aggregate of $10.0 million available under a working capital
facility. The indebtedness of Holdings and the Company, collectively, is
expected to represent 95% of their total capitalization as of the opening of the
Aladdin.
Capital is a wholly owned subsidiary of Holdings and was incorporated solely
for the purpose of serving as a co-issuer of the Notes in order to facilitate
the Offering. Capital currently does not and will not in the future have any
material operations or assets and currently does not and will not in the future
have any revenues. Holders of the New Notes should not expect Capital to
participate in servicing the principal, interest, premium, or any other payment
obligations on the New Notes.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having an Accreted Value equal to that of the surrendered Old
Note. The New Notes will accrete at the same rate as the Old Notes and cash
interest on the New Notes will accrue at the same time and at the same rate as
the Old Notes. Old Notes accepted for exchange will cease to accrete or bear
interest, as applicable, from and after the date of the consummation of the
Exchange Offer.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuers contained in the Note Registration Rights Agreement
(as defined herein). Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, the Issuers believe that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any holder which is an "affiliate" of the Issuers within the meaning of
Rule 405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. However, the Commission has not considered the Exchange Offer
in the context of a no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. 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. The Letter of Transmittal states that by so acknowledging 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. However this does not
preclude a broker-dealer from being deemed an "underwriter" within the meaning
of the Securities Act. 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
by such broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that they will make this Prospectus
available to any broker-dealer for use in connection with any such resale as
such broker-dealer may reasonably request. See "Plan of Distribution."
The Issuers will not receive any proceeds from the Exchange Offer. The
Issuers will pay all the expenses incident to the Exchange Offer as required to
be paid by the Issuers under the Note Registration Rights Agreement. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
5:00 p.m. (New York City time) on the second to last business day prior to the
Expiration Date (as defined herein). In the event the Issuers terminate the
Exchange Offer and do not accept for exchange any Old Notes, the Issuers will
promptly return the Old Notes to the holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes. The
Initial Purchasers (as defined herein) have advised the Issuers that they
currently intend to make a market in the New Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. The Issuers do not intend
to apply for listing or quotation of the New Notes on any securities exchange or
stock market.
i
<PAGE>
AVAILABLE INFORMATION
The Issuers have filed with the Commission a registration statement on Form
S-4 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act with respect to the New Notes offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Issuers and the New Notes offered hereby, reference is made to the Registration
Statement. Any statements made in this Prospectus concerning the provision of
certain documents are not necessarily complete and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement otherwise filed with the Commission.
Upon effectiveness of the Registration Statement, the Issuers will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and in accordance therewith, will file
reports and other information with the Commission. The Registration Statement
and the reports and other information filed by the Issuers with the Commission
in accordance with the Exchange Act may be inspected, without charge, at the
Public Reference Section of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of all or any
portion of the material may be obtained from the Public Reference Section of the
Commission upon payment of the prescribed fees. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such information may be found on the Commission's site address,
http://www.sec.gov.
In the event that the Issuers are not required to be subject to the
reporting requirements of the Exchange Act in the future, the Issuers will be
required under the Indenture (as defined herein), pursuant to which the Old
Notes were, and the New Notes will be, issued, to continue to file with the
Commission, and to furnish to holders of the New Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Issuers were required to file
such forms, and with respect to the annual information, a report thereon by the
Issuers' certified public accountants and (ii) all current reports that would be
required to be filed on Form 8-K if the Issuers were required to file such
reports.
No person has been authorized to give any information or to make any
representation concerning the Notes other than those contained herein and, if
given or made, such other information or representation should not be relied
upon as having been authorized by the Issuers.
DISCLOSURE REGARDING FORWARD
LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward looking
statements." Those statements include, among other things, the discussions of
the business strategies of the Issuers and the Company and expectations
concerning future operations, margins, profitability and liquidity and capital
resources. Forward looking statements are included in "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Prospectus. Although the Issuers believe that
the expectations reflected in such forward looking statements are reasonable,
the Issuers do not give any assurance that such expectations will prove to be
correct. Generally, these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of such plans or
strategies of the Issuers and the Company or financial projections involving
anticipated revenues, expenses, earnings, levels of capital expenditures or
other aspects of operating results. All phases of the operations of the Issuers
and the Company are subject to a number of uncertainties, risks and other
influences, many of which are outside the control of the Issuers and the Company
and any one of which, or a combination of which, could materially affect the
results of operations of the Issuers and the Company and whether the forward
looking statements made by the Issuers ultimately prove to be accurate.
Important factors that could cause actual results to differ materially from the
Issuers' expectations are
ii
<PAGE>
disclosed in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
------------------------
CERTAIN DEFINITIONS
REFERENCES IN THIS PROSPECTUS TO (I) "HOLDINGS" REFER TO ALADDIN GAMING
HOLDINGS, LLC, A NEVADA LIMITED-LIABILITY COMPANY; (II) "CAPITAL" REFER TO
ALADDIN CAPITAL CORP., A NEVADA CORPORATION WHOLLY-OWNED BY HOLDINGS; (III)
"ENTERPRISES" REFER TO ALADDIN GAMING ENTERPRISES, INC., A NEVADA CORPORATION,
THE SOLE ASSET OF WHICH IS A 25% MEMBERSHIP INTEREST IN HOLDINGS; (IV) "ISSUERS"
REFER TO HOLDINGS AND CAPITAL, COLLECTIVELY; (V) "ALADDIN PARTIES" REFER TO
HOLDINGS, ENTERPRISES AND CAPITAL, COLLECTIVELY; (VI) THE "COMPANY" REFER TO
ALADDIN GAMING, LLC, A NEVADA LIMITED-LIABILITY COMPANY WHICH PLANS TO DEVELOP,
CONSTRUCT AND OPERATE THE ALADDIN; (VII) "LONDON CLUBS" REFER TO LONDON CLUBS
INTERNATIONAL, PLC, A UNITED KINGDOM PUBLIC LIMITED COMPANY AND (VIII) "LCNI"
REFER TO LONDON CLUBS NEVADA INC., AN INDIRECT WHOLLY OWNED SUBSIDIARY OF LONDON
CLUBS. ALADDIN HOLDINGS, LLC ("AHL"), WHICH IS 95% OWNED BY THE TRUST UNDER
ARTICLE SIXTH U/W/O SIGMUND SOMMER (THE "TRUST"), DIRECTLY OWNS 98.7% OF THE
MEMBERSHIP INTERESTS OF SOMMER ENTERPRISES, LLC ("SOMMER ENTERPRISES"), A NEVADA
LIMITED-LIABILITY COMPANY, AND INDIRECTLY OWNS APPROXIMATELY 71% OF THE
MEMBERSHIP INTERESTS OF HOLDINGS PRIOR TO THE EXERCISE OF THE WARRANTS.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION (INCLUDING FINANCIAL
INFORMATION) APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE ISSUERS
Holdings is a holding company, the material assets of which are 100% of the
outstanding common membership interests of the Company (the "Common Membership
Interests") and 100% of the outstanding Series A Preferred Interests of the
Company. Capital is a wholly owned subsidiary of Holdings and was incorporated
solely for the purpose of serving as a co-issuer of the Notes in order to
facilitate the Offering. Capital will not have any material operations or assets
and will not have any revenues.
THE COMPANY
The Company plans to develop, construct and operate the Aladdin as the
centerpiece of an approximately 35 acre world-class resort, casino and
entertainment complex (the "Complex") located on the site of the original
Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center
of Las Vegas Boulevard (the "Strip"). The Aladdin has been designed to include a
luxury themed hotel of approximately 2,600 rooms (the "Hotel"), an approximately
116,000 square foot casino (the "Casino"), an approximately 1,400-seat
production showroom and seven restaurants. The Casino's main gaming area will
contain approximately 2,800 slot machines, 87 table games, keno and a race and
sports book facility. Included on a separate level of the Casino will be a
15,000 square foot luxurious gaming section (the "Salle Privee") which is
expected to contain an additional 20 to 30 high limit table games and
approximately 100 high limit slot machines. The Salle Privee will cater to
wealthy clientele and be operated and marketed in conjunction with London Clubs,
a prestigious, multi-national casino operator which caters to international
premium players. The Complex, which has been designed to promote Casino traffic
and to provide customers with a wide variety of entertainment alternatives, will
comprise (i) the Aladdin; (ii) a themed entertainment shopping mall with
approximately 522,000 square feet of retail space (the "Desert Passage"); (iii)
a second hotel and casino, with a music and entertainment theme, expected to be
known as "Sound Republic Hotel and Casino" (the "Music Project"); (iv) a newly
renovated 7,000-seat Theater of the Performing Arts (the "Theater"); and (v) an
approximately 4,800-space car parking facility (the "Carpark" and, together with
the Desert Passage, the "Mall Project"). The Mall Project and the Music Project
will be separately owned by affiliates of the Company. The Company's business
and marketing strategies are expected to capitalize on the Complex's premier
location, its superior designed, mixed-use, themed development, and strong
strategic partnering with highly successful public companies. The grand opening
date for the Aladdin and the Mall Project is currently anticipated to occur
during the first four months of the year 2000, with the opening of the Music
Project expected to occur within six months after the opening of the Aladdin.
The Company's management team is led by Chief Executive Officer Richard J.
Goeglein, the former President and Chief Executive Officer of Harrah's Hotels
and Casinos and President and Chief Operating Officer of Holiday Corp., who
during his term at Harrah's oversaw the expansion of the Harrah's brand,
including the development of Harrah's Hotel and Casino in Atlantic City.
Assisting Mr. Goeglein as Senior Vice President of the Company and
President/Chief Operating Officer of the Aladdin Hotel and Casino is James H.
McKennon, who as President and Chief Operating Officer of Caesars Tahoe was
instrumental in its financial turnaround and as President of Caesars World
International Marketing Corp. was responsible for the global marketing of the
Caesars brand.
It is expected that approximately $75 million will be spent on theming in
the Aladdin and the Desert Passage, of which approximately $35 million will be
spent by the Company on the Aladdin. This theming will create an environment in
the Aladdin that will be based upon the Legends of the 1001 Arabian Nights,
including the intriguing tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad
and other legendary stories woven around ancient wealth and wonders. The
Aladdin's exterior will be designed to include a highly
1
<PAGE>
articulated streetscape, a themed Casino exterior shaped like a Bedouin tent,
fountains, walkways, sculptures and an outdoor restaurant. The sophisticated
interior of the Aladdin will utilize rich colors, textures and design, enhancing
the fantasy of a mystical romantic time and place. A significant feature of the
Desert Passage will be the themed area to be known as the "Lost City." The "Lost
City" is expected to contain a re-creation of an ancient mystical mountain city
and will house a variety of specialty shops and restaurants underneath a
10-story high ceiling. The Company believes that the Aladdin, with its unique
theme, together with the Desert Passage, will ensure its place as a "must-see"
destination in one of the world's largest entertainment cities.
The Company believes that upon completion, the Aladdin, the Mall Project and
the Music Project together will constitute one of the largest and best-planned
integrated, mixed-use entertainment resorts in the world. Aladdin Bazaar
Holdings, LLC ("Bazaar Holdings"), a subsidiary of the Trust, and TH Bazaar
Centers Inc. ("THB"), a subsidiary of TrizecHahn Centers Inc. ("TrizecHahn"),
have entered into a joint venture agreement and formed Aladdin Bazaar, LLC
("Bazaar") to develop, construct, own and operate the Mall Project. TrizecHahn
is the principal retail subsidiary of TrizecHahn Corporation, one of the largest
publicly-traded real estate companies in North America. The Desert Passage is
expected to include an array of high-fashion specialty stores, exotic boutiques,
themed restaurants, cafes and other entertainment offerings. The Desert Passage
will be directly connected to the Casino to maximize Casino traffic.
Aladdin Music Holdings, LLC ("AMH"), a wholly owned subsidiary of the
Company, and a subsidiary of Planet Hollywood International, Inc. ("Planet
Hollywood") have entered into a memorandum of understanding (the "Music Project
Memorandum of Understanding") and formed Aladdin Music, LLC ("Aladdin Music"),
which will own and develop the Music Project. The Music Project Memorandum of
Understanding is subject to the finalization of financing commitments. Planet
Hollywood is a creator and worldwide developer of themed restaurants and
consumer brands, most notably "Planet Hollywood" and the "Official All Star
Cafe." Planet Hollywood has announced that it intends to position a brand of
music-themed entertainment venues as its third major brand. The Music Project,
which will be managed by the Company, is expected to include an approximately
1,000 room hotel, a 50,000 square foot casino, four restaurants, including a
music-themed restaurant which will feature its own 1,000-person nightclub, a
health spa and an outdoor swimming pool. As part of the development of the
Complex, the Company expects to indirectly contribute to Aladdin Music $21.3
million in cash and land having an appraised fair market value of $15.0 million
in exchange for a preferred membership interest in Aladdin Music and to lease to
Aladdin Music the existing 7,000-seat Theater for a nominal amount. It is
anticipated that Aladdin Music will carry out an approximately $8 million
renovation of the Theater, improving its decor, light and sound systems and
other facilities. A further distinguishing feature of the Music Project is the
anticipated active involvement of famous artists and celebrities, some of whom
are expected to be stockholders of Planet Hollywood (or its affiliates),
participate in the marketing of Planet Hollywood's music-themed brand and
perform at the Theater or make other personal appearances at the Music Project.
The Music Project, with its music and entertainment theme, will complement the
Aladdin and it is expected that together the two hotels will offer an excitement
and variety of entertainment alternatives that will further distinguish the
Complex from other venues on the Strip.
The development of the Aladdin commenced during the first quarter of 1998.
The original Aladdin hotel and casino closed for business on November 25, 1997
and the original facility was demolished on April 27, 1998. The development of
the Mall Project is expected to commence during the second quarter of 1998,
followed thereafter by the expected commencement of the development of the Music
Project in the second half of 1998. There can be no assurance, however, that
either of the Mall Project or the Music Project will, in fact, be completed. If
the Mall Project is not completed, the Company will need to expend additional
amounts (expected to be approximately $23 million) with respect to the
completion of shared structural space and the cost of surface parking. See "Risk
Factors--Completion of the Mall Project and the Music Project."
2
<PAGE>
STRENGTHS
The Company believes that several important advantages will contribute
significantly to the success of the Aladdin:
PREMIER LOCATION. The Aladdin's 800 feet of Strip frontage is located on
the section of the Strip between Flamingo Road at the north and Tropicana
Boulevard at the south. Based upon independent research and assuming completion
of the Bellagio, Paris and Venetian development projects, the average vehicular
traffic that will pass the Complex each day is expected to be approximately
54,000.
Another major feature of the Complex will be its easy access from Las Vegas'
McCarran International Airport ("McCarran Airport"), only 2.5 miles away.
According to the Las Vegas Convention and Visitors Authority (the "LVCVA"), the
number of visitors to Las Vegas has increased at a steady and significant rate
for the last 15 years, growing from approximately 10 million in 1980 to
approximately 19 million in 1990 to over 30 million in 1997, with approximately
47% of these visitors in 1997 arriving by air through McCarran Airport. McCarran
Airport, the tenth busiest airport in the United States, is currently in the
process of expanding its capacity through the addition of 26 new gates, and it
is expected that following completion thereof, the number and percentage of
visitors arriving in Las Vegas by air will further increase, making easy access
from McCarran Airport to Las Vegas' resorts even more crucial.
MASTER-PLANNED, MIXED-USE DEVELOPMENT. The Aladdin has been carefully and
strategically designed to promote Casino traffic. Each element of the Complex
has been sited and planned in a manner that maximizes pedestrian and vehicular
traffic so as to facilitate access to and from the Complex, as well as
circulation between the different parts of the Complex, with the Casino being
the nexus for the vast majority of pedestrian traffic. Significant portions of
the Desert Passage and all of the Theater's entrances and exits will be accessed
through, or be adjacent to, the Casino. The Casino will be located in front of
the Hotel, and unlike many of the newer projects on the Strip, will provide easy
access for pedestrians without requiring long walks into the Complex. Pedestrian
visitors to the Aladdin entering from the Aladdin's 800 feet of Strip frontage
will be able to enter the Hotel directly through the Casino or through the
Desert Passage entrances. Through the use of a circular internal roadway, guests
arriving by limousine, car service, taxi or private vehicle will be able to
enter the Complex directly and easily from the Strip and Harmon Avenue.
Furthermore, by the use of bridges and access ways, pedestrians will not be
required to cross roadways while moving between different attractions on the
Complex, thus facilitating ease of movement between the various parts of the
Complex and the Strip.
UNIQUE ENTERTAINMENT FACILITIES. The Aladdin is expected to benefit from
the Casino traffic generated from the broad variety of entertainment facilities
located throughout the Complex. The Aladdin will be adjacent to the existing
Theater, which is expected to continue to be used to hold major concerts and
theatrical performances and is one of the few venues of its size and type in
Nevada. The Theater's approximately $8 million renovation is expected to
transform it into a first-class venue and provide an additional source of
visitor traffic to the Complex.
The Aladdin will include a 1,400-seat showroom featuring a 1001 Arabian
Nights-themed production show on its mezzanine level, with elegant, exotic
costuming, music, lighting and choreography. In addition, the Desert Passage
will be designed to engage the customer in a themed shopping, entertainment and
dining experience. Of the approximately 522,000 square feet of retail space
within the Desert Passage, it is anticipated that approximately 25% will be
devoted to high pedestrian traffic generating food, beverage and entertainment
experiences. Furthermore, the Music Project is expected to contain a
1,000-person nightclub featuring regular live performances.
PRESTIGIOUS STRATEGIC PARTNERS.
The Company and the Complex will benefit from important relationships with
several prominent public companies, as follows:
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- - LONDON CLUBS INVESTMENT. London Clubs, a prestigious multi-national casino
operator, indirectly owns 25% of the outstanding common membership interests
of Holdings (the "Holdings Common Membership Interests"). London Clubs had
an equity market capitalization of over $461 million on May 29, 1998. London
Clubs has extensive experience in the international marketing of casinos to
premium players and maintains a strong presence in the United Kingdom (where
it controls the largest share of the London casino market), Europe, Asia and
the Middle East. In addition to its 25% ownership of the outstanding
Holdings Common Membership Interests, London Clubs, through LCNI, will
direct the operations of, and act as marketing consultant to, the Salle
Privee. The Company believes that the Salle Privee will be the first of its
kind in the United States managed by a European operator and based on the
European concept of full service gaming areas for premium players. The Salle
Privee's primary business and marketing focus will be to access London
Clubs' worldwide base of upscale casino clientele.
- - JOINT VENTURE WITH PLANET HOLLYWOOD. Through a subsidiary, Planet Hollywood
has agreed to be a 50% partner (on a fully diluted basis) in the Music
Project. Planet Hollywood is a creator and worldwide developer of consumer
brands, most notably "Planet Hollywood" and the "Official All Star Cafe,"
that capitalize on the universal appeal of the high energy environment of
movies, sports and other entertainment-based themes. The Company believes
that the exposure generated by the Music Project will enhance the Aladdin by
providing immediate excitement and press coverage for the Complex. On July
21, 1998, Planet Hollywood announced that it has retained financial advisors
in connection with a review of Planet Hollywood's financial and strategic
alternatives and is continuing with an operational plan to address current
financial and operational performance issues. There can be no assurance that
the Music Project will proceed with Planet Hollywood. See "Risk
Factors--Completion of the Mall Project and the Music Project."
- - STRATEGIC RELATIONSHIP WITH TRIZECHAHN. The Mall Project will be owned,
developed and operated by Bazaar, a joint venture between Bazaar Holdings
and THB, a subsidiary of TrizecHahn. TrizecHahn is a wholly-owned subsidiary
of TrizecHahn Corporation, one of the largest publicly traded real estate
companies in North America. TrizecHahn was the developer of Horton Plaza in
San Diego, Bridgewater Commons in New Jersey, Valley Fair in San Jose and
Park Meadows in Denver. Investors should note that TrizecHahn has announced
that it is considering selling its operating portfolio of regional shopping
centers and on April 6, 1998, announced the sale of 20 regional shopping
centers for over $2.5 billion. See "Risk Factors--Completion of the Mall
Project and the Music Project." While TrizecHahn's announcement is limited
to the sale of its current operating portfolio of regional shopping centers,
there can be no assurance that TrizecHahn will not similarly decide to sell
its interest in the Desert Passage. Accordingly, investors cannot be assured
that TrizecHahn will own and operate the Desert Passage once it becomes
operational, and as a result, pedestrian traffic to the Aladdin may
decrease.
STRATEGY
The Company's business and marketing strategies are expected to capitalize
on the Complex's premier location, its superior designed, mixed-use themed
development and strong strategic partnering with highly successful public
companies.
CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin,
with its unique design, together with the Desert Passage and the Music Project
will ensure its place as a "must-see" destination in one of the fastest growing
entertainment cities in the world. The Aladdin theme will be supported by a
sophisticated interior design enhancing the fantasy of a mystical and romantic
time and place. The Aladdin's main Casino traffic will be driven not only by
Hotel guests, but also by the customers directly attracted from the Strip.
Visitor traffic to the Aladdin will also be enhanced by the Desert Passage and
the adjoining Music Project.
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TARGETED MARKET POSITIONING. The Company intends to focus on three
different market segments to attract customers to the Aladdin:
- - UPSCALE CLIENTELE. The Hotel will be designed to appeal to an upscale
clientele, providing the amenities and level of service such high-end guests
expect. Each of the Hotel's approximately 2,600 guest rooms will have an
area of not less than 450 square feet--exceeding that of the average Las
Vegas hotel room of approximately 360 to 400 square feet--and 24% of the
Hotel's guest rooms will have an area exceeding 620 square feet. The Hotel's
room inventory for the upscale market is expected to include 624 "king
parlors" and suites, ranging from 585 to 1,162 square feet. The Hotel will
provide extensive recreational facilities and amenities for its guests,
including a 20,000 square foot health spa with steam, sauna and massage
services and an outdoor swimming-pool complex surrounded by gardens and
fountains. The Company intends to promote the Aladdin's many features to the
upscale market through a variety of media, including high-end print
publications, travel agents and events sponsorships. A targeted-relationship
marketing program is expected to ensure clientele retention and repeat
visitation.
- - INTERNATIONAL PREMIUM PLAYER CLIENTELE. The focus of the Salle Privee's
business will be the wealthy clientele that form the core of London Clubs'
business in London and elsewhere. The Hotel will include 30 suites primarily
for use by Salle Privee clientele, including 25 "Salle Privee suites"
(ranging from 815 to 930 square feet) and five "mega-suites" (ranging from
2,125 to 3,500 square feet). The Company will maintain the Salle Privee's
premium player atmosphere through more sophisticated dining options, higher
table limits and more formal levels of service and dress.
- - UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms, six of its
seven restaurants and the 1,400-seat production showroom, combined with the
heavily themed Casino, Theater and Desert Passage, are expected to appeal
broadly to the upper-middle market guest. Additionally, cooperative
advertising and promotion through various media, such as television, radio
and print, will be used to promote the Complex to the upper-middle market.
Furthermore, the Music Project is expected to attract younger, affluent
customers to the Complex through, among other things, its music and
entertainment-based theme.
LEVERAGE FROM STRATEGIC RELATIONSHIPS. The Company and its affiliates have
chosen as strategic partners an experienced team of retail, casino and themed
entertainment developers and operators. The Company intends to utilize the
unique expertise of its partners from the preliminary development stages of the
Complex through its promotion and operation.
- - DEVELOPMENT EXPERTISE. In establishing a strategic relationship with
TrizecHahn, the Company has obtained the knowledge, skills and capital of a
partner who has expertise in the coordination, construction and completion
in a timely manner of large, high quality projects.
- - MANAGEMENT AND OPERATING ABILITIES. The Complex is expected to benefit from
the experience of TrizecHahn, London Clubs and Planet Hollywood in its
operations. Through its management and ownership of shopping centers,
TrizecHahn has demonstrated its ability to successfully design, configure
and attract high quality tenants to its retail shopping projects. London
Clubs has extensive experience in the international marketing and operation
of casinos, in particular to premium players. In addition, Planet Hollywood
has successfully grown its concepts to 87 company-owned and franchised
Planet Hollywood and Official All Star Cafe units (as of December 31, 1997)
since commencing business in 1991.
- - CAPITALIZING ON BRAND NAMES. With access to some of the most well-known names
in their respective markets, the Company expects to capitalize on the
worldwide brand recognition of Planet Hollywood, London Clubs and
TrizecHahn, creating unique opportunities for the Complex.
- - ACCESSING NEW CLIENT BASE. London Clubs and Planet Hollywood are expected to
provide the Complex with access to market segments which the Company
believes have not been extensively penetrated by other hotel/casinos in Las
Vegas. London Clubs provides the Aladdin with a substantial network of
international premium players and superb promotional opportunities.
Furthermore, it is expected that
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Planet Hollywood will introduce a younger, affluent clientele to the Complex
through, among other things, celebrity involvement in the Music Project.
CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS. The Company anticipates the
total cost of developing, financing, constructing and opening the Aladdin to be
approximately $790 million (excluding the Company's $21.3 million planned
indirect cash contribution and $15.0 million appraised fair market value land
contribution to Aladdin Music as part of the development funds for the Music
Project). As part of the Company's strategy of carefully managing construction
costs and risks, the Company has hired Tishman Construction Corporation of
Nevada ("Tishman"), to be the construction manager. Tishman is a subsidiary of
Tishman Realty & Construction Co. Inc., a privately held company with extensive
experience in building quality hotels and casinos. As construction manager,
Tishman will advise with respect to scheduling, administration and reporting in
connection with the construction activities of the Design/ Builder (as defined
herein). In addition, the following arrangements have been made to ensure the
full and timely completion of the Aladdin.
- - BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY. London Clubs,
the Trust and Bazaar Holdings have entered into a completion guaranty (the
"Bank Completion Guaranty") for the benefit of the lenders under the Bank
Credit Facility (the "Bank Lenders"), under which they have agreed to
guarantee, among other things, the completion of the Aladdin. The Bank
Completion Guaranty is not subject to any maximum dollar limitations. The
holders of the Notes are not party to the Bank Completion Guaranty, however
London Clubs, the Trust and Bazaar Holdings have entered into a limited
completion guaranty for the benefit of the holders of the Notes (the
"Noteholder Completion Guaranty"), under which they guarantee completion of
the Aladdin, subject to certain important exceptions, limitations and
qualifications. The Noteholder Completion Guaranty contains certain
intercreditor provisions which significantly limit the rights of the Trustee
(as defined herein) under the Noteholder Completion Guaranty. In particular,
the Noteholder Completion Guaranty sets forth certain standstill periods
during which the Trustee or the holders of the Notes may not enforce the
Noteholder Completion Guaranty or seek remedies thereunder even if there is
a default under the Bank Completion Guaranty and the Bank Lenders are no
longer advancing funds. In particular, the Noteholder Completion Guaranty
may not be enforced unless (i) no funds have been advanced under the Bank
Credit Facility, (ii) the Bank Credit Facility has been indefeasibly repaid
in full and the Guarantors have been completely released from their
obligations under the Bank Completion Guaranty, or (iii) a default has
occurred under the Bank Completion Guaranty and the Bank Lenders have failed
to fund construction, for a period ranging from two to six months, depending
upon the amount which has been advanced under the Bank Credit Facility at
such time. In addition, there are limitations and restrictions on the rights
of the Trustee to enforce the Noteholder Completion Guaranty, particularly
following any exercise of remedies by the Bank Lenders. No financial
information regarding the Trust is available for the purpose of evaluating
the Trust's creditworthiness and, accordingly, purchasers of Notes should
not rely upon the Trust's performance under the Bank Completion Guaranty or
Noteholder Completion Guaranty when making their investment decision. See
"Risk Factors--Lack of Available Information on the Trust's Ability to
Perform Its Obligations Under Certain Agreements," "--Limitations Under Bank
Completion Guaranty and Noteholder Completion Guaranty," "Description of
Noteholder Completion Guaranty and Disbursement Agreement--Noteholder
Completion Guaranty" and "Description of Certain Indebtedness and Other
Obligations--Completion Guaranty."
- - DESIGN/BUILD CONTRACT. Fluor Daniel, Inc. (the "Design/Builder") is the
design/builder for the Aladdin. The Design/Builder has entered into a
guaranteed maximum price design/build contract (subject to increases based
on scope changes) with the Company to design and construct the Aladdin (the
"Design/Build Contract"). The Design/Build Contract provides the
Design/Builder with incentives for completing the Aladdin ahead of schedule
and within budget and for payment of liquidated damages to the Company for
certain delays. The Design/Build Contract is guaranteed by Fluor Corporation
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("Fluor"), the parent of the Design/Builder, pursuant to the Fluor Guaranty
(as defined herein). See "Certain Material Agreements--Design/Build
Contract."
- - MALL FINANCING AND MALL GUARANTY. Bazaar has entered into a building loan
agreement with Fleet National Bank ("Fleet," and together with any lenders
in a financing syndicate to be formed, the "Mall Lenders"), and Fleet as
administrative agent for a credit facility to fund the construction of the
Mall Project (the "Mall Financing"). Furthermore, TrizecHahn, TrizecHahn
Office Properties, Inc. ("THOP"), an affiliate of TrizecHahn, the Trust,
Bazaar Holdings and AHL have agreed to guarantee completion of the Mall
Project and Bazaar's indebtedness to the Mall Lenders until certain earnings
and loan to value targets have been met (collectively, the "Mall Guaranty").
Investors should note that TrizecHahn has announced that it is considering
selling its operating portfolio of regional shopping centers and on April 6,
1998, announced the sale of 20 regional shopping centers for over $2.5
billion. While TrizecHahn's announcement is limited to the sale of its
current operating portfolio of regional shopping centers, there can be no
assurance that TrizecHahn will not similarly decide to sell its interest in
the Desert Passage. Accordingly, investors cannot be assured that TrizecHahn
will own and operate the Desert Passage once it becomes operational, and as
a result, pedestrian traffic to the Aladdin may decrease. See "Risk
Factors--Completion of the Mall Project and the Music Project."
MANAGEMENT AND DEVELOPMENT TEAM
The Complex is being developed by a team with broad expertise in each of the
elements of the Complex and which, collectively, have a proven track record in
constructing, completing and operating significant hotel casino projects.
MANAGEMENT TEAM. The management team of the Company, which will develop and
operate the Aladdin and the Music Project, comprises a unique combination of
executives with an average of more than 20 years' experience in the management
of hotels, casinos, restaurants and large real estate projects. The team
includes:
- - Jack Sommer, Chairman of the Company, who has been a full-time resident of
Las Vegas since 1988 and has more than 25 years of experience as a developer
of real estate including luxury projects such as North Shore Towers, in
Queens County, New York, The Sovereign at 425 East 58th Street in Manhattan
and 280 Park Avenue, an 820,000 square foot office building in Manhattan
formerly owned and currently partially occupied by the Bankers Trust
Company.
- - Richard J. Goeglein, Chief Executive Officer, President and a director of the
Company who has spent over 28 years in the hotel/casino and food service
industries. Mr. Goeglein has served as President and Chief Executive Officer
of Harrah's Hotels and Casinos and as President and Chief Operating Officer
of Holiday Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns
and Embassy Suites). Mr. Goeglein oversaw the acquisition of Harrah's and
the development of some of Harrah's most successful projects, including
Harrah's Hotel and Casino in Atlantic City, and its expansion into Southern
Nevada.
- - James H. McKennon, Senior Vice President of the Company and President/Chief
Operating Officer of the Aladdin Hotel and Casino, whose career spans over
21 years in the hotel and casino industry in a variety of executive
positions, including as President and Chief Operating Officer of Caesars
World International Marketing Corp. Mr. McKennon was also President and
Chief Operating Officer of Caesars Tahoe for 4 years and was instrumental in
its financial turnaround.
- - Cornelius T. Klerk, Senior Vice President/Chief Financial Officer of the
Company, has over 19 years experience in the hotel and casino industry both
at the corporate and property level, including as Vice President/Finance of
the Hilton Hotels Gaming Division from 1993 to 1997. Mr. Klerk also served
in a variety of senior financial management positions during the development
and operation of Harrah's Hotel and Casino in Atlantic City and Harrah's
Trump Plaza (now Trump Plaza) in Atlantic City.
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DEVELOPMENT TEAM. The Company and its affiliates have been involved in the
design of the Complex for over 24 months and have assembled a development team
with proven experience in the development of high quality resort projects. The
team includes:
- - Tishman, the construction manager for the Aladdin. Tishman or its affiliates
have developed or built over 30,000 hotel rooms nationwide, including the
Golden Nugget and the Trump Castle Hotel and Casino in Atlantic City, the
400-room expansion of Harrah's Hotel and Casino in Atlantic City, the 2,300
room Walt Disney World Dolphin and Swan Hotel and Convention Complex and the
1,200 room Sheraton Chicago Hotel.
- - The Design/Builder, a subsidiary of Fluor. The Design/Builder is recognized
internationally as an industry leader in providing architectural,
engineering and construction services, including resort projects such as the
Guest Inn Timika in Indonesia, the Pan Pacific Hotel in Malaysia and the
Hyatt Regency Greenville Hotel.
- - ADP/FD of Nevada, Inc. ("ADP"), the Complex architect and an indirect
subsidiary of Fluor. ADP is wholly owned by ADP Marshall, Inc. ("ADP
Marshall"), which is well-known for its architecture work and mixed-use
projects. Its architecture client list includes Princess Hotels, Inc.
(Scottsdale and Acapulco) and Carefree Resorts (The Boulders, The Peaks,
Carmel Valley Ranch).
- - THB, a wholly-owned subsidiary of TrizecHahn and the joint venture partner of
ABH in the Mall Project. Prior to its recently announced sale of 20 regional
shopping centers, TrizecHahn owned and managed 27 regional centers in major
markets throughout the United States, comprising over 25 million square
feet.
- - Brennan Beer Gorman Monk/Interiors ("BBGM"), the interior designer for the
Aladdin. BBGM specializes in hospitality design and has experience in
casinos, restaurants, retail, spa/fitness centers and specialty theme
projects, including the recently renovated and expanded Caesars Atlantic
City hotel, Mohegan Sun Casino and TropWorld. BBGM's hotel projects have
included the St. Regis, the Plaza and the Sheraton Hotel & Towers in New
York City.
8
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[CHART]
9
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USE OF PROCEEDS
No proceeds will be received by the Issuers from the Exchange Offer. The
gross proceeds from the Offering were $115.0 million. The net proceeds (net of
discounts for Initial Purchasers (as defined herein) and estimated Offering
expenses) together with the proceeds from the other Funding Transactions are
being used to develop, construct, equip and open the Aladdin and to fund the
Company's cash contribution to Aladdin Music with respect to the Music Project.
Upon or prior to consummation of the Offering, (i) the proceeds from the
sale of the Units were allocated between the Old Notes and the Warrants, (ii)
Sommer Enterprises (a) contributed a portion of the Contributed Land (as defined
herein) and $7.0 million consisting of the benefit of certain predevelopment
costs incurred by AHL to Enterprises in exchange for Class A Common Stock in
Enterprises and (b) contributed a portion of the Contributed Land to Holdings in
exchange for Holdings Common Membership Interests, (iii) Enterprises contributed
the portion of the Contributed Land, the benefit of the predevelopment costs
received from Sommer Enterprises and the net proceeds allocable from the sale of
the Warrants to Holdings in exchange for Holdings Common Membership Interests
(the "Enterprises Contribution"), (iv) Holdings contributed the Contributed Land
appraised at $150.0 million, approximately $42 million in cash from the London
Clubs Contribution (as defined herein) and the $7.0 million consisting of the
benefit of certain predevelopment costs incurred by AHL to the Company in
exchange for Common Membership Interests of the Company, and (v) Holdings
contributed $115.0 million in cash, consisting of the net proceeds of the sale
of the Units and approximately $8 million from the London Clubs Contribution, to
the Company in exchange for Series A Preferred Interests of the Company ((iv)
and (v) collectively, the "Equity and Series A Preferred Interest Financing").
The London Clubs Contribution, together with a portion of the net proceeds of
the Offering, were expended on the Issue Date to repay certain existing
indebtedness assumed by the Company in connection with the Sommer Equity
Financing (as defined herein) and to pay certain accrued expenses and certain
fees and expenses incurred in connection with the Funding Transactions. The
remaining net proceeds from the Offering (approximately $35 million) were
deposited in a segregated escrow account (the "Note Construction Disbursement
Account"), which was pledged as collateral for the benefit of the holders of the
Notes, pending disbursement of such funds pursuant to the Disbursement
Agreement. The liquidation preference of the Series A Preferred Interests held
by Holdings will at all times equal the Accreted Value of the Notes.
Prior to or contemporaneously with the Offering, the following other
arrangements (together with the Offering, the "Funding Transactions") were
consummated for the financing by the Company of the Aladdin: (i) the
consummation of the Sommer Equity Financing and the indirect equity contribution
to Holdings by London Clubs of $50.0 million in cash (the "London Clubs
Contribution") in exchange for Holdings Common Membership Interests; (ii) the
closing of the $410.0 million Bank Credit Facility entered into by the Company
and the funding of the Term B Loan (as defined herein) and the Term C Loan (as
defined herein) thereunder into the Cash Collateral Account (as defined herein)
and (iii) delivery of the executed commitment letter entered into by the Company
for one or more leases or loans in the aggregate amount of $80.0 million,
covering the Specified Equipment and the Gaming Equipment (each as defined
herein), to be used in the Aladdin (the "FF&E Financing"). See "Controlling
Stockholders-- Equity and Series A Preferred Interest Financing," "Description
of Certain Indebtedness and Other Obligations--Bank Credit Facility" and "--FF&E
Financing."
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SOURCES AND USES OF FUNDS
The estimated sources and uses of funds raised for the development,
construction, equipping and opening of the Aladdin are as follows (in millions):
<TABLE>
<CAPTION>
SOURCES USES
- --------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C>
Bank Credit Facility(1)....................... $ 410.0 Hotel and Casino(7)........................... $ 295.6
FF&E Financing(2)............................. 80.0 Off-Site Improvements(8)...................... 6.8
Senior Discount Notes due 2010(3)............. 115.0 Reimbursable Site Work Expenses(6)............ 14.2
Land Contribution(4).......................... 150.0 Furniture, Fixtures and Equipment and
Cash Contribution(5).......................... 57.0 Gaming Equipment(9)........................... 107.5
Anticipated Site Work Land(10)...................................... 135.0
Reimbursement(6)............................ 14.2 Retire Existing Debt(11)...................... 74.5
Capitalized Interest, Net(12)................. 44.0
Pre-Opening Costs and Expenses................ 16.9
Reimbursement of Pre-development Costs(13).... 3.9
Working Capital(14)........................... 15.0
Construction and FF&E Contingency(15)......... 31.8
Land Investment in Music Project(16).......... 15.0
Cash Equity Investment in Music Project(17)... 21.3
Financing Fees and Expenses(18)............... 44.7
--------- ---------
Total Sources................................. $ 826.2 Total Uses.................................... $ 826.2
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The Company has entered into the Bank Credit Facility with the Bank Lenders.
The Bank Credit Facility, which closed concurrently with the closing of the
Offering, consists of: (a) a term loan of $136.0 million ("Term A Loan")
which matures seven years after the initial borrowing date; (b) a term loan
of $114.0 million ("Term B Loan") which matures eight and one-half years
after the initial borrowing date; and (c) a term loan of $160.0 million
("Term C Loan", and collectively with the Term A Loan and the Term B Loan,
the "Loans") which matures ten years after the initial borrowing date. The
Term B Loan and Term C Loan were funded into the Cash Collateral Account on
the Issue Dates, and in June 1998, the Company began to use a portion of
such funds in the construction of the Aladdin. The use of the remaining
proceeds of the Term B Loan and Term C Loan in the construction of the
Aladdin is subject to satisfaction of the conditions in the Disbursement
Agreement. It is anticipated that the Company will begin to draw down the
Term A Loan, subject to satisfaction of the conditions in the Disbursement
Agreement, in December 1999 (being approximately 21 months after the Issue
Date). See "Risk Factors--Conditions to Draw Down of Funds Under Funding
Transactions." All of the Loans will convert from construction loans into
amortizing loans on the Conversion Date (as defined herein), with
substantial amounts due during the final six quarters of the Term B Loan and
the Term C Loan. The Company has the option to pay interest at either LIBOR
or the alternate base rate ("ABR") published by The Bank of Nova Scotia
("Scotiabank"), in each case plus certain margins. See "Description of
Certain Indebtedness and Other Obligations--Bank Credit Facility."
(2) The Company has entered into an agreement with the FF&E Lender (as defined
herein) for provision of the FF&E Financing. The FF&E Financing consists of
$60.0 million of operating leases and $20.0 million in loans and will be
used by the Company to obtain the Gaming Equipment and Specified Equipment.
See "Description of Certain Indebtedness and Other Obligations--FF&E
Financing."
(3) Represents the gross proceeds of the Offering, which, net of expenses of
approximately $8 million, were contributed, together with approximately $8
million in cash received pursuant to the London Clubs Contribution, by
Holdings to the Company in exchange for Series A Preferred Interests.
(4) The land on which the Aladdin, the Music Project and the Plant (as defined
herein) will be built, including adjacent land of approximately 0.8 acres,
comprises a total of approximately 22.75 acres (the "Contributed Land") and
was contributed to the Company by Holdings in exchange for Common Membership
Interests. The Contributed Land has an appraised fair market value of $150.0
million (book value of $33.6 million as of December 31, 1997). Approximately
18 acres of the Contributed
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Land, having an appraised fair market value of $135.0 million, will be
retained by the Company and approximately 4.75 acres of the Contributed
Land, having an appraised fair market value of $15.0 million, will be
contributed to Aladdin Music for the Music Project.
(5) Represents (i) a $50.0 million cash contribution by London Clubs in exchange
for 25% of the Holdings Common Membership Interests and (ii) a $7.0 million
deemed equity contribution by Enterprises in exchange for Holdings Common
Membership Interests, consisting of certain pre-development costs incurred
by AHL in 1996, 1997 and 1998.
(6) Pursuant to the Site Work Agreement, the Company has agreed to complete the
construction of, among other things, certain shared structural space (the
"Mall Shared Space"), construction of which will commence prior to the
initial funding of the Mall Financing. Bazaar has agreed to reimburse the
Company for up to $14.2 million (including interest) of the costs associated
with such construction upon the completion of the Mall Shared Space. See
"Certain Material Agreements--Construction, Operation and Reciprocal
Easement Agreement and Related Agreements."
(7) Represents (i) the guaranteed maximum price of construction of the Aladdin
pursuant to the Design/ Build Contract of $267.0 million, less the
contingency allowance of $6.8 million and expected reimbursement from Bazaar
of $13.6 million (net of approximately $0.6 million of interest) as set
forth in note (6) above; (ii) approximately $35 million for theming the
Aladdin; (iii) $11.7 million for professional fees and disbursements; and
(iv) $2.3 million for permits and taxes. See "Risk Factors-- Completion of
the Mall Project and the Music Project." The Design/Build Contract contains
financial incentives for the Design/Builder to complete the Aladdin within
the construction budget and in a timely manner, as well as liquidated
damages payable to the Company for certain unexcused delays. See "Risk
Factors--Risks of New Construction," "--Risks Under Design/Build Contract
and Fluor Guaranty" and "Certain Material Agreements--Design/Build
Contract."
(8) Represents the cost of off-site improvements, including overhead pedestrian
walkways and widening of certain streets, for those parts of the Project
Site (as defined herein) on which the Aladdin will be built.
(9) Includes $26.5 million of gaming equipment and $81.0 million of furniture,
fixtures and other equipment (including the Specified Equipment consisting
of new furniture and equipment other than gaming equipment).
(10) Represents the appraised fair market value of the land on which the Aladdin
and the Plant will be built, together with adjacent land of approximately
0.8 acres.
(11) Represents the retirement on the Issue Date of $68.7 million of existing
indebtedness on the Contributed Land (with an interest rate of LIBOR plus
650 bps) and $5.8 million of existing debt owed by the Trust to GW Vegas LLC
("GW Vegas"), assumed by the Company as part of Holdings' equity
contribution to the Company.
(12) Represents capitalized gross interest under the Bank Credit Facility of
$57.4 million and capitalized gross interest of $2.4 million from leasing
expenses in connection with the FF&E Financing, from the date of the
Offering until the estimated completion of the Aladdin in the first four
months of the year 2000, net of interest income anticipated to be earned
upon the investment in cash equivalents of the funds (assumed to be at 5%
per annum) from the proceeds of the Offering and the proceeds of the Term B
Loan and Term C Loan.
(13) Represents $3.0 million of certain predevelopment costs incurred by AHL and
reimbursed on the Issue Date and up to $0.9 million of certain
predevelopment costs expected to be incurred and reimbursed over the
expected construction period.
(14) Represents cash on hand, inventories, deposits and other cash balances
required for the opening of the Aladdin.
(15) Comprises (i) the $6.8 million contingency included in the guaranteed
maximum price set forth in the Design/Build Contract and (ii) the $25.0
million general project contingency (collectively, the "Contingency").
(16) Represents the appraised fair market value of the approximately 4.75 acres
of land on which the Music Project will be built, which land will be
contributed by the Company to AMH in exchange for common membership
interests in AMH.
(17) Represents cash to be contributed by the Company to AMH in exchange for
common membership interests in AMH.
(18) Represents fees in connection with the organization of the Company and the
financing of the Aladdin, including approximately $8 million in expenses
incurred in connection with the Offering.
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THE EXCHANGE OFFER
The Old Notes were originally issued by the Issuers in the Offering pursuant
to which 221,500 Units were issued and sold. Each Unit consists of $1,000
principal amount of Old Notes and 10 Warrants. Pursuant to the Indenture (as
defined herein), the Old Notes and the Warrants will be separately transferable,
at the option of the holders thereof, upon the filing of the Registration
Statement. The exchange of Old Notes for New Notes pursuant to the Exchange
Offer will separate the Units if such separation has not occurred prior to the
date of exchange. The Exchange Offer applies solely to the Old Notes and does
not apply to the Units, the Warrants or the shares of Common Stock of
Enterprises or any successor entity and any other securities or property
issuable or deliverable upon exercise of the Warrants (the "Warrant Shares").
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Securities Offered........... $221.5 million aggregate principal amount of 13 1/2% Series
B Senior Discount Notes Due 2010, which have been registered
under the Securities Act (the "New Notes"). The terms of the
New Notes are identical in all material respects to those of
the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except for
the Issuers' obligations to pay Liquidated Damages to
holders of Old Notes under certain circumstances. See
"--Summary of the New Notes."
The Exchange Offer........... $1,000 principal amount of New Notes will be issued in
exchange for each $1,000 principal amount of Old Notes
validly tendered and not withdrawn pursuant to the Exchange
Offer. Old Notes may be exchanged only in integral multiples
of $1,000. The Company will issue New Notes to tendering
holders of Old Notes as promptly as practicable after the
Expiration Date. For a description of the procedures for
tendering, see "The Exchange Offer--Procedures for Tendering
Old Notes." The issuance of the New Notes is intended to
satisfy obligations of the Issuers under the Note
Registration Rights Agreement.
Expiration Date.............. The term "Expiration Date" shall mean, 5:00 p.m., New York
City time, on August 25, 1998, unless the Issuers shall, in
their sole discretion, have extended the period of time for
which the Exchange Offer is open, in which event the
"Expiration Date" shall mean the latest time and date at
which the Exchange Offer, as so extended by the Issuers,
shall expire.
Withdrawal................... Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the second to last business
day prior to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer............. The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuers. See "The
Exchange Offer--Conditions to the Exchange Offer."
Procedures for Tendering Old
Notes...................... Each holder of Old Notes wishing to accept the Exchange
Offer must, prior to the Expiration Date, complete, sign and
date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such
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Letter of Transmittal, or such facsimile, together with such
Old Notes and any other required documentation, to the
Exchange Agent (as defined herein) at the address set forth
herein or otherwise comply with the procedures countered
under "The Exchange Offer-- Procedures for Tendering Old
Notes." Certain brokers, dealers, commercial banks, trust
companies and other nominees may effect tenders by
book-entry transfer, including an Agent's Message (as
defined herein) in lieu of a Letter of Transmittal. See "The
Exchange Offer--Procedures for Tendering Old Notes."
Use of Proceeds.............. There will be no proceeds to the Issuers from the exchange
pursuant to the Exchange Offer. The gross proceeds received
by the Issuers from the sale of the Units, including the Old
Notes, together with the proceeds from the other Funding
Transactions and are being used in connection with the
development, construction, equipping and opening of the
Aladdin. See "Use of Proceeds."
Acceptance of Old Notes and
Delivery of New Notes...... Subject to the prior satisfaction, or waiver, of the
conditions set forth under "The Exchange Offer--Conditions
to the Exchange Offer," the Issuers will accept for exchange
any and all Old Notes which are properly tendered and not
withdrawn in the Exchange Offer prior to the second to last
business day prior to the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The Exchange
Offer-- Procedures for Tendering Old Notes."
Exchange Agent............... State Street Bank and Trust Company (the "Exchange Agent")
is serving as Exchange Agent in connection with the exchange
of the Old Notes for the New Notes.
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CONSEQUENCES OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Old Notes (other than any holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, PROVIDED such New Notes are acquired in the
ordinary course of the holder's business and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register thereunder
the New Notes prior to the offering or selling of such New Notes by such
broker-dealers. The Issuers have agreed, pursuant to the Note Registration
Rights Agreement and subject to certain specified limitations therein, to use
their reasonable best efforts to register or qualify the New Notes held by
broker-dealers for offer or sale under the securities or blue sky laws of such
jurisdictions as any such holder of such New Notes reasonably requests in
writing. If a holder of Old Notes does not exchange such Old Notes for New Notes
pursuant to the Exchange Offer, such Old Notes will continue to be subject to
the restrictions on transfer contained in the legend thereon. In general, the
Old Notes, unless registered under the Securities Act, may not be offered or
sold, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange; Transfers of New Notes."
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<PAGE>
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its consummation, the Old Notes
may continue to be traded in the PORTAL market. Following consummation of the
Exchange Offer, the New Notes will not be eligible for PORTAL trading.
SUMMARY OF THE NEW NOTES
The Exchange Offer applies solely to $221.5 million aggregate amount at
maturity of Old Notes outstanding on the date hereof and does not apply to the
Units, Warrants or Warrant Shares. The terms of the New Notes are identical in
all material respects to the Old Notes except that the Old Notes (but not the
New Notes) provide that if a Registration Default has occurred, Liquidated
Damages shall accrue at a rate of 0.25% per annum with respect to the first
90-day period immediately following the occurrence of the first Registration
Default and that the amount of Liquidated Damages increases by an additional
0.25% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of 1.00% per annum.
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Issuers...................... Holdings and Capital, as joint and several obligors.
Maturity Date................ March 1, 2010.
Accreted Value and
Interest................... The initial Accreted Value of the Old Notes was $519.40 per
$1,000 principal amount at maturity of the Notes. The Notes
will accrete at 13 1/2% (computed on a semi-annual bond
equivalent basis) based on the initial Accreted Value,
calculated from the Issue Date. The Notes will accrete to an
aggregate principal amount of $221.5 million by March 1,
2003. Cash interest will not accrue on the Notes prior to
March 1, 2003. Commencing on September 1, 2003, cash
interest on the Notes will be payable, at a rate of 13 1/2%
per annum, semiannually in arrears on March 1 and September
1 of each year until maturity.
Security..................... The Notes will be secured by a first priority pledge of the
proceeds deposited in the Note Construction Disbursement
Account and by a first priority pledge of all of the issued
and outstanding Series A Preferred Interests.
Series A Preferred
Interests.................. On the date of the consummation of the Exchange Offer
(unless extended), the Series A Preferred Interests will
have a liquidation preference of approximately $122.6
million. The liquidation preference of the Series A
Preferred Interests will accrete on a semi-annual bond
equivalent basis using a 360 day year comprised of twelve
30-day months. On March 1, 2003, the liquidation preference
of the Series A Preferred Interests will be $221.5 million.
All Series A Preferred Interests were issued to Holdings and
pledged to the Trustee for the benefit of the holders of the
Notes. From and after September 1, 2003, distributions on
the Series A Preferred Interests will be payable in cash.
Holdings will be obligated under the Indenture to utilize
such cash distributions to make payments on the Notes.
The Series A Preferred Interests will be mandatorily
redeemable on March 1, 2010. After March 1, 2003, the Series
A Preferred Interests will be redeemable at the option of
the Company, so long as the proceeds thereof are used by
Holdings to make a redemption of the Notes or an offer to
purchase Notes, in each case, in accordance with the terms
of the Indenture. See "Description of the Notes--Optional
Redemption" and "--Gaming Redemption." Except for the pledge
to
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the Trustee for the benefit of the holders of the Notes, the
exercise of remedies in respect of such pledge or any
transfer after foreclosure under such pledge, the Series A
Preferred Interests are non-transferable.
Optional Redemption.......... The Notes will be redeemable at the option of the Issuers,
in whole or in part, on or after March 1, 2003 at the
redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of
redemption. Notwithstanding the foregoing, on or prior to
March 1, 2001, the Issuers may redeem up to an aggregate of
35% the Accreted Value of the Notes at a redemption price of
113 1/2% of the Accreted Value thereof, plus Liquidated
Damages, if any, thereon to the redemption date, with the
proceeds of a Qualified Public Offering resulting in
aggregate net proceeds of at least $50.0 million.
Gaming Redemption............ The Notes will be subject to mandatory disposition and
redemption requirements following certain determinations by
any Gaming Authority (as defined herein). See "Description
of the Notes-- Gaming Redemption."
Change of Control............ Upon the occurrence of a Change of Control, the holders of
the Notes will have the right to require the Issuers to
purchase their Notes at a price equal to 101% of the
Accreted Value thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase.
Ranking...................... The Notes are senior obligations of the Issuers and rank
PARI PASSU in right of payment to all current and future
senior Indebtedness of the Issuers and senior in right of
payment to all current and future subordinated Indebtedness
of the Issuers.
The Notes are not guaranteed by any of Holdings'
subsidiaries. Therefore, the Notes are effectively
subordinated to all Indebtedness and other liabilities of
Holdings' subsidiaries (including, without limitation, to
the Company's obligations under the Bank Credit Facility).
Upon consummation of the Exchange Offer, the only
outstanding indebtedness of the Issuers will be the Notes.
Upon completion of the Aladdin, the Company is expected to
have $430.0 million of outstanding indebtedness, including
$410.0 million outstanding under the Bank Credit Facility,
an aggregate of $20.0 million outstanding under the loan
portion of the FF&E Financing (excluding $60.0 million in
operating leases under the FF&E Financing) and the Company
is expected to have an aggregate of $10.0 million available
to be borrowed under a working capital facility.
Original Issue Discount...... The Notes were offered at an original issue discount for
federal income tax purposes. Thus, although interest will
not begin accruing on the Notes prior to March 1, 2003,
original issue discount (i.e., the difference between the
stated redemption price at maturity of the Notes and their
issue price) will accrue from the issue date of the Notes
and will be included as interest income periodically
(including for periods ending prior to March 1, 2003) in a
Holder's gross income for United States federal income tax
purposes in advance of receipt of the cash payments to which
income is attributable. See "Certain
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United States Federal Income Tax Considerations--Tax
Treatment of the Notes--Original Issue Discount."
Covenants.................... The Indenture contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and
certain of their subsidiaries to, among other things: (i)
make restricted payments; (ii) incur additional Indebtedness
(as defined herein) and issue preferred stock; (iii) incur
Liens (as defined herein); (iv) pay dividends or make other
distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates; or
(vii) enter into new lines of business.
Subordination of the Notes... The holders, while free to exercise their rights and
remedies against Holdings, are bound under the Indenture, so
long as any portion of the Bank Credit Facility remains
outstanding, by standstill provisions prohibiting the
holders from initiating or intervening in an insolvency
proceeding of the Company; PROVIDED, HOWEVER, the holders
may intervene in an insolvency proceeding to the extent
necessary or advisable in any such insolvency proceeding to
file proofs of claim with respect to any Series A Preferred
Interests held by, or which secure obligations owing to, the
holders. Such provisions also specifically prohibit the
holders from seeking a substantive consolidation of the
Company.
In addition, the Indenture contains subordination provisions
to the effect that, in the event of a substantive
consolidation of the Company, Holdings and/or Capital, the
holders (i) will not be entitled to receive any cash or
other payments (other than securities subordinated to the
prior payment in full of the Bank Credit Facility to the
same extent as the Notes) in respect of the Notes until the
Bank Credit Facility has been indefeasibily paid in full in
cash and (ii) will be required to turn over to the Bank
Lenders any payments received in violation of such
provisions. Subject to such subordination and other
provisions, the holders will be entitled in any such
consolidated proceeding (other than a consolidated
proceeding resulting from the assertion of substantive
consolidation by the holders in violation of the foregoing
provisions) to exercise all rights available to the Holders,
as creditors or otherwise, and the Bank Lenders and any
agent on their behalf, will be prohibited from contesting
the involvement in such proceeding by the holders and from
seeking an equitable subordination of the holders' claims.
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PROVISIONS APPLICABLE TO THE EXCHANGE OFFER AND THE OFFERING
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Bank Completion Guaranty;
Noteholder Completion
Guaranty................... Pursuant to the Bank Completion Guaranty, the Trust, London
Clubs and Bazaar Holdings have agreed, among other things,
jointly and severally to guarantee the development,
construction and equipping of the Aladdin for the benefit of
the Bank Lenders. The holders of the Notes are not party to
the Bank Completion Guaranty, however, the Trust, London
Clubs and Bazaar Holdings have entered into the Noteholder
Completion Guaranty, which is subject to certain important
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qualifications, limitations and exceptions. The Noteholder
Completion Guaranty contains certain intercreditor
provisions which significantly limit the rights of the
Trustee under the Noteholder Completion Guaranty. In
particular, the Noteholder Completion Guaranty sets forth
certain standstill periods during which the Trustee and the
holders of the Notes may not enforce the Noteholder
Completion Guaranty or seek remedies thereunder even if
there is a default under the Bank Completion Guaranty and
the Bank Lenders are no longer advancing funds. In addition,
there are limitations and restrictions on the rights of the
Trustee to enforce the Noteholder Completion Guaranty,
particularly following any exercise of remedies by the Bank
Lenders. See "Risk Factors--Limitations Under Bank
Completion Guaranty and Noteholder Completion Guaranty" and
"Description of the Noteholder Completion Guaranty and
Disbursement Agreement--Noteholder Completion Guaranty."
Note Construction
Disbursement Account....... The proceeds from the London Clubs Contribution, together
with a portion of the net proceeds of the Offering were
expended on the Issue Date to repay certain existing
indebtedness assumed by the Company in connection with the
Sommer Equity Financing and to pay certain accrued expenses
and certain fees and expenses incurred in connection with
the Funding Transactions. The remaining net proceeds from
the Offering (approximately $35 million) were deposited and
held in the Note Construction Disbursement Account which has
been pledged to the Disbursement Agent for the benefit of
the holders of the Notes as collateral security for the
Notes, until disbursed. Funds will be disbursed from the
Note Construction Disbursement Account upon satisfaction of
certain conditions set forth in the Disbursement Agreement.
Pending disbursement from the Note Construction Disbursement
Account, such proceeds have been invested in cash and Cash
Equivalents (as defined herein).
Disbursement Agreement....... On the Issue Date, Holdings, the Company, the Administrative
Agent, the Trustee, the Disbursement Agent, the Securities
Intermediary (as defined herein) and the Servicing Agent (as
defined herein) entered into the Disbursement Agreement. The
Disbursement Agreement, among other things, establishes the
conditions to, and sequencing of, the making of
disbursements of the proceeds of the Offering, the funds
from the Term B Loan and Term C Loan and the advances of the
Term A Loan. Pursuant to the Disbursement Agreement, (i) all
of the proceeds from the Offering must be expended before
any proceeds from the Term B Loan and Term C Loan may be
disbursed; (ii) the proceeds from the Term B Loan and the
Term C Loan will be disbursed pro rata; and (iii) advances
under the Term A Loan will only be made after all of the
proceeds of the Term B Loan and Term C Loan are expended.
The draw down of funds under the FF&E Financing will not be
subject to the provisions of the Disbursement Agreement. See
"Risk Factors--Conditions to Draw Down of Funds Under
Funding Transactions" and "Description of Noteholder
Completion Guaranty and Disbursement Agreement--Disbursement
Agreement."
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Absence of an Established
Trading Market for the
Securities................. The New Notes are new issues of securities for which there
is currently no established trading market. Although the
Initial Purchasers have informed the Issuers that they
currently intend to make a market in the New Notes, they are
not obligated to do so and any such market making may be
discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of
any market for any of the New Notes.
Qualified Public Offering.... A "Qualified Public Offering" is defined as a public
offering of common stock registered under the Securities Act
and resulting in proceeds of at least $50.0 million.
Enterprises, Holdings or another entity which controls the
Company (each, an "IPO Entity") may effect such public
offering so long as prior to such public offering, London
Clubs, the Trust, or the beneficiaries of the Trust (whether
current or contingent) as of the date hereof which control
AHL or Sommer Enterprises, and holders of the Warrants and
Warrant Shares each hold, directly or indirectly, their
respective equity interests in the IPO Entity. London Clubs,
the Trust, or the beneficiaries of the Trust (whether
current or contingent) as of the date hereof which control
AHL or Sommer Enterprises, and the IPO Entity will use their
reasonable best efforts to effect such public offering such
that holders of the Warrants and Warrant Shares will not
recognize income gain or loss for federal income tax
purposes (other than as a result of a sale of their Warrant
Shares in such public offering) and holders of the Warrants
and the Warrant Shares will be subject to federal income tax
in the same manner and at the same times as would have been
the case if the Warrants were originally issued by the IPO
Entity.
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For additional information regarding the Exchange Offer and the New Notes,
see "Exchange Offer," "Description of the Notes," "Certain United States Federal
Income Tax Considerations" and "Notices to Investors."
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RISK FACTORS
PROSPECTIVE INVESTORS IN THE NEW NOTES AND HOLDERS OF OLD NOTES ARE STRONGLY
CAUTIONED THAT AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. THE
ABILITY OF THE ISSUERS AND THE COMPANY TO CAUSE THE COMPLETION OF AND TO
SUCCESSFULLY OPERATE THE ALADDIN IS SUBJECT TO AN UNUSUAL NUMBER OF MATERIAL
RISKS AND UNCERTAINTIES. THE CONTINGENCIES AND OTHER RISKS DISCUSSED BELOW COULD
AFFECT THE ISSUERS IN WAYS NOT PRESENTLY ANTICIPATED AND THEREBY MATERIALLY
AFFECT THE VALUE OF THE SECURITIES OFFERED HEREBY. A CAREFUL REVIEW AND
UNDERSTANDING OF EACH OF THE RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, IS ESSENTIAL FOR AN INVESTOR SEEKING
TO MAKE AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE NEW NOTES.
SUBSTANTIAL LEVERAGE
Holdings' sole material asset is its interest in the Company. Both Holdings
and the Company have substantial leverage and so could experience difficulties
servicing indebtedness.
The Issuers do not and may not in the future have any material assets other
than Holdings' ownership of 100% of the Common Membership Interests in the
Company and its ownership of 100% of the Series A Preferred Interests in the
Company, and do not and may not in the future have any material operations or
revenues (other than income derived from its interest in the Company).
Accordingly, the Issuers' ability to pay principal, interest, premium, if any,
or any other payment obligations on the Notes will be completely dependent on
the operations of the Company. Holdings is, and on consummation of the Exchange
Offer Holdings will continue to be highly leveraged with outstanding
Indebtedness consisting of the Notes. The Notes are not guaranteed by Holdings
or any of its subsidiaries. Therefore, any right of Holdings to receive assets
of any of its subsidiaries upon such subsidiary's liquidation or reorganization
will be effectively subordinated to the claims of that subsidiary's creditors,
except to the extent, if any, that Holdings itself is recognized as a creditor
of such subsidiary, in which case the claims of Holdings would still be
subordinate to the claims of such creditors who hold security in the assets of
such subsidiary to the extent of such assets and to the claims of such creditors
who hold Indebtedness of such subsidiary senior to that held by Holdings. Upon
completion of the Aladdin, the Company will be highly leveraged with substantial
fixed debt service obligations in addition to operating expenses, and is
expected to have $430.0 million of outstanding Indebtedness, including $410.0
million outstanding under the Bank Credit Facility and an aggregate of $20.0
million outstanding under the loan portion of the FF&E Financing. Such
indebtedness, with the Notes, is expected to represent 95% of the total
capitalization of Holdings and the Company as of the opening of the Aladdin and
require annual debt service payments ranging from $58.9 million to $91.6
million, depending on the year. The FF&E Financing also consists of $60 million
of operating leases. The Company is required to pay $13.6 million in minimum
lease payments annually under the lease portion of the FF&E Financing. Upon the
opening of the Aladdin, the Company is expected to have an aggregate of $10
million available under a working capital facility. In addition, the Indenture
allows the Company to incur additional indebtedness under certain circumstances.
See "Description of the Notes--Certain Covenants." The degree to which Holdings
and the Company are leveraged could have important consequences to the holders
of the securities offered hereby, including, but not limited to, the following:
(i) increasing the Company's vulnerability to adverse general economic and
industry conditions; (ii) affecting the proportion of the Company's operating
cash flow required to pay principal, interest and other amounts on indebtedness,
thereby reducing the funds available for operations; and (iii) impairing the
Company's ability to obtain additional financing for future working capital
expenditures, acquisitions or other general corporate purposes.
INABILITY TO REPAY DEBT
Holdings does not have any material assets or revenues except their
interests in the Company. As a result, the ability of Holdings to meet its
obligations under the Notes will be completely dependent on the operations of
the Company.
Pending the opening of the Aladdin, which is expected to occur in the first
four months of the year 2000, it is currently anticipated that the Company will
have no operations other than activities in
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connection with the development of the Aladdin. The Issuers' ability to pay
principal, interest and other amounts payable under the Notes will be dependent
upon the successful completion of the Aladdin and the Company's future operating
performance which is dependent upon a number of factors, many of which are
outside the Company's and the Issuers' control, including the successful
completion of the Mall Project, prevailing economic conditions and financial,
business, regulatory and other factors affecting the Company's operations. If
the Company is unable to complete the Aladdin within its construction budget or,
once operating, is unable to generate sufficient cash flow, it could be required
to adopt one or more alternatives, such as obtaining additional financing to the
extent permitted by the Indenture and the Bank Credit Facility, reducing or
delaying planned construction or capital expenditures, restructuring debt or
obtaining additional equity capital. There can be no assurance that any of these
alternatives could be effected on satisfactory terms, and the inability to
acquire additional financing could materially and adversely affect the Company
and the Issuers and result in the Issuers being unable to make required payments
on its debt obligations, including the Notes.
Additionally, there can be no assurance that the Aladdin will be able to
attract a sufficient number of patrons to achieve the level of activity
necessary to permit the Company and the Issuers to meet their payment
obligations in connection with the Funding Transactions and any other
indebtedness or obligations of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Description of the
Notes--Certain Covenants" and "Description of Certain Indebtedness and Other
Obligations."
CONDITIONS TO DRAW DOWN OF FUNDS UNDER FUNDING TRANSACTIONS
There are significant conditions to the draw down of funds under the terms
of the various Funding Transactions. The aggregate amount of financing subject
to conditions is $524.6 million as of May 29, 1998, comprising $410 million
under the Bank Credit Facility, $6 million under the Offering and $80 million
under the FF&E Financing. Failure by the Company to meet any of these conditions
could have a material adverse effect on its ability to complete the Aladdin.
Financing for the construction and development of the Aladdin and of the
other components of the Complex has been provided by multiple parties,
including, with respect to the Aladdin, the holders of the Notes, the Bank
Lenders and the FF&E Lender, and with respect to the Mall Project, the Mall
Lenders.
Concurrent with the closing of the Offering, the Company and Holdings
entered into the Disbursement Agreement with the Trustee (for the benefit of the
holders of the Notes) and Scotiabank, as Administrative Agent under the Bank
Credit Facility, Disbursement Agent on behalf of the Bank Lenders and the
holders of the Notes, and as securities intermediary (the "Securities
Intermediary") and U.S. Bank National Association, as the servicing agent (the
"Servicing Agent"). Pursuant to the Disbursement Agreement, the proceeds from
the Offering of the Notes that were not expended on the Issue Date (being
approximately $35 million) were deposited in a segregated escrow account (the
"Note Construction Disbursement Account"), which was pledged to the Disbursement
Agent for the benefit of holders of the Notes. Disbursements from the Note
Construction Disbursement Account are subject to the conditions established in
the Disbursement Agreement.
On the Issue Date, the proceeds of the Term B Loan and Term C Loan were
deposited in the Cash Collateral Account, which was pledged to the Disbursement
Agent for the benefit of the Bank Lenders. Disbursements from the Cash
Collateral Account and advances of the Term A Loan are also subject to
conditions established in the Disbursement Agreement. The significant conditions
on the Bank Lenders' obligations to fund or provide advances, include among
other things, (i) that all of the proceeds of the Offering have been disbursed,
(ii) the absence of any material adverse change in the financial condition,
business, property or prospects and the ability of the Company and the Project
Parties (as defined herein) to perform in all material respects their respective
obligations under the Operative Documents (as defined herein) to which they are
a party, (iii) the absence of any default or an event of default with respect to
material Operative Documents which would be reasonably likely to cause a
material adverse effect on the financial condition, business, property or
prospects of the Company or to the Company's knowledge, of the
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Project Parties and their ability to perform in all material respects their
respective obligations under the Operative Documents to which they are a party,
(iv) there being no failure on the part of the Company to keep the Bank Credit
Facility In Balance (as defined herein), and (v) compliance by the Guarantors
(as defined herein) under the Bank Completion Guaranty and London Clubs and AHL,
as Sponsors (as defined herein), under the Keep-Well Agreement. See "Description
of the Noteholder Completion Guaranty and Disbursement Agreement--Disbursement
Agreement."
The Company does not expect to draw down any funds under the Bank Credit
Facility until June 1998 (approximately four months after the Issue Date). If
the Company fails to satisfy the conditions to the draw down of funds under the
Bank Credit Facility, alternative sources of funding will need to be obtained
and/ or the Trust, Bazaar Holdings and London Clubs will be required to make
cash contributions to the Company pursuant to the Bank Completion Guaranty in
order for the Company to complete the Aladdin. The failure of the Company to
satisfy the conditions to the draw down of funds under the Bank Credit Facility
could have a material and adverse effect on the Company's ability to complete
the Aladdin and so the Issuers' ability to meet their obligations with respect
to the Notes.
General Electric Capital Corporation (the "FF&E Lender") and the Company
have entered into an agreement to provide the $80.0 million of aggregate
financing required to acquire the Specified Equipment and Gaming Equipment. The
availability of the FF&E Financing is subject to certain conditions. If the
Company is unable to finalize the FF&E Financing for any reason, the financial
position and results of operations of the Company, and so the Issuers, could be
materially and adversely affected.
There can be no assurance that each lender will perform its obligations or
observe the limitations on the exercise of remedies as set forth under such
agreements. Failure of any one or more of the lenders to perform under the
Disbursement Agreement could materially and adversely affect the Company, the
Issuers and holders of the Notes. In addition, financing by multiple lenders
with security interests that are interrelated by use or location of the
underlying collateral may result in increased complexity in a debt restructuring
or other workout of the Company.
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
Holdings is a holding company and its ability to pay interest on the Notes
is dependent upon distributions from the Company. The Bank Credit Facility
imposes substantial restrictions on the Company's ability to make distributions
to Holdings and, therefore, Holdings is limited in the amount which it has
available to pay principal and interest on the Notes.
Holdings is a holding company, and its ability to pay interest on the Notes
is dependent upon the receipt of distributions from its direct and indirect
subsidiaries. Holdings does not have and may not in the future have any material
assets other than its ownership of 100% of the Common Membership Interests and
100% of the Series A Preferred Interests of the Company. The Notes are not
guaranteed by any of Holdings' subsidiaries. Therefore, the Notes are
effectively subordinated to all Indebtedness and other liabilities of Holdings'
subsidiaries (including, without limitation, to the Company's obligations under
the Bank Credit Facility). Additionally, any right of Holdings to receive assets
of any of its subsidiaries upon such subsidiary's liquidation or reorganization
will be effectively subordinated to the claims of that subsidiary's creditors,
except to the extent, if any, that Holdings itself is recognized as a creditor
of such subsidiary, in which case the claims of Holdings would still be
subordinate to the claims of such creditors who hold security in the assets of
such subsidiary to the extent of such assets and to the claims of such creditors
who hold Indebtedness of such subsidiary senior to that held by Holdings.
The Company is a party to the Bank Credit Facility which imposes substantial
restrictions, including the satisfaction of certain financial conditions, on the
Company's ability to make distributions to Holdings. The ability of the Company
to comply with such conditions in the Bank Credit Facility may be affected by
events that are beyond the control of Holdings. If the maturity of loans under
the Bank Credit Facility were to be accelerated, all indebtedness outstanding
thereunder would be required to be paid in full before the Company would be
permitted to distribute any assets or cash to Holdings. In addition, certain
remedies available to the Bank Lenders under the Bank Credit Facility could
constitute events of default under the
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Indenture and so cause acceleration of the Notes. In such circumstances there
can be no assurance that the assets of the Company would be sufficient to repay
all of such outstanding debt and then to make distributions to Holdings to
enable Holdings to meet its obligations under the Indenture. Future borrowings
by the Company can also be expected to contain restrictions or prohibitions on
distributions by the Company to Holdings.
The Holdings Operating Agreement and the Company Operating Agreement (as
defined herein) also contain restrictions on distributions on the Holdings
Common Membership Interests and the Common Membership Interests, respectively.
In particular, distributions by the Company on Common Membership Interests
(other than distributions to cover tax liability) are limited while Series A
Preferred Interests are outstanding.
LIMITATIONS UNDER BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY
The Trust, London Clubs and Bazaar Holdings have entered into a Bank
Completion Guaranty and the Noteholder Completion Guaranty for the benefit of
the Bank Lenders and the Noteholders, respectively. Failure by the parties to
perform their obligations under such agreements could result in the Aladdin not
being completed in a timely manner, or at all.
Pursuant to the Bank Completion Guaranty, London Clubs, the Trust and Bazaar
Holdings have agreed, among other things, jointly and severally to guarantee the
development, construction and equipping of the Aladdin for the benefit of the
Bank Lenders. The holders of the Notes are not a party to the Bank Completion
Guaranty, however, London Clubs, the Trust and Bazaar Holdings have entered into
the Noteholder Completion Guaranty in favor of the Trustee for the benefit of
the holders of the Notes, subject to certain important qualifications,
limitations and exceptions. The Noteholder Completion Guaranty contains certain
intercreditor provisions which significantly limit the rights of the Trustee and
the holders of the Notes, including certain standstill periods during which the
Trustee and the holders of the Notes may not enforce the Noteholder Completion
Guaranty or seek remedies thereunder, even if there is a default under the Bank
Completion Guaranty and the Bank Lenders are no longer advancing funds. In
particular, the Noteholder Completion Guaranty may not be enforced unless (i) no
funds have been advanced under the Bank Credit Facility, (ii) the Bank Credit
Facility has been indefeasibly repaid in full and the Guarantors have been
completely released from their obligations under the Bank Completion Guaranty,
or (iii) a default has occurred under the Bank Completion Guaranty and the Bank
Lenders have failed to fund construction, for a period ranging from two to six
months, depending upon the amount which has been advanced under the Bank Credit
Facility at such time. See "Description of Noteholder Completion Guaranty and
Disbursement Agreement--Noteholder Completion Guaranty."
The Bank Completion Guaranty entered into by London Clubs, the Trust, and
Bazaar Holdings requires that if the Company has insufficient funds available to
complete the Aladdin, London Clubs, the Trust and Bazaar Holdings must
contribute cash to the Company to enable such completion, subject to certain
qualifications. The holders of Notes are not a party to the Bank Completion
Guaranty and, accordingly, none of them may enforce any rights thereunder. The
parties to the Bank Completion Guaranty have limited obligations under the Bank
Completion Guaranty until and unless the proceeds of the Funding Transactions
are, in the aggregate, insufficient to cover the construction cost increases
covered by the Bank Completion Guaranty. The Bank Completion Guaranty terminates
upon the indefeasible payment and performance of the Guaranteed Obligations (as
defined herein). See "Description of Certain Indebtedness and Other
Obligations--Bank Completion Guaranty."
The existence of the standstill provisions in the Noteholder Completion
Guaranty and the restrictions on the rights of the Trustee following any
exercise of remedies by the Bank Lenders under the Loan Documents (as defined
herein) could adversely impact the ability of the Trustee to enforce the
Noteholder Completion Guaranty. There may be periods where the Noteholder
Completion Guaranty and the Bank Credit Facility are both in default, where the
holders of the Notes are not able to enforce the Noteholder Completion Guaranty.
The law governing the measure of damages and other rights and remedies available
under instruments such as the Noteholder Completion Guaranty is unclear, and
there may be limitations
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on the enforceability of the Bank Completion Guaranty and the Noteholder
Completion Guaranty due to principles of law which occasionally have been
applied by courts of law to limit remedies under performance contracts of this
type. While some recovery under the Noteholder Completion Guaranty may be
possible, the Noteholder Completion Guaranty should not be relied upon as a
guaranty of any payment under the Notes. Any inability to enforce the Noteholder
Completion Guaranty could have a material adverse effect on the holders of the
Notes.
Neither the Bank Completion Guaranty nor the Noteholder Completion Guaranty
contain restrictions on the ability of the parties thereto to incur indebtedness
junior in respect of right of payment to the Guaranteed Obligations (excluding
certain types of indebtedness). While such parties have informed the Company
that they believe they will be able to perform their respective obligations
thereunder, no assurance can be given that they will have available the
financial resources if they are called on under the Bank Completion Guaranty or
the Noteholder Completion Guaranty. If the Trust and Bazaar Holdings fail to
perform their obligations under the Bank Completion Guaranty or the Noteholder
Completion Guaranty, London Clubs is, in certain circumstances, entitled
(through its affiliates) to exercise equal voting power to the Trust and its
affiliates in the affairs of Holdings. If the parties under the Bank Completion
Guaranty or the Noteholder Completion Guaranty are unable to perform their
respective obligations thereunder, it may be an Event of Default under the
Indenture and the Bank Credit Facility and the Aladdin may not be completed. In
addition, should certain London Clubs specified exceptional events (a "Specified
Event") under the Bank Completion Guaranty occur, at the option of the required
lenders, such Specified Event shall constitute an event of default under the
Bank Completion Guaranty and consequently under the Bank Credit Facility, and
the Bank Lenders, without any further notice to a Guarantor, shall be entitled
to exercise all rights and remedies available under the Bank Completion Guaranty
and any other Loan Documents. See "Description of Certain Indebtedness and Other
Obligations--Bank Completion Guaranty" for a description of such Specified
Events.
Certain historical financial information concerning London Clubs is included
herein to assist investors in evaluating the ability of London Clubs to perform
its obligations under the Noteholder Completion Guaranty and the Bank Completion
Guaranty. Such information has been prepared in accordance with United Kingdom
generally accepted accounting principles ("U.K. GAAP"), which principles are not
consistent with, and materially differ from, United States generally accepted
accounting principles ("U.S. GAAP"). With respect to the historical financial
information of London Clubs included herein, such differences relate (among
other things) to depreciation and amortization, valuation of fixed assets,
recognition of deferred taxes, accounting for employee stock options, and
accounting for pension costs. In making their investment decision, investors
should consider that if such financial information of London Clubs was restated
in accordance with U.S. GAAP, there are likely to be material differences from
such information as stated in accordance with U.K. GAAP. Such differences would
have no material effect on London Clubs' cash flows or liabilities and,
accordingly, also would have no material impact on its ability to meet its
obligations.
The U.K. Chancellor of the Exchequer has proposed to increase the highest
marginal rate of gaming duty (tax on casino betting profits) from 33 1/3% to
40%. If the proposed tax increase were to be enacted into law, London Clubs
could suffer a reduction of profits. The proposed tax increase is not certain to
be enacted, or if enacted, in the form in which it has been proposed.
The Trust, which is indirectly a controlling stockholder of Enterprises,
Holdings, Capital and the Company, is a joint and several guarantor (together
with London Clubs and Bazaar Holdings) under each of the Bank Completion
Guaranty and the Noteholder Completion Guaranty. In addition, the Trust and AHL
are guarantors of all Bazaar's obligations under the Mall Financing.
Furthermore, the Trust is expected to be an obligor under a keep-well agreement
expected to be entered into with respect to the Music Project (the "Music
Keep-Well Agreement"). See "--Lack of Available Information on the Trust's,
Ability to Perform Its Obligations Under Certain Agreements."
Bazaar Holdings was formed in September, 1997 and as of the Issue Date, had
no material assets, liabilities or earnings. Bazaar Holdings holds a 37.5%
membership interest in Bazaar and, as part of the
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Mall Financing, has provided certain guarantees and indemnifications to the Mall
Lenders. Except for the foregoing, Bazaar Holdings has no material assets,
liabilities or earnings and is not expected to have any material assets,
liabilities or earnings until the Mall Project is completed and operating.
Consequently, no financial information regarding Bazaar Holdings has been
included herein and, accordingly, purchasers of the Notes should not rely on
Bazaar Holdings' performance under the Bank Completion Guaranty and the
Noteholder Completion Guaranty when making their investment decision.
LACK OF AVAILABLE INFORMATION ON THE TRUST'S ABILITY TO PERFORM ITS OBLIGATIONS
UNDER CERTAIN AGREEMENTS
Due to lack of financial information on the Trust, investors have no way of
assessing the ability of the Trust to perform its obligations under the
Noteholder Completion Guaranty and the Bank Completion Guaranty. The Trust was
formed in 1982 with the residue and remainder of the assets of the Estate of
Sigmund Sommer (the "Estate") in order to hold, manage, invest and reinvest the
assets on behalf of its beneficiaries. Historically, the Trust's financial
statements have been limited to tax basis reports required by various tax
authorities, and the Trust has never prepared financial statements on a basis
required by U.S. GAAP. The Trust holds, among other assets, direct and indirect
interests in several real estate properties in addition to those owned by the
Aladdin Parties and the Company, including certain interests that were acquired
when it was formed. Although the Trust has determined the basis of those
interests for tax reporting purposes, it never made the determinations that
would be required by U.S. GAAP as to such matters as the appropriate carrying
values of certain of the properties initially bequeathed to the Estate;
allocations of costs of certain properties to various asset categories; amounts
of additional costs of development and interest to be capitalized; amounts, if
any, related to certain long-lived assets that should have been written down;
and accruals, if any, of contingent liabilities. The Trust believes that the
complexity of these issues in relation to the Trust's circumstances means that
the preparation of financial statements for the Trust in accordance with U.S.
GAAP would be extremely difficult if not impossible. Accordingly, no such
financial statements have been prepared and purchasers of Notes should not rely
upon the Trust's performance under the Noteholder Completion Guaranty or the
Bank Completion Guaranty when making their investment decision.
RISKS OF NEW CONSTRUCTION
Most large scale construction projects involve significant risks and
unforseen contingencies. As a result, the estimated cost of the Aladdin project
may exceed current projections.
Major construction projects (and particularly one of the anticipated size
and scale of the Aladdin) entail significant risks, including shortages of
materials or skilled labor, unforeseen engineering, environmental and/or
geological problems, work stoppages, weather interference, unanticipated cost
increases and unavailability of construction equipment. Construction, equipment
or staffing problems or difficulties in obtaining any of the requisite licenses,
permits, allocations or authorizations from regulatory authorities could
increase the total cost, delay, or prevent the construction or opening of the
Aladdin or the other components of the Complex or otherwise affect their
respective design and features.
The anticipated costs and opening dates for the Aladdin are based on
budgets, conceptual design documents (not all of which will be finalized at the
commencement of construction) and schedule estimates prepared by the Company
with the assistance of the architects and contractors described herein. See
"Business--Design and Construction Team." Under the terms of the Design/Build
Contract, the Design/Builder is responsible for all construction costs covered
by the Design/Build Contract that are in excess of the guaranteed maximum price
of $267.0 million, subject to certain qualifications. Pursuant to the Fluor
Guaranty, Fluor has made certain guarantees regarding the Design/Builder's
performance under the Design/Build Contract. However, the Design/Build Contract
provides that the guaranteed maximum price will be equitably adjusted on account
of (i) changes in the design documents at the request of the Company; (ii)
changes requested by the Company in the scope of the work to be performed
pursuant to the Design/Build Contract; and (iii) natural disasters, casualties
and certain other "force majeure" events beyond the reasonable control of the
Design/Builder. As a result, the actual price paid for the construction
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of the Aladdin may increase. If any such events occur, the construction costs
which must be borne by the Company may increase. The Design/Build Contract
requires that all subcontractors engaged by the Design/ Builder to perform work
and/or supply materials in connection with the construction of the Aladdin post
bonds, at the discretion of the Company and the Design/Builder, guaranteeing
timely completion of work and payment for all labor and materials. Nevertheless,
there can be no assurance that the Aladdin will commence operations on schedule,
that construction costs for the Aladdin will not exceed budgeted amounts or that
the Design/Builder will not challenge aspects of the guaranteed maximum price.
Failure to complete the Aladdin on budget or on schedule may have a material
adverse effect on the Company, and so the Issuers. The Aladdin is expected to be
completed in the first four months of the year 2000.
COMPLETION OF THE MALL PROJECT AND THE MUSIC PROJECT
There can be no assurance that the Mall Project or the Music Project will be
completed. While the Issuers believe that the Aladdin would still be viable even
without such projects, the failure of such projects to be completed could have a
material adverse effect on the Aladdin, and so Holdings and the holders of
Notes.
A principal part of the Complex will be the Mall Project, which is comprised
of the Desert Passage and the Carpark, and the Music Project (including the
Theater). The Company's business plan assumes that the Desert Passage and the
Music Project will attract a substantial flow of pedestrian traffic to the
Casino and that the Carpark will provide essential parking facilities for both
overnight and casual guests at the Aladdin. However, the Company will neither
develop nor own the Desert Passage, the Carpark or the Music Project and the
completion of the Aladdin is not contingent on their completion. Failure of the
Mall Project or the Music Project to be developed or to become operating in a
timely manner will have a material adverse effect on the Company and the
Issuers. Investors should note that the funding arrangements for the completion
of the Music Project have not been finalized, and there can be no assurance that
such funding arrangements will be finalized at any time, or that the Mall
Project or Music Project will be completed.
The Mall Project will be developed and owned by Bazaar. Bazaar is
37.5%-owned by Bazaar Holdings, which is indirectly controlled by the Trust and
therefore is an affiliate of Holdings and the Company. Bazaar Holdings and THB
have entered into an operating agreement (as amended, the "Bazaar LLC Operating
Agreement") under which each party has agreed to cooperate in the development
and operation of the Mall Project, and Bazaar Holdings, THB and THOP have
provided certain undertakings to effect the development of the Mall Project in
an agreed manner and time frame. See "Certain Material Agreements--Bazaar LLC
Operating Agreement."
Bazaar and the Mall Lenders have entered into a building loan agreement for
the Mall Financing. Funding under the Mall Financing is subject to certain
conditions. If Bazaar fails to satisfy the conditions to the draw down of funds
under the Mall Financing, alternative sources of funding will need to be
obtained. TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL have agreed to
guarantee the completion of the Mall Project and Bazaar's indebtedness to the
Mall Lenders pursuant to the Mall Guaranty. Neither the Company nor the Issuers
is a party to the Bazaar LLC Operating Agreement, the Mall Guaranty or the Mall
Financing and so neither the Company nor any of the Issuers may enforce or
prevent the amendment or cancellation of any of the rights or obligations
thereunder. In addition, there can be no assurance that TrizecHahn, THOP, the
Trust, Bazaar Holdings and AHL will be in a position to comply with their
obligations under the Mall Guaranty. If the Mall Project is not completed, the
Company believes that it may need to incur additional costs to complete the
construction of the Aladdin, depending on the Aladdin's stage of construction.
If the Mall Project is abandoned after the construction of certain shared
structural space has begun, the Company believes that the costs of completing
the shared structural space (which would be used as retail space) and demolition
and construction expenses necessary to convert the site of the Mall Project into
surface parking would be approximately $23 million (including the $14.2 million,
including interest, no longer being reimbursed by Bazaar pursuant to the Site
Work Agreement).
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The success of the Mall Project, which is expected to be completed in the
first four months of the year 2000, will depend significantly on the skills and
experience of TrizecHahn in the management of entertainment shopping malls such
as the Mall Project. However, under the Bazaar LLC Operating Agreement,
TrizecHahn (through THB) is, in certain circumstances, entitled to dispose of
its interests in the Mall Project on or after the opening of the Mall Project.
Accordingly, there can be no assurance that, after such date, TrizecHahn will
continue to manage, or hold an equity interest in, the Mall Project. In
addition, on March 5, 1998, TrizecHahn announced that it is considering the sale
of its operating portfolio of regional shopping centers and on April 6, 1998
announced the sale of 20 regional shopping centers for over $2.5 billion.
TrizecHahn has indicated that its planned sale will not include TrizecHahn's
portfolio of development projects, including the Desert Passage. Although
TrizecHahn has indicated that it will proceed with and have sufficient financial
resources to complete the Desert Passage, even if a sale of its entire operating
portfolio were to be consummated, no assurance can be made that TrizecHahn will
be in a position to satisfy its obligations under the Bazaar LLC Operating
Agreement. While TrizecHahn's announcement is limited to the sale of its current
operating portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert Passage.
Accordingly, investors cannot be assured that TrizecHahn will own and operate
the Desert Passage once it becomes operational, and as a result, pedestrian
traffic to the Aladdin may decrease.
The Music Project is expected to be completed by October of the year 2000
and developed and owned by Aladdin Music. Pursuant to the London Clubs Purchase
Agreement, London Clubs, through its wholly owned subsidiary LCNI, has agreed
that so long as Aladdin Music obtains financing for the Music Project on terms
satisfactory to LCNI, and provided that certain other conditions are met,
Aladdin Music may develop and own the Music Project in accordance with the terms
described herein. If such conditions are not met, LCNI has the right to select
the method in which it will participate in the Music Project, if at all. There
can be no assurance that the conditions will be satisfied, and, if such
conditions are not satisfied, there can be no assurance that the Music Project
will proceed as described herein, or at all.
As currently anticipated, the Company and Planet Hollywood intend to operate
the Music Project in a manner conducive to the joint achievement of the
Company's and Aladdin Music's business objectives. While the Company has signed
the Music Project Memorandum of Understanding with Planet Hollywood in
connection with the development, construction and operation of the Music
Project, final documentation for the Music Project has not been entered into,
funding for the Music Project has not yet been finalized and certain significant
matters, such as the appointment of a general contractor to construct the Music
Project, remain incomplete. In addition, certain significant economic issues
concerning Planet Hollywood's obligations in connection with the Music Project
financing are currently being negotiated between the Company and Planet
Hollywood and there can be no assurance that the Company will satisfactorily
resolve such issues. If the Mall Project is not completed, it may not be
feasible to develop the Music Project. If the Music Project is not completed,
the Company intends to apply a portion of the funds which it has allocated for
its equity contribution to Aladdin Music to the renovation of the Theater.
However, without the support of Planet Hollywood through the Music Project, the
Company may not be able to attract the same quality of performers to the Theater
as it may otherwise have been able to attract. Further, even if the Music
Project is completed, there can be no assurance that the Music Project will be
operated in a manner conducive to the achievement of the Company's business
objectives. In addition, the Music Project and its owners must receive all
required Gaming Approvals (as defined herein) from the Nevada Gaming Authorities
(as defined herein) in order to conduct gaming operations.
The failure of Bazaar to complete the Mall Project would not be an Event of
Default under the Notes or the Indenture. An Event of Default would only occur
if less than 200,000 square feet of retail space (all of which retail space is
already included in the plans for the Aladdin) is built and the Issuers fail to
meet the fixed charge coverage ratio specified in the Indenture. See
"Description of the Notes--Events of Default." The Issuers believe that even if
TrizecHahn and Planet Hollywood abandoned the Mall Project and the Music
Project, respectively, the Issuers would, nevertheless, have sufficient cashflow
to meet such coverage ratio, there would consequently be no Event of Default
under the Notes and the Aladdin would continue to be viable.
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There can be no assurance (i) that Bazaar or Aladdin Music will have or
obtain sufficient funding to finance the development and operation of the Mall
Project or the Music Project, respectively; (ii) that the Desert Passage or the
Music Project will be completed; (iii) that if completed, the Desert Passage or
the Music Project will attract the number and types of customers expected by the
Company; or (iv) that if completed, the Music Project and its owners will obtain
all required Gaming Approvals or that if obtained, they will be obtained on a
timely basis. While the Issuers believe that the Aladdin would still be viable
even without the Mall Project or the Music Project, the failure of Bazaar or
Aladdin Music to develop and operate the Mall Project or the Music Project,
respectively, in the manner currently expected could materially and adversely
affect the success of the Aladdin and the financial position and results of
operations of the Company, and so the Issuers.
On July 21, 1998, Planet Hollywood announced that it has retained financial
advisors in connection with a review of Planet Hollywood's financial and
strategic alternatives and is continuing with an operational plan to address
current financial and operational performance issues.
In Planet Hollywood's Form 10-Q filed with the Commission for the first
quarter of 1998, Planet Hollywood reported an approximately 92% decline in first
quarter profits and an approximately 5% decline in first quarter revenue
compared to the first quarter of 1997. There can be no assurance that the Music
Project will proceed with Planet Hollywood. If the Music Project does not
proceed with Planet Hollywood, the Company may consider other alternatives,
including proceeding with another partner or partners or not proceeding with the
Music Project at all.
COMPLETION OF ENERGY PLANT
Although the obligations of the Energy Provider to complete the Plant in
accordance with the Development Agreement are guaranteed by Unicom (as defined
herein) there can be no assurance that the Energy Provider will perform its
obligations under the Development Agreement (as defined herein) or that Unicom
will perform its obligations under the Unicom Guaranty (as defined herein).
Energy will be provided to certain parts of the Complex by an energy plant
to be developed and constructed pursuant to the Development Agreement. The
Company has entered into the Development Agreement with Northwind Aladdin LLC
(the "Energy Provider") a subsidiary of UT Holdings Inc. ("UTH"). UTH is a
subsidiary of Unicom Corporation ("Unicom"). Pursuant to the Development
Agreement, the Energy Provider will develop and construct the Plant (as defined
herein) to serve the energy requirements of certain parts of the Complex. See
"Certain Material Agreements--Development Agreement." The design and
construction of the Plant will be at the sole cost and expense of the Energy
Provider, however, the Energy Provider shall not be responsible for costs in
excess of $40.0 million unless agreed to by the Energy Provider. The obligations
of the Energy Provider to complete the Plant in accordance with the Development
Agreement and in a manner capable of delivering the energy requirements of such
parts of the Complex in accordance with the Energy Service Agreement (as defined
herein) are guaranteed by the Energy Provider's ultimate parent, Unicom. Unicom
has agreed that if for any reason the Energy Provider shall fail or be unable to
punctually and fully perform or cause to be performed any of its obligations
under the Development Agreement, Unicom shall perform or cause to be performed
such obligations promptly upon demand. Unicom's obligations are limited to an
amount equal to $30.0 million (or, under certain circumstances, an amount less
than $30.0 million) and shall not be reduced until Substantial Completion (as
defined herein) of the Plant.
There can be no assurance that the Energy Provider will perform its
obligations under the Development Agreement, or that Unicom will perform its
obligations under the Unicom Guaranty. Failure of the Energy Provider or Unicom
to perform its obligations under the Development Agreement and Unicom Guaranty
or failure of the Energy Provider to perform its obligations under the Energy
Service Agreement, could materially and adversely affect the Company, the
Issuers and holders of the securities offered hereby. In addition, the Company
may have to make alternative arrangements for the provision of energy for the
Complex. Due to the fact that a number of other energy suppliers were willing to
construct the Plant prior to the Company selecting Unicom and that the payback
period for the Plant is the period
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following the opening of the Aladdin, the Company believes that such alternative
arrangements for completion of the Energy Project could be made. However, there
can be no assurance that such arrangements could, in fact, be made, or if made,
on terms favorable to the Company.
RISKS OF NEW VENTURE
The Company is a development stage company with no prior history. Therefore,
there can be no assurance that it will be able to manage and operate a
hotel/casino on a profitable basis.
Holdings' material assets are its interests in the Company. The Company is a
development stage company formed to develop and operate the Aladdin. The Company
has no history of operations and has never been involved in developing,
constructing or operating a hotel/casino project. Although certain members of
the Company's management have experience developing and operating large scale
hotels and casinos, none of these individuals has developed or operated a
development of the anticipated size of the Aladdin, and only certain of these
individuals have worked together with certain other members of the Company's
management team in developing or operating similar projects, none of such
projects being the anticipated size of the Aladdin. See "Management."
The operation of the Aladdin will be subject to significant business,
economic, regulatory and competitive uncertainties and contingencies, many of
which will be beyond the control of the Company and the Issuers. No assurances
can be given that the Company will be able to manage the Aladdin on a profitable
basis or attract a sufficient number of guests, gaming customers and other
visitors to the Aladdin to make its various operations profitable independently
or as a whole or to enable the Issuers to pay the principal of and interest on
the Notes. The Company will need to recruit a substantial number of new
employees prior to the opening of the Aladdin at a time when other major
facilities may be approaching completion and also recruiting employees. There
can be no assurance that the Company will be able to recruit a sufficient number
of qualified employees. Furthermore, it is not known to what extent such
employees will be covered by collective bargaining agreements, as that will be a
determination ultimately made by such employees. See "Business--Employees."
The opening and operation of the Aladdin will be contingent upon the receipt
of all regulatory licenses, permits, approvals, registrations, findings of
suitability, orders and authorizations from the Nevada Gaming Authorities (as
defined herein) (collectively, "Gaming Approvals") by the Company, Holdings and
its owners. The scope of the approvals required to construct and open the
Aladdin is extensive, and the failure to obtain or maintain such approvals could
prevent or delay the completion or opening of all or part of such facilities or
otherwise affect the design and features of the Aladdin. In particular, the
Company will be required to apply for and obtain approvals from the Nevada
Gaming Authorities with respect to the construction, design and operational
features of the Casino related to surveillance of gaming areas. In addition, the
Company will need to apply for and obtain, prior to commencement of gaming
activities at the Casino, a nonrestricted gaming license and Gaming Approvals
from the Nevada Gaming Authorities with respect to the operation of the Casino
and no assurances can be given that such Gaming Approvals will be obtained or
that if obtained, they will be obtained on a timely basis. Failure by the
Company to obtain any such Gaming Approvals could materially and adversely
affect the Company's financial position and results of operations. In connection
with the Company's receipt of Gaming Approvals, its members and their owners and
affiliates will also have to obtain applicable Gaming Approvals and no
assurances can be given that such Gaming Approvals will be obtained or if
obtained, that they will be obtained on a timely basis. See "--Government
Regulation" and "Regulation and Licensing." Capital will also be subject to
being called forward for a finding of suitability as a co-Issuer of the Notes in
the discretion of the Nevada Gaming Authorities.
LACK OF EXPERIENCE BY THE TRUST AND RELATED ENTITIES IN CASINO OPERATION AND
DEVELOPMENT
None of the Trust, AHL or Mr. Jack Sommer have had any prior experience in
the development or operation of casinos. Their experience is in the ownership
and/or development of office and apartment buildings and other real estate.
While London Clubs has substantial experience in the ownership and
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operation of casinos and certain members of the Company's management have
substantial experience in both the development and operation of casinos, there
can be no assurance that such experience will be sufficient to compensate for
the Trust's, AHL's and Mr. Sommer's lack of experience in the development and
operation of casinos.
LACK OF DIVERSIFICATION; DEPENDENCE ON SINGLE SITE
Neither the Issuers nor the Company anticipates having material assets or
operations other than their respective interests in the Aladdin. Accordingly,
they are subject to greater risks than a geographically diversified gaming
operation.
The Issuers do not currently anticipate having material assets and
operations other than Holdings' interests in the Company, and the Company does
not currently anticipate having material assets and operations other than the
Aladdin and its membership interests in and advances to AMH, a wholly owned
subsidiary of the Company which will own a 50% interest in the Music Project (on
a fully diluted basis) through Aladdin Music. Accordingly, the Issuers and the
Company will be subject to greater risks than a geographically diversified
gaming operation, including, but 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. The Company's, and so the
Issuers', principal sources of income following completion of the Complex will
be the Aladdin, and, to a lesser extent, fees received from Aladdin Music for
the provision of management services with respect to the Music Project.
Accordingly, the ability of the Issuers to make payments on the Notes will be
directly dependent on the success of the Aladdin and, to a lesser extent, the
Music Project.
ABILITY TO REALIZE ON COLLATERAL
The Notes are secured by a first priority pledge of all amounts deposited in
the Note Construction Disbursement Account and by a first priority pledge of all
of the issued and outstanding Series A Preferred Interests of the Company
(collectively, the "Note Collateral"). If an Event of Default occurs with
respect to the Notes, whether prior to or after completion of construction,
there can be no assurance that the liquidation of the Note Collateral will
produce proceeds in an amount sufficient to pay the principal of or accrued and
unpaid interest, if any, on the Notes.
If the Company is licensed by the Nevada Gaming Authorities, any (i)
guarantees of the Notes issued by the Company or its members, (ii) hypothecation
of assets of the Company as security for the Notes and (iii) pledges of the
equity securities of the Company (including, but not limited to, Common
Membership Interests and Series A Preferred Interests) and any other Company
Licensees (as defined herein) as security for the Notes will require the
approval of the Nevada Commission (as defined herein) in order to remain
effective. An approval by the Nevada Commission of a pledge of equity securities
of a Company Licensee does not constitute approval to foreclose on such pledge.
Separate approval is required to foreclose on a pledge of equity securities of a
Company Licensee and such approval requires the licensing of the Trustee unless
such requirement is waived upon the application of the Trustee. Additionally,
any restrictions on the transfer of, and agreements not to encumber, the equity
securities of the Company and any other Company Licensee in respect of the Notes
may require the approval of the Nevada Commission in order to remain effective.
See "Regulation and Licensing."
CERTAIN BANKRUPTCY CONSIDERATIONS
CREDITOR'S RIGHTS
The right of the agent appointed to hold the Note Collateral on behalf of
the holders of the Notes (the "Collateral Agent") and to repossess and dispose
of the Note Collateral upon the occurrence of an Event of Default under the
Indenture is likely to be significantly impaired by applicable bankruptcy law if
a bankruptcy case were to be commenced by or against Holdings, whether by a
holder of the Notes or another creditor (including a junior creditor), prior to
such repossession and disposition. Under applicable bankruptcy law, secured
creditors, such as the holders of the Notes and the lenders under the Bank
Credit
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Facility (which hold a pledge over the Holdings Common Membership Interests),
are automatically stayed from repossessing their security from a debtor in a
bankruptcy case, or from disposing of collateral in their possession, without
bankruptcy court approval. Moreover, applicable bankruptcy law permits the
debtor to continue to retain and use 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 secured creditor from 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. "Adequate
protection" may include cash payments or the granting of additional security at
such time and in such amount as the court may determine. In view of the lack of
a precise definition of the term "adequate protection," the broad discretionary
powers of a bankruptcy court and the possible complexity of valuation issues, it
is impossible to predict how long payments under the Notes could be delayed
following commencement of a bankruptcy case, whether or when the Collateral
Agent could repossess or dispose of the Note Collateral or whether or to what
extent the holders of the Notes would be compensated for any delay in payment or
loss of value of the Note Collateral through the requirement for "adequate
protection."
SUBSTANTIVE CONSOLIDATION
The Notes represent secured obligations of Holdings and Capital but do not
represent obligations of, and are not guaranteed by, AHL, the Company,
Enterprises, London Clubs, the Trust, or any of their affiliates (the
"Affiliated Parties"). Under the Bankruptcy Code, it is possible that if an
Affiliated Party, Holdings or Capital becomes a debtor under applicable
bankruptcy law, a bankruptcy court could order substantive consolidation of the
assets and liabilities of Holdings or Capital with those of any or all
Affiliated Parties. Substantive consolidation is an equitable, fact-based
remedy, not prescribed by statute, with respect to which the court has
considerable discretion. While the separate legal existence of Holdings and
Capital and their observance of certain formalities and operating procedures
could effectively preclude, based on the present state of the case law (i) a
finding that the assets of Holdings and Capital are property of the bankruptcy
estates of any of the Affiliated Parties and (ii) the substantive consolidation
of the assets and liabilities of Holdings and Capital with those of any
Affiliated Party, there can be no assurance that substantive consolidation would
not occur. In addition, there can be no assurance that during litigation of such
issues, delays will not occur in payments on the Notes, even if the court
ultimately rules against substantive consolidation, or that parties in interest
might determine to settle such issues to avoid the expense and delay of
litigation. If the court concludes there is substantive consolidation, however,
payments on the Notes could be delayed or reduced.
The Indenture contains an agreement for the benefit of the Bank Lenders
which will provide that the Holders, while free to exercise their rights and
remedies against Holdings, will be bound, for so long as any portion of the Bank
Credit Facility is outstanding, by standstill provisions prohibiting the Holders
from initiating or intervening in an insolvency proceeding of the Company except
as may be necessary or advisable in such insolvency proceeding to file proofs of
claim with respect to the Series A Preferred Interests held by, or which secure
the obligations owing to, the Holders. Such provisions also specifically
prohibit the Holders from seeking a substantive consolidation of the Company,
Holdings and/or Capital. The Indenture also contains subordination provisions to
the effect that, in the event of a substantive consolidation of the Company,
Holdings and/or Capital, the Holders (i) will not be entitled to receive any
cash or other payments (other than securities subordinated to the prior payment
in full of the Bank Credit Facility to the same extent as the Notes) in respect
of the Notes until the Bank Credit Facility has been indefeasibly paid in full
in cash and (ii) will be required to turn over to the Bank Lenders any payments
received in violation of such provisions.
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LIMITED-LIABILITY COMPANIES
Holdings and the Company are limited-liability companies organized under the
laws of the State of Nevada. Limited-liability companies ("LLCs") are relatively
recent creations not only under the laws of the State of Nevada but also under
the laws of other jurisdictions. Generally stated, LLCs are intended to provide
both the limited liability of the corporate form for their members and certain
advantages of partnerships, including "pass-through" income tax treatment for
members, and thus have attributes of both corporations and partnerships. Given
their recent creation, LLCs and their members have been involved in relatively
few bankruptcy cases as debtors, and there has been little reported judicial
authority addressing bankruptcy issues as they pertain to LLCs. Moreover, the
existing judicial authority on such issues in bankruptcies of analogous entities
(e.g. partnerships) is not well settled. Consequently, a bankruptcy of Holdings
or the Company, its members or any of their affiliates, may be litigated and
decided in the absence of dispositive judicial precedent, and thus, no assurance
can be made as to any particular outcome.
COMPLEXITIES RELATING TO MULTIPLE SECURED LENDERS
All of the Company's assets are subject to first priority liens, either to
the Bank Lenders under the Bank Credit Facility or the FF&E Lender under the
FF&E Financing. The FF&E Lender's security interests relate to assets to be used
in the Aladdin, which is pledged to the Bank Lenders. The existence of multiple
secured lenders could cause complexities in and prolong the duration of
bankruptcy proceedings or a debt restructuring of the Company, which in turn
could delay distributions to Holdings (the sole member of the Company), and so
to Noteholders.
RISKS UNDER DESIGN/BUILD CONTRACT AND FLUOR GUARANTY
Certain obligations of the Design/Builder under the Design/Build Contract
are guaranteed by Fluor (the "Fluor Guaranty"). A default by either the
Design/Builder under the Design/Build Contract or Fluor under the Fluor Guaranty
could result in the Aladdin not being completed on schedule and have a material
adverse effect on the Company and the Issuers. If a bankruptcy case were to be
commenced voluntarily by or involuntarily against Fluor, remedies available
under the Fluor Guaranty would be limited or unavailable. The Fluor Guaranty
does not cover cost increases caused by certain acts commonly referred to as
"force majeure."
CHANGE OF CONTROL
Upon a Change of Control, each holder of the Notes will have the right, at
such holder's option, to require the Issuers to purchase the Notes owned by such
holder at a price equal to 101% of the Accreted Value thereof plus accrued and
unpaid interest, if any, and Liquidated Damages, if applicable, to the date of
purchase. There can be no assurance that the Issuers will have sufficient funds
to purchase the Notes after a Change of Control. In addition, upon a change of
control of the Company (as defined in the Bank Credit Facility) all amounts
outstanding under the Bank Credit Facility will immediately become due and
payable. There can be no assurance that the Company will have sufficient funds
to repay the Bank Credit Facility or any other indebtedness that becomes due as
a result of such event. See "Description of the Notes--Repurchase at the Option
of Holders--Change of Control" and "Description of Certain Indebtedness and
Other Obligations--Bank Credit Facility."
OPERATING RESTRICTIONS
The terms of the Indenture, the Bank Credit Facility and the other
agreements governing the indebtedness of the Company impose significant
operating and financial restrictions on the Company and the Issuers. Such
restrictions significantly limit or prohibit, among other things, the incurrence
of certain additional debt, distributions, transactions with affiliates of the
Company and Holdings and the sale of certain assets. These restrictions, in
combination with the degree to which the Company is leveraged, could
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limit the ability of the Company to respond to market conditions or meet
extraordinary capital needs or could otherwise restrict corporate activities.
There can be no assurances that such restrictions will not materially and
adversely affect the ability of the Company to finance its future operations or
capital needs and the operation of its business and so the ability of the
Issuers to comply with the terms of the Indenture and the Notes. See
"Description of the Notes--Certain Covenants" and "Description of Certain
Indebtedness and Other Obligations."
POSSIBLE CONFLICTS OF INTEREST
Potential for conflicts of interest exists between the Aladdin, on the one
hand, and the other businesses to be operated on the Complex, and such conflicts
may adversely effect the Company and Holdings.
The Trust is expected to hold significant interests in all of these
businesses. Mr. Jack Sommer, who is Chairman and a director of the Company and
Holdings and Mr. Ronald Dictrow, who is Executive Vice President/Secretary and a
director of the Company and Holdings, are also directors of Bazaar. In addition,
certain directors and executives of the Company and Holdings are currently and
are likely to continue to be, directors and executives of Aladdin Music, which
will develop and own the Music Project. Further, it is expected that in addition
to managing the Aladdin, the Company, or one of its affiliates, will also manage
the Music Project. The objectives for each of these businesses may at times
differ and such differences may be material. In addition, all such businesses
will share the use of certain facilities on the Complex, including vehicular and
pedestrian traffic ways, the Carpark and certain utilities (such as the Plant,
which will provide energy to the Complex). For these reasons, potential exists
for conflicts of interest, including in relation to the division of management
time between each of these businesses, splitting of costs of shared facilities
and the sharing of future business opportunities arising in connection with the
Complex. For example, certain directors of Holdings may be faced with a
potential conflict of interest arising from their interests in and relationship
with the Aladdin and the other projects on the Complex. These include the
following:
- decisions to direct customers to the Aladdin, Music Project or Mall
Project
- allocations of costs and expenses relating to the REA (as defined herein)
and Energy Services Agreement
- cost allocations during construction for areas such as the Carpark, the
Plant and pedestrian traffic ways
- cost allocations for shared, general and administrative services such as
accountancy, purchasing and warehousing, human resources, and legal
To the Issuers' knowledge, there is no Nevada authority addressing the issue
of whether a person acting as a promoter owes fiduciary duties to the entity,
its owners or investors.
In addition, Planet Hollywood, which is a 50% shareholder in Aladdin Music
(on a fully diluted basis) and the developer of the Music Project, is not
contractually restricted or otherwise prevented from developing other music or
entertainment theme hotel casinos in Las Vegas. The development of a competing
Planet Hollywood-owned hotel in Las Vegas could give rise to conflicts of
interest for Planet Hollywood and could materially and adversely affect the
Music Project and so Aladdin Music, the Company and the Issuers.
London Clubs may have a potential conflict of interest arising from its
relationship with the Company. This includes directing clientele to its other
interests worldwide instead of the Aladdin and focusing resources on its other
projects.
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The Issuers believe that the agreements executed by London Clubs in
connection with the Aladdin deal with this conflict by providing London Clubs
with financial incentives which are dependent on certain financial goals being
obtained by the Company.
SHARED FACILITIES
Because the Aladdin, the Mall Project and the Music Project will share
certain operational facilities (the "Shared Facilities"), the construction of
all such projects will include the construction of the Shared Facilities in
sizes and/or capacities that will be sufficient for all such projects together,
but are in excess of what is minimally required for the Aladdin. The Shared
Facilities will include certain shared structural space, the Strip facade and
related retail areas of the Complex. The Company will bear the full cost of
constructing the Shared Facilities. However, Bazaar will be obligated to
reimburse the Company for a portion of the construction costs related to the
Shared Facilities if the Mall Project is completed. It is estimated that
Bazaar's share of the cost of constructing the Shared Facilities will be $14.2
million, including interest. If Bazaar is unable to obtain financing for the
Mall Project, it is unlikely that Bazaar will be able to reimburse the Company
for its share of the construction costs related to the Shared Facilities
pursuant to the Site Work Agreement.
RISK OF NON-PERFORMANCE UNDER KEEP-WELL AGREEMENT
Under the Keep-Well Agreement (as defined herein), AHL, London Clubs and
Bazaar Holdings have agreed to ensure the Company's compliance with certain
financial ratios. There can be no assurance that the parties will have
sufficient financial resources available if they are called to make payment
under the Keep-Well Agreement. Failure of any of the parties to the Keep-Well
Agreement to comply with their material obligations under the Keep-Well
Agreement could have a material and adverse affect on the Company and the
Issuers, and will constitute a default under the Indenture and the Bank Credit
Facility.
AHL, London Clubs and Bazaar Holdings have agreed pursuant to an agreement
(the "Keep-Well Agreement") to contribute funds to the Company to ensure the
Company's compliance with certain financial ratios and other requirements under
the Bank Credit Facility, subject to certain conditions. The holders of the
Notes are not party to the Keep-Well Agreement. The Keep-Well Agreement does not
constitute a guaranty of the obligations of the Company under the Bank Credit
Facility, the Notes or otherwise. In particular, under the Keep-Well Agreement,
the parties to the Keep-Well Agreement are not required to contribute an
aggregate of more than $150.0 million to the Company ($30.0 million in any
fiscal year), and are not required to contribute any amounts to the Company on
or after the earlier of the date on which the Company, without the benefit of
cash contributions from the Controlling Stockholders or their affiliates,
complies with all of the financial covenants set forth in the Bank Credit
Facility for six consecutive quarterly periods from and after the Conversion
Date (as defined herein) or the date on which the aggregate outstanding
principal amounts of the Bank Credit Facility are reduced below certain amounts
and prior to certain dates.
While the parties to the Keep-Well Agreement have informed the Company that
they believe they will be able to perform their obligations under the Keep-Well
Agreement, no assurance can be given that they will have available sufficient
financial resources if they are called on to make payments under the Keep-Well
Agreement. The obligations of London Clubs under the Keep-Well Agreement are
subordinated to other obligations of London Clubs under certain of its
pre-existing senior debt facilities. Furthermore, although the obligations of
London Clubs under the Keep-Well Agreement are guaranteed by certain
subsidiaries of London Clubs, such subsidiaries also currently guarantee senior
existing indebtedness of London Clubs. In addition, there are certain
restrictions on each of the parties' to the Keep-Well Agreement ability to incur
indebtedness or sell or transfer assets. If a party defaults in its obligations
under the Keep-Well Agreement, such party's (or its affiliate's) interest in
Holdings could be subject to dilution, which dilution could affect that party's
(or its affiliate's) ability to control or direct the policies of Holdings and
so the Company. Failure of each of the parties to the Keep-Well Agreement to
comply with their
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material obligations under the Keep-Well Agreement could have a material and
adverse effect on the Company and the Issuers, and will constitute a default
under the Indenture. The payments and issuance of additional securities will be
subject to the prior approval of the Nevada Gaming Authorities. See "Controlling
Stockholders--Keep-Well Agreement."
Certain historical financial information concerning London Clubs is included
herein to assist investors in evaluating the ability of London Clubs to perform
its obligations under the Keep-Well Agreement. Such information has been
prepared in accordance with United Kingdom generally accepted accounting
principles ("U.K. GAAP"), which principles are not consistent with, and
materially differ from, United States generally accepted accounting principles
("U.S. GAAP"). With respect to the historical financial information of London
Clubs included herein, such differences relate (among other things) to
depreciation and amortization, valuation of fixed assets, recognition of
deferred taxes, accounting for employee stock options, and accounting for
pension costs. In making their investment decision, investors should consider
that if such financial information of London Clubs was restated in accordance
with U.S. GAAP, there are likely to be material differences from such
information as stated in accordance with U.K. GAAP. Such differences would have
no material effect on London Clubs' cash flows or liabilities and, accordingly,
also would have no material impact on its ability to meet its obligations.
The U.K. Chancellor of the Exchequer has proposed to increase the highest
marginal rate of gaming duty (tax on casino betting profits) from 33 1/3% to
40%. If the proposed tax increase were to be enacted into law, London Clubs
could suffer a reduction of profits. The proposed tax increase is not certain to
be enacted, or if enacted, in the form in which it has been proposed.
The Trust, which is indirectly a controlling stockholder of Enterprises,
Holdings, Capital and the Company, is a joint and several guarantor (together
with London Clubs and Bazaar Holdings) under each of the Bank Completion
Guaranty and the Noteholder Completion Guaranty. In addition, the Trust and AHL
are guarantors of all Bazaar's obligations under the Mall Financing.
Furthermore, the Trust is expected to be an obligor under a keep-well agreement
expected to be entered into with respect to the Music Project (the "Music
Keep-Well Agreement"). No financial information regarding the Trust is publicly
available for the purpose of evaluating the Trust's creditworthiness and,
accordingly, purchasers of Notes should not rely upon the Trust's performance
under the Bank Completion Guaranty or the Noteholder Completion Guaranty when
making their investment decision.
DEPENDENCE UPON KEY MANAGEMENT AND LACK OF EXPERIENCED PERSONNEL
The Company is dependent to a large extent on the services of its senior
management. There can be no assurance that such individuals will remain with the
Company, and if such members of senior management do not remain with the
Company, the Company will be required to hire individuals with adequate
experience to replace such members of management on comparable terms, and no
assurances can be made as to the Company's ability to do so.
The ability of the Company to maintain its competitive position is dependent
to a large degree on its ability to retain the services of its senior management
team, including Jack Sommer, Richard Goeglein and James McKennon. Although
certain of the senior managers of the Company have employment agreements with
the Company, there can be no assurance that such individuals will remain with
the Company. The loss of the services of any of these individuals or an
inability to attract and retain additional senior management personnel could
have a material adverse effect on the operation of the Aladdin. There can be no
assurance that the Company will be able to retain its existing senior management
personnel or to attract additional qualified senior management personnel. See
"Management."
Until construction of the Aladdin is close to completion, the Company
believes that it will not require extensive operational management and,
accordingly, has kept and intends to keep its permanent staff at relatively
minimal levels. However, the Company will be required to undertake a major
recruiting and training program prior to the opening of the Aladdin at a time
when other major new facilities may be
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approaching completion and also recruiting employees. While the Company believes
that it will be able to attract and retain a sufficient number of qualified
individuals to operate the Aladdin on acceptable terms, the pool of experienced
gaming and other personnel is limited and competition to recruit and retain
gaming and other personnel is likely to intensify as more casinos are opened. No
assurance can be given that such employees will be available to the Company for
use in managing the Aladdin.
RISK OF OVERCAPACITY; COMPETITION AND PLANNED CONSTRUCTION IN LAS VEGAS
Construction of several new major resort projects could lead to increased
competition and overcapacity in the Las Vegas hotel/casino market. As a result
the operations and profitability of the Company could be materially and
adversely affected.
The hotel/casino industry is highly competitive. Hotels located on or near
the Strip ("Strip Hotels") compete with other Strip Hotels and with other major
hotels in downtown Las Vegas. The Aladdin will also compete with a large number
of other hotels and motels located in and near Las Vegas. According to the Las
Vegas Convention and Visitors Authority (the "LVCVA"), as of December 31, 1997,
there were 105,347 hotel and motel rooms in the Las Vegas area. Direct
competitors of the Company will include theme-oriented mega-resorts on the Strip
such as Caesars Palace Hotel, The Mirage, Treasure Island Hotel and Casino, New
York-New York Hotel and Casino and the MGM Grand Hotel and Casino. Many
competitors of the Company are subsidiaries or divisions of large public
companies and may have greater financial and other resources than the Company.
In addition, the construction of several new major resort projects that will
compete with the Company and the expansion of several existing resorts have
commenced construction or have recently been announced. These include the
planned Bellagio, Paris Casino Resort, Mandalay Bay and Venetian Casino Resort,
all currently under construction. Additionally, expansions have recently been
completed at Caesars Palace Hotel and Harrah's Las Vegas. These projects and
others are expected to add approximately 20,000 hotel rooms to the Las Vegas
inventory by 1999. According to the LVCVA, the number of rooms in Las Vegas rose
to over 105,000 in 1997, a gain of 6.3%, while the number of visitors rose only
by 2.8% to approximately 30 million. Accordingly, while hotel occupancy rates
currently stand at 90.3%, a comparison with hotel occupancy rates from 1994
shows only a slight increase. The future operating results of the Company, and
so the Issuers, could be materially and adversely affected by such competitors
and excess Las Vegas room and gaming capacity. Such competition and increased
supply with steady visitor counts has affected and may continue to affect room
prices, occupancy rates and profits.
The hotel/casino operations of the Company will also compete, to some
extent, with other hotel/casino facilities in Nevada and in Atlantic City, with
hotel/casino facilities elsewhere in the world and with state lotteries. In
addition, certain states have recently legalized, and others may or are likely
to legalize, casino gaming in specific areas, and passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in American Indian gaming
operations. The Company expects many competitors to enter such new jurisdictions
that authorize gaming, some of which competitors may have greater financial and
other resources than the Company and the legalization of casino gaming in or
near any metropolitan area from which the Company intends to attract customers
could have a material adverse effect on the business of the Company. Although
the Company is unaware of any particular legislation to legalize casino gaming
in or near metropolitan areas from which it could attract customers, such
proliferation of gaming activities could significantly and adversely affect the
business of the Company, and so the Issuers. See "Business--The Las Vegas
Market."
The Desert Passage will compete with retail malls in or near Las Vegas,
including the Fashion Show Mall, the Forum Shops at Caesars Palace and retailers
in theme-oriented mega resorts, all of which may attract consumers away from the
Desert Passage and so the Complex.
36
<PAGE>
CONTROLLING STOCKHOLDERS
AHL owns 98.7% of the common membership interests of Sommer Enterprises, a
Nevada limited-liability company. The Holdings Common Membership Interests are
held approximately 47.0% by Sommer Enterprises, 25.0% by Enterprises (which is a
wholly owned subsidiary of Sommer Enterprises), 25.0% by LCNI and the remaining
3.0% by GAI, LLC ("GAI"), a Nevada limited-liability company 100% beneficially
owned by Richard J. Goeglein, the Chief Executive Officer and a director of the
Company. Accordingly, AHL, through Sommer Enterprises, indirectly owns
approximately 71.1% of the Holdings Common Membership Interests. In addition,
London Clubs, through LCNI, owns 25% of the Holdings Common Membership
Interests. Accordingly, AHL and London Clubs (the "Controlling Stockholders")
control the business, policies and affairs of Holdings, and so the Company,
including the election of directors and managers and major corporate
transactions of the Company. It is expected that even if all the Warrants issued
in connection with the Offering are exercised, the Controlling Stockholders will
nevertheless continue to retain control of Holdings, and so the Company.
Under the Holdings Operating Agreement, if the Trust fails to make its
required 75% contribution for any amounts required to be made under the Bank
Completion Guaranty, LCNI (rather than Sommer Enterprises through Enterprises)
will have certain rights to control the Board of Managers of Holdings and LCNI
and Sommer Enterprises will each have equal direct or indirect voting rights in
deciding matters with respect to Holdings. Furthermore, if AHL fails to make its
required 75% contributions for any amounts required to be made under the
Keep-Well Agreement, LCNI (in addition to any rights London Clubs may have
against AHL and Sommer Enterprises, which may include the ability of London
Clubs to obtain ownership of Sommer Enterprises' equity interests in Aladdin
Enterprises) through Enterprises or otherwise will have the right to control the
Board of Managers of Holdings and increase its Holdings Common Membership
Interests up to a total of 72% of the Holdings Common Membership Interests and
Sommer Enterprises' Holdings Common Membership Interests will correspondingly
decrease, subject to receipt of Gaming Approvals. For a description of certain
relationships between the Company, AHL and LCNI, see "Controlling Stockholders"
and "Certain Transactions."
GOVERNMENT REGULATION
The gaming operations of the Aladdin and ownership of securities of the
Issuers will be subject to extensive regulation and discretionary oversight by
the Nevada Gaming Authorities. Changes in regulations or the denial or
revocation of a Gaming Approval could have a material adverse effect on the
Company and the Issuers.
The gaming operations and the ownership of securities of the Company,
Holdings and their affiliates will be subject to extensive regulation by the
Nevada Gaming Authorities. The Nevada Gaming Authorities will have broad
authority with respect to licensing and registration of entities and individuals
involved with the Company and the Issuers, including the holders of the Notes.
The Company and the Issuers may be required to disclose the identities of
the holders of the Notes to the Nevada Gaming Authorities upon request. The
Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Company (as defined herein), such as the Notes, to file
an application, be investigated and be found suitable to own the debt security
of a Registered Company. If the Nevada Commission determines that a person is
unsuitable to own such security, then pursuant to the Nevada Act (as defined
herein), the Registered Company can be sanctioned, including the loss of its
approvals if, without the prior approval of the Nevada Commission, it: (i) pays
to the unsuitable person any dividend, interest, or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with
such securities; (iii) pays the unsuitable person remuneration in any form, or
(iv) makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction.
Each holder of the Notes shall be deemed to have agreed (to the extent
permitted by law) that if the Nevada Gaming Authorities determine 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 such holder or
37
<PAGE>
beneficial owner either refuses to file an application or is found unsuitable,
such holder shall, upon request of the Issuers, dispose of such holder's Notes
within 30 days after receipt of such request or such earlier date as may be
ordered by the Nevada Gaming Authorities. The Issuers will also have the right
to call for the redemption of the Notes by any holder at any time to prevent the
loss or impairment of a Gaming Approval or an application for a Gaming Approval,
at a redemption price equal to the lesser of (i) the cost paid by such holder or
(ii) 100% of the aggregate Accreted Value thereof, plus accrued and unpaid
interest, if any, to the earlier of the date of redemption and the date of the
finding of unsuitability.
The Nevada Gaming Authorities may also, among other things, revoke the
license of any entity licensed by the Nevada Gaming Authorities (a "Company
Licensee") or the registration of a Registered Company (as defined herein) or
any entity registered as an intermediary company or a holding company of a
Company Licensee. In addition, the Nevada Gaming Authorities may revoke the
license or finding of suitability of any officer, director, manager, member,
controlling person, shareholder, noteholder or key employee of a licensed or
registered entity. If Gaming Approvals of the Company or Holdings were revoked
for any reason, the Nevada Gaming Authorities could require the closing of the
Casino, which would result in a material adverse effect on the Company and the
Issuers. The Company, and certain of its officers, directors, manager, members
and key employees, have applied for licensing with the Nevada Gaming
Authorities. Also, the Company possesses or has applied for all necessary state
and local government approvals, licenses and permits, other than Gaming
Approvals, necessary to open and operate the facility.
In addition, any future public offering of debt or equity securities by the
Company, the Issuers or Enterprises, including the Exchange Offer, any Qualified
Public Offering and the issuance of Common Stock of Enterprises upon the
exercise of the Warrants, if the securities or the proceeds from the sale
thereof are intended to be used to pay for construction of, or to acquire an
interest in, any gaming facilities in Nevada, to finance the gaming operations
of an affiliated company or to retire or extend obligations incurred for any
such purpose, requires the prior approval of the Nevada Commission, or a ruling
from the Chairman of Nevada Board (as defined herein) that such approval is not
required. See "Regulation and Licensing" and "Description of the
Notes--Redemption."
LACK OF PUBLIC MARKET FOR THE NEW NOTES
There are currently no trading markets for the New Notes. Therefore there
can be no assurance as to the liquidity of any such trading market, if a trading
market were to develop, or that a trading market for such securities will
develop at all.
The issuance of the New Notes is a new issue of securities for which there
is currently no trading market. There can be no assurance regarding the future
development of a market for the New Notes, or the ability of the holders of the
New Notes to sell such securities, or the price at which such holders may be
able to sell such securities. If such a market were to develop, the New Notes
could trade at prices that may be higher or lower than the initial offering
price depending on many factors, including prevailing interest rates, the
Issuers' operating results and the market for similar securities. Each of the
Initial Purchasers has advised the Issuers that it currently intends to make a
market in the New Notes. However, the Initial Purchasers are not obligated to do
so and any market making in respect to such securities may be discontinued at
any time without notice. Therefore, there can be no assurance as to the
liquidity of any trading market for the New Notes or that an active trading
market for such securities will develop. The Issuers do not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of such securities.
38
<PAGE>
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The New Notes will be issued at a substantial original issue discount from
their principal amount at maturity. Consequently, holders of the New Notes will
be required to include amounts in gross income for federal income tax purposes
in advance of receipt of the cash payments to which the income is attributable.
See "Certain United States Federal Income Tax Considerations" for a more
detailed discussion of the federal income tax consequences to the Holders of the
New Notes resulting from the purchase, ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Notes upon the occurrence of an Event of Default, holders of the Notes may be
entitled to recover only the amount which may be declared due and payable
pursuant to the Indenture, which could be less than the principal amount at
maturity of such Notes. See "Description of the Notes--Events of Default."
If a bankruptcy case is commenced by or against Holdings under the
Bankruptcy Code, the claim of a Holder with respect to the principal amount
thereof may be limited to an amount equal to the sum of (i) the issue price of
the Notes as set forth on the cover page hereof and (ii) that portion of the
original issue discount (as determined on the basis of such issue price) which
is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy
Code. Accordingly, under such circumstances, even if sufficient funds are
available, Holders may receive a lesser amount than they may otherwise be
entitled to under the express terms of the Indenture. In addition, the same
rules as those used for the calculation of original issue discount under federal
income tax law could apply in a bankruptcy to determine a Holder's claim.
Furthermore, a Holder might be required to recognize gain or loss in the event
of a distribution related to such a bankruptcy case. See "Certain United States
Federal Income Tax Considerations--Tax Treatment of the Notes--Disposition."
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Old Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Exchange Agent of such Old
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. Neither the Issuers nor the Exchange Agent are under any duty
to give notification of defects or irregularities with respect to the tenders of
Old Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, certain registration rights under the Note
Registration Rights Agreement will terminate. See "The Exchange
Offer--Consequences of Failure to Exchange; Resales of New Notes."
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Old Notes who tenders 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, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Consequences of
Failure to Exchange; Resales of New Notes."
ADVERSE EFFECT ON MARKET FOR OLD NOTES
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered and tendered but unaccepted Old
Notes could be adversely affected. See "The Exchange Offer."
39
<PAGE>
USE OF PROCEEDS
No proceeds will be received by the Issuers from the Exchange Offer. The
gross proceeds from the sale of the Units in the Offering were $115.0 million.
The net proceeds (net of Initial Purchasers' discounts and estimated Offering
expenses) together with the proceeds from the other Funding Transactions are
being used to develop, construct, equip and open the Aladdin and to fund the
Company's cash contribution to Aladdin Music with respect to the Music Project.
Upon or prior to the consummation of the Offering (i) the proceeds from the
sale of the Units were allocated between the Notes and the Warrants, (ii) Sommer
Enterprises (a) contributed a portion of the Contributed Land and $7.0 million
consisting of the benefit of certain predevelopment costs incurred by AHL to
Enterprises in exchange for Class A Common Stock in Enterprises and (b)
contributed a portion of the Contributed Land to Holdings in exchange for
Holdings Common Membership Interests, (iii) Enterprises contributed the portion
of the Contributed Land and the benefit of the predevelopment costs received
from Sommer Enterprises and the net proceeds allocable from the sale of the
Warrants to Holdings in exchange for Holdings Common Membership Interests, (iv)
Holdings contributed the Contributed Land appraised at $150.0 million,
approximately $42 million in cash from the London Clubs Contribution and the
$7.0 million consisting of the benefit of certain predevelopment costs incurred
by AHL to the Company in exchange for Common Membership Interests of the
Company, and (v) Holdings contributed $115.0 million in cash, consisting of the
net proceeds of the sale of the Units and approximately $8 million from the
London Clubs Contribution, to the Company in exchange for Series A Preferred
Interests of the Company. The London Clubs Contribution, together with a portion
of the net proceeds of the Offering, were expended on the Issue Date to repay
certain existing indebtedness assumed by the Company in connection with the
Sommer Equity Financing and to pay certain accrued expenses and certain fees and
expenses incurred in connection with the Funding Transactions. The remaining net
proceeds from the Offering (approximately $35 million) were deposited in the
Note Construction Disbursement Account. The liquidation preference of the Series
A Preferred Interests held by Holdings will equal at all times the Accreted
Value of the Notes.
Prior to or contemporaneously with the Offering, the following other Funding
Transactions for the financing by the Company of the Aladdin were consummated:
(i) the Sommer Equity Financing and an indirect equity contribution to Holdings
by London Clubs of $50.0 million in cash in exchange for Holdings Common
Membership Interests; (ii) the closing of the $410.0 million Bank Credit
Facility and the funding of the Term B Loan and the Term C Loan thereunder into
the Cash Collateral Account and (iii) a commitment letter for the FF&E
Financing, consisting of one or more leases or loans in the aggregate amount of
$80.0 million, covering the Specified Equipment and the Gaming Equipment, to be
used in the Aladdin. See "Controlling Stockholders--Equity and Series A
Preferred Interest Financing," "Description of Certain Indebtedness and Other
Obligations--Bank Credit Facility" and "--FF&E Financing."
SOURCES AND USES OF FUNDS
The estimated sources and uses of funds for the development, construction,
equipping and opening of the Aladdin are as follows (in millions):
<TABLE>
<CAPTION>
SOURCES USES
- ---------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
Bank Credit Facility(1)........................ $ 410.0 Hotel and Casino(7)............................ $ 295.6
FF&E Financing(2).............................. 80.0 Off-Site Improvements(8)....................... 6.8
Senior Discount Notes due 2010(3).............. 115.0 Reimburseable Site Work Expenses(6)............ 14.2
Land Contribution(4)........................... 150.0 Furniture, Fixtures and Equipment and
Cash Contribution(5)........................... 57.0 Gaming Equipment(9)............................ 107.5
Anticipated Site Work Reimbursement(6)......... 14.2 Land(10)....................................... 135.0
Retire Existing Debt(11)....................... 74.5
Capitalized Interest, Net(12).................. 44.0
Pre-Opening Costs and Expenses................. 16.9
Reimbursement of Predevelopment Costs(13)...... 3.9
Working Capital(14)............................ 15.0
Construction and FF&E Contingency(15).......... 31.8
Land Investment in Music Project(16)........... 15.0
Cash Equity Investment in the Music
Project(17).................................. 21.3
Financing Fees and Expenses(18)................ 44.7
--------- ---------
Total Sources.................................. $ 826.2 Total Uses..................................... $ 826.2
---------
--------- ---------
---------
</TABLE>
40
<PAGE>
(1) The Company has entered into the Bank Credit Facility with the Bank Lenders.
The Bank Credit Facility, which closed concurrently with the closing of the
Offering, consists of three separate term loans. Term A Loan comprises a
term loan of $136.0 million and matures seven years after the initial
borrowing date. Term B Loan comprises a term loan of $114.0 million and
matures eight and one-half years after the initial borrowing date. Term C
Loan comprises a term loan of $160.0 million and matures ten years after the
initial borrowing date. The Term B Loan and Term C Loan were funded on the
Issue Date into the Cash Collateral Account on the Issue Date, and in June,
1998, the Company began to use a portion of such funds in the construction
of the Aladdin. The use of the remaining proceeds of the Term B Loan and
Term C Loan in the construction of the Aladdin is subject to satisfaction of
the conditions in the Disbursement Agreement. It is anticipated that the
Company will begin to draw down the Term A Loan, subject to satisfaction of
the conditions in the Disbursement Agreement, approximately 21 months after
the Issue Date. See "Risk Factors--Conditions to Draw Down of Funds Under
Funding Transactions." All of the Loans will convert from construction loans
into amortizing loans on the Conversion Date. The Company has the option to
pay interest at either LIBOR or Scotiabank's ABR, in each case plus certain
margins. See "Description of Certain Indebtedness and Other
Obligations--Bank Credit Facility."
(2) The Company has entered into an agreement with the FF&E Lender for provision
of the FF&E Financing. The FF&E Financing consists of $60.0 million of
operating leases and $20.0 million in loans and will be used by the Company
to obtain the Gaming Equipment and Specified Equipment. See "Description of
Certain Indebtedness and Other Obligations--FF&E Financing."
(3) Represents the gross proceeds of the Offering, which, net of expenses of
approximately $8 million, were contributed, together with approximately $8
million in cash received pursuant to the London Clubs Contribution, by
Holdings to the Company in exchange for Series A Preferred Interests.
(4) The land on which the Aladdin, the Music Project and the Plant will be
built, including adjacent land of approximately 0.8 acres, comprises a total
of approximately 22.75 acres (the "Contributed Land") and was contributed to
the Company by Holdings in exchange for Common Membership Interests. The
Contributed Land has an appraised fair market value of $150.0 million (book
value of $33.6 million as of December 31, 1997). Approximately 18 acres of
the Contributed Land, having an appraised fair market value of $135.0
million, will be retained by the Company and approximately 4.75 acres of the
Contributed Land, having an appraised fair market value of $15.0 million,
will be used for the Music Project.
(5) Represents (i) a $50.0 million cash contribution by London Clubs in exchange
for 25% of the Holdings Common Membership Interests and (ii) a $7.0 million
deemed equity contribution by Enterprises in exchange for Holdings Common
Membership Interests, consisting of certain pre-development costs incurred
by AHL in 1996, 1997 and 1998.
(6) Pursuant to the Site Work Agreement, the Company has agreed to complete the
construction of, among other things, the Mall Shared Space, construction of
which will commence prior to the initial funding of the Mall Financing.
Bazaar has agreed to reimburse the Company for up to $14.2 million
(including interest) of the costs associated with such construction upon the
completion of the Mall Shared Space. See "Certain Material
Agreements--Construction, Operation and Reciprocal Easement Agreement and
Related Agreements."
(7) Represents (i) the guaranteed maximum price of construction of the Aladdin
pursuant to the Design/Build Contract of $267.0 million, less the
contingency allowance of $6.8 million and expected reimbursement from Bazaar
of $13.6 million (net of approximately $0.6 million of interest) as set
forth in note (6) above; (ii) approximately $35 million for theming the
Aladdin; (iii) $11.7 million for professional fees and disbursements; and
(iv) $2.3 million for permits and taxes. See "Risk Factors-- Completion of
the Mall Project and the Music Project." The Design/Build Contract contains
financial incentives for the Design/ Builder to complete the Aladdin within
the construction budget and in a timely manner, as well as liquidated
damages payable to the Company for certain unexcused delays. See "Risk
Factors--Risks of New Construction," "Risks Under Design/Build Contract and
Fluor Guaranty" and "Certain Material Agreements--Design/Build Contract."
(8) Represents the cost of off-site improvements, including overhead pedestrian
walkways and widening of certain streets, for those parts of the Project
Site on which the Aladdin will be built.
(9) Includes $26.5 million of gaming equipment and $81.0 million of furniture,
fixtures and other equipment consisting of new furniture and equipment other
than gaming equipment).
(10) Represents the appraised fair market value of the land on which the Aladdin
and the Plant will be built, together with adjacent land of approximately
0.8 acres.
(11) Represents the retirement on the Issue Date of $68.7 million of existing
indebtedness on the Contributed Land with an interest rate of LIBOR plus 650
bps and $5.8 million of existing debt owed by the Trust to GW Vegas, assumed
by the Company as part of Holdings' equity contribution to the Company.
(12) Represents capitalized gross interest under the Bank Credit Facility of
$57.4 million and capitalized gross interest of $2.4 million from leasing
expenses in connection with the FF&E Financing, from the date of the
Offering until the estimated completion of the Aladdin in the first four
months of the year 2000, net of interest income anticipated to be earned
upon the investment in cash equivalents of the funds (assumed to be at 5%
per annum) from the proceeds of the Offering and the proceeds of the Term B
Loan and Term C Loan.
(13) Represents $3.0 million of certain predevelopment costs incurred by AHL and
reimbursed at closing and up to $0.9 million of certain predevelopment costs
expected to be incurred and reimbursed over the expected construction
period.
(14) Represents cash on hand, inventories, deposits and other cash balances
required for the opening of the Aladdin.
(15) Comprises (i) the $6.8 million contingency included in the guaranteed
maximum price set forth in the Design/Build Contract and (ii) the $25.0
million general project contingency.
(16) Represents the appraised fair market value of the approximately 4.75 acres
of land on which the Music Project will be built, which land will be
contributed by the Company to AMH in exchange for common membership
interests in AMH.
(17) Represents cash to be contributed by the Company to AMH for common
membership interests in AMH.
(18) Represents fees in connection with the organization of the Company and the
financing of the Aladdin, including approximately $8 million for expenses
incurred in connection with the Offering.
41
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Holdings
at December 31, 1997, as of the Issue Date after giving effect to the Offering
and upon the consummation of the Funding Transactions (assuming all of the
Funding Transactions occurred on the Issue Date). This table should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. See "Use of Proceeds," "Description of
the Notes" and "Description of Certain Indebtedness and Other Obligations."
<TABLE>
<CAPTION>
AS OF AS OF UPON CONSUMMATION
DECEMBER 31, 1997 THE ISSUE DATE OF THE FUNDING TRANSACTIONS
--------------------- --------------- ---------------------------
<S> <C> <C> <C>
(IN MILLIONS)
Long-term debt:
Company:
Bank Credit Facility(1)........................... $ -- $ 274.0 $ 410.0
FF&E Financing(2)................................. -- -- 20.0
--- ------ ------
Total Long-term Debt............................ -- 274.0 430.0
--- ------ ------
Holdings:
Senior Discount Notes due 2010(3)................. -- 100.0 100.0
Holdings and subsidiaries:
Total Long-term Debt and Senior Discount Notes.... -- 374.0 530.0
Members' Equity(4)(5)............................... 0.0 30.8 30.8
--- ------ ------
Total Capitalization................................ $ 0.0 $ 404.8 $ 560.8
--- ------ ------
--- ------ ------
</TABLE>
- --------------------------
(1) The Company has entered into the Bank Credit Facility with the Bank Lenders.
The Bank Credit Facility, which closed concurrently with the closing of the
Offering, consists of three separate term loans. Term A Loan comprises a
term loan of $136.0 million and matures seven years after the initial
borrowing date. It is anticipated that the Company will begin to draw down
the Term A Loan, subject to satisfaction of the conditions in the
Disbursement Agreement, approximately 21 months after the Issue Date. Term B
Loan comprises a term loan of $114.0 million and matures eight and one-half
years after the initial borrowing date. Term C Loan comprises a term loan of
$160.0 million and matures ten years after the initial borrowing date. The
Term B Loan and Term C Loan (comprising $274.0 million in aggregate) were
funded on the Issue Date, and subject to satisfaction of the conditions in
the Disbursement Agreement, are expected to be drawn down beginning in June
1998 (being approximately four months after the Issue Date). All of the
Loans will convert from construction loans into amortizing loans on the
Conversion Date, with substantial amounts due during the final six quarters
of the Term B Loan and the Term C Loan. The Company has the option to pay
interest at either LIBOR or Scotiabank's ABR, in each case plus a certain
margin. See "Description of Certain Indebtedness and Other Obligations--Bank
Credit Facility."
(2) The Company has entered into an agreement with the FF&E Lender for provision
of the FF&E Financing. The FF&E Financing is expected to consist of $20.0
million in loans and $60.0 million in operating leases and is expected to be
used by the Company to obtain the Gaming Equipment and Specified Equipment.
The FF&E Financing will begin to be funded six months prior to the opening
of the Aladdin. See "Description of Certain Indebtedness and Other
Obligations--FF&E Financing."
(3) The Notes have an initial Accreted Value of $115.0 million which equals the
gross proceeds of the Offering, such gross proceeds, net of expenses of
approximately $8 million, were contributed, together with approximately $8
million in cash received pursuant to the London Clubs Contribution, by
Holdings to the Company in exchange for Series A Preferred Interests. The
Aladdin Parties have allocated $100.0 million of the gross proceeds of the
Offering to the Notes and $15.0 million of such proceeds to the Warrants.
See "Use of Proceeds" and "Certain United States Federal Income Tax
Considerations."
(4) Represents: (i) the $33.6 million book value of the Contributed Land (such
land having an appraised fair market value of $150.0 million) and $15.0
million of the gross proceeds of the Offering allocated by the Aladdin
Parties to the sale of the Warrants and contributed by Enterprises to
Holdings for Holdings Common Membership Interests, net of approximately $69
million of existing indebtedness and $5.8 million of existing debt owed to
GW Vegas and repaid from the proceeds of the Offering, (ii) a $50.0 million
cash contribution to Holdings by London Clubs in exchange for 25% of the
Holdings Common Membership Interests, and (iii) a $7.0 million deemed equity
contribution by Enterprises, consisting of certain predevelopment costs
incurred by AHL in 1996,1997 and 1998.
(5) Does not include any ascribed value for the Bank Completion Guaranty.
42
<PAGE>
THE EXCHANGE OFFER
GENERAL
The Issuers hereby offer, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange Old Notes properly tendered
on or prior to the Expiration Date and not withdrawn as permitted pursuant to
the procedures described below for New Notes. The Exchange Offer is being made
with respect to all of the Old Notes, provided the total aggregate principal
amount of Old Notes and New Notes will in no event exceed $221.5 million at
maturity.
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about July 24, 1998 to all holders of Old Notes known to the Issuers.
The Issuers' obligation to accept Old Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth under "--Conditions
to the Exchange Offer" below.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued by the Issuers on February 26, 1998 in
transactions exempt from the registration requirements of the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold, or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Old Notes, the Issuers
entered into the Note Registration Rights Agreement (the "Note Registration
Rights Agreement") among the Issuers and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and
Scotia Capital Markets (USA) Inc. (collectively, the "Initial Purchasers"),
which requires the Issuers, among other things, to (x) file on or before April
12, 1998 (45 days after the Issue Date) a registration statement relating to the
Exchange Offer (the "Exchange Offer Registration Statement") and (y) use their
reasonable best efforts to cause the Exchange Offer Registration to become
effective on or before July 26, 1998 (150 days after the Issue Date). The Note
Registration Rights Agreement requires the Issuers, under certain circumstances,
to provide a shelf registration statement (the "Shelf Registration Statement")
to cover resales of the Notes by the holders thereof and to keep such shelf
registration statement effective until two years after the date of original
issuance of the Notes or such other period of time as provided in the Note
Registration Rights Agreement. If (i) the Issuers fail to cause the Exchange
Offer Registration Statement to become effective within 150 days of the Issue
Date, (ii) the Issuers are obligated to provide a Shelf Registration Statement
and such Shelf Registration Statement is not filed within 45 days after such
obligation arises or declared effective prior to the later of (x) 150 days after
the Issue Date and (y) 90 days after such obligation arises, (iii) subject to
certain exceptions, the Issuers fail to consummate the Exchange Offer within 30
business days of the effectiveness target date or (iv) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
shall thereafter cease to be effective or usable in connection with resales of
the Transfer Restricted Securities (as defined in the Note Registration Rights
Agreement), for the periods specified in the Note Registration Rights Agreement
(each event referred to in clauses (i) through (iv) above a "Registration
Default"), then the Issuers agree that Liquidated Damages shall accrue on the
accreted value of the Transfer Restricted Securities for any period during which
a Registration Default exists and remains uncured, with respect to the first
90-day period following such Registration Default, at a rate equal to 0.25% per
annum. The amount of such Liquidated Damages will increase by an additional
0.25% per annum for each subsequent 90-day period until such Registration
Default has been cured, up to a maximum of 1.0% per annum on the accreted value
of the Notes constituting Transfer Restricted Securities. The Exchange Offer is
being made by the Issuers to satisfy their obligations with respect to the Note
Registration Rights Agreement.
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Based on no-action letters issued by the staff of the Commission to third
parties in unrelated transactions, the Issuers believe that the New Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of either of the Issuers within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Issuers
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. Any holder of Old Notes who tenders 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, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Thus, any New Notes acquired by
such holders will not be freely transferable except in compliance with the
Securities Act. See "--Consequences of Failure to Exchange; Resale of New
Notes."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 P.M., New York City time, on August
25, 1998 unless the Issuers, in their sole discretion, have extended the period
of time for which the Exchange Offer is open (such date, as it may be extended,
is referred to herein as the "Expiration Date"). The Expiration Date will be at
least 30 calendar days after the commencement of the Exchange Offer in
accordance with the Note Registration Rights Agreement. The Issuers expressly
reserve the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open for a twenty day period after the
initial expiration date and thereby delay acceptance for exchange of any Old
Notes, by giving notice to the Exchange Agent and to the holders thereof. During
any such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer unless properly withdrawn.
In addition, the Issuers expressly reserve the right to terminate or amend
the Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "--Conditions to the Exchange Offer." If any such termination or amendment
occurs, the Issuers will notify the Exchange Agent and the holders of the Old
Notes as promptly as practicable.
Investors are advised that in the event that the Issuers decide to amend the
Exchange Offer, the Exchange Offer would, in the Commission's view, be required
to remain open for a minimum of five business days and up to ten business days
following the date of the amendment, the actual time period to depend on the
materiality of the amendment.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuers of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Issuers will constitute a binding
agreement between the tendering holder and the Issuers upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) or an Agent's Message and delivering the same, together with the
certificate or certificates representing the Old Notes being tendered and any
required signature guarantees, to the Exchange Agent at its address set forth
below on or prior to the Expiration Date (or complying with the procedure for
book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below. As used herein, the term "Agent Message"
means a message, transmitted by
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the book-entry transfer facility of the Depository Trust Company (the
"Depositary") to, and received by, the Exchange Agent and forming a part of a
Book-Entry Confirmation, which states that such book-entry transfer facility has
received an express acknowledgement from the participant in such book-entry
transfer facility tendering Old Notes which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Issuers may enforce such
agreement against such participant. The term "Book-Entry Confirmation" means a
timely confirmation of book-entry transfer of Old Notes to the Exchange Agent's
Account at the book-entry transfer facility.
The method of delivery of Old Notes, Letters of Transmittal and all other
required documents is at the election and risk of the holders. If such delivery
is by mail, it is recommended that registered mail properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
insure timely delivery. No Old Notes or Letters of Transmittal should be sent to
the Issuers.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto and are tendered (i) by a registered holder of the Old Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by, a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuers in their
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedures for such
transfer. However, in connection with a book-entry transfer, a Letter of
Transmittal need not be transmitted to the Exchange Agent and manually executed,
if delivery of the New Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at the Depositary; provided, however, that the
book-entry transfer procedure must be complied with prior to 5:00 p.m., New York
City time, on the Expiration Date and tenders of the Old Notes must be effected
in accordance with the procedures mandated by the Depositary's Automated Tender
Offer Program.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Note to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Old Notes
are registered and, if possible, the certificate numbers of the Old Notes
guaranteeing that within three business days after the Expiration Date the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry-transfer
facility) will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Issuers may, at their option, reject the
tender. Copies of a Notice of
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Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal (or
Agent's Message in lieu thereof) accompanied by the Old Notes (or a confirmation
of book-entry transfer of such Old Notes into the Exchange Agent's account at
the book-entry transfer facility) is received by the Exchange Agent, or (ii) a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) from an Eligible Institution is received by
the Exchange Agent. Issuances of New Notes in exchange for Old Notes tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuers in their sole discretion, which determination shall be final and
binding. The Issuers reserve the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes the acceptance of which might, in the judgment of the Issuers or their
counsel, be unlawful. The Issuers also reserve the absolute right to waive any
defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Issuers shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Issuers
shall determine. Neither the Issuers, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate original powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed 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 the
Issuers, proper evidence satisfactory to the Issuers of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuers in the Letter of
Transmittal that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes, that
neither the holder nor any such other person is participating in or intends to
participate in the distribution of such New Notes and that neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Issuers. If any holder is such an affiliate of the
Issuers, is engaged in or intends to engage in or has any arrangement with any
person to participate in the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holders (i) cannot rely on the applicable
interpretations of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other
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trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the second to
last business day prior to the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, telex, facsimile transmission or letter must be received by the
Exchange Agent prior to the second to last business day prior to the Expiration
Date at its address set forth below. Any such notice of withdrawal must (i)
specify the name of the person having tendered the Old Notes to the be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes delivered for exchange), (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the depositor. If Old Notes have been
tendered pursuant to book-entry transfer described above, the executed notice of
withdrawal, guaranteed by an Eligible Institution, unless such Holder is an
Eligible Institution, must specify the name and number of the account at the
book-entry transfer facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Issuers in their sole discretion, which determination will
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered for exchange and which are
properly withdrawn will be returned to the holder thereof without cost to such
holder as soon as practicable after such withdrawal. Properly withdrawn Old
Notes may be retendered by following one of the procedures described under
"--Procedures for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
SEPARATION
The Old Notes were originally issued as part of a Unit consisting of; (i)
the Old Notes; and (ii) 10 Warrants to purchase 10 shares of Class B, non-voting
Common Stock, no par value of Enterprises. Pursuant to the Indenture, the Notes
and the Warrants were to become separately transferable (at the option of the
holders thereof) on the "Separation Date," being the earliest of: (i) September
1, 1998; (ii) the date on which a registration statement with respect to the
Notes or a registration statement with respect to the Warrants and the Warrant
Shares was filed with the Commission under the Securities Act; (iii) the
occurrence of a Change of Control (as defined in the Indenture) or a sale or
recapitalization of the Issuer, Holdings or the Company occurs (a "Triggering
Event"); (iv) 30 days after a Qualified Public Offering; (v) the occurrence of
an Event of Default (as defined in the Indenture); or (vi) such earlier date as
determined by Merrill Lynch & Co. in its sole discretion. The Separation Date
occurred on filing of the Registration Statement. The exchange of Old Notes for
New Notes pursuant to the Exchange Offer will separate the Units if such
separation has not occurred prior to the date of exchange.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuers will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Conditions to the Exchange Offer." For the purposes of the
Exchange Offer, the Issuers shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Issuers have given oral and written
notice thereof to the Exchange Agent.
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For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
confirmation of such Old Notes into the Exchange Agent's account at the
Depositary's book-entry transfer facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depositary's book-entry transfer facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Old Notes
will be credited to an account maintained with the Depositary's book-entry
transfer facility) as promptly as practicable after the expiration of the
Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuers shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes any of the following events shall occur:
(i) any action or proceeding shall have been instituted or threatened by any
court or any governmental agency or body (including any Nevada gaming
authority) with respect to the Exchange Offer that, in the Issuers'
judgment, would reasonably be expected to impair the ability of the Issuers
to proceed with the Exchange Offer, or
(ii) the Exchange Offer or the making of any exchange by a Holder shall violate
any applicable law or any applicable interpretation of the staff of the
Commission.
Furthermore, the Exchange Offer is conditioned upon each holder of Notes
exchanged in the Exchange Offer making customary representations in connection
therewith, including that all New Notes to be received by it shall be acquired
in the ordinary course of its business and that at the time of the consummation
of the Exchange Offer it shall have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the New Notes.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their judgement. The failure by the Issuers at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Issuers will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus forms a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the "Trust
Indenture Act").
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the
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addresses set forth below. Requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Hand Delivery: By Overnight Mail or Courier:
State Street Bank and Trust Company State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place, 4th Floor Two International Place, 4th Floor Two International Place, 4th Floor
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
Attn: Corporate Attn: Corporate Attn: Corporate
Trust Department Trust Department Trust Department
For information, call
Ph: (617) 664-5526
Fax: (617) 664-5371
</TABLE>
DELIVERY OF THE OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Issuers, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred by the Issuers in connection with the Exchange
Offer will be paid by the Issuers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuers. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuers since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith except that holders who instruct the
Issuers to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Old Notes as
reflected in the Issuers' accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuers upon the exchange of New Notes for Old Notes.
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CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Old Notes not exchanged pursuant to
the Exchange Offer will continue to remain outstanding in accordance with their
terms (other than with respect to certain registration rights and rights to
Liquidated Damages). In general, the Old Notes may not be offered for resale or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuers do not currently anticipate that they will
register the Old Notes under the Securities Act. However, in the event that the
Issuers are not required to file the Exchange Offer or not permitted to
consummate the Exchange Offer as contemplated herein (i) because it would
violate applicable law or the applicable interpretations of the staff of the
Commission, or (ii) if any holder of Old Notes (having a reasonable basis to do
so) shall notify the Issuers within 20 days following the consummation of the
Exchange Offer that (a) such holder is prohibited by law or Commission policy
from participating in the Exchange Offer, (b) such holder may not resell the New
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus in connection with the Exchange Offer is not
appropriate or available for such resales, or (c) such holder is a broker-dealer
and holds Old Notes acquired directly from the Issuers or one of their
affiliates, then, in each case, the Issuers will at their sole cost, (i) use
their reasonable best efforts to cause the Shelf Registration Statement to be
filed on or prior to 45 days after such filing obligation arises, (ii) use their
reasonable best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act on or prior to the later of (x) 150 days
after the Issue Date and (y) 90 days after the obligation to file such Shelf
Registration Statement arose and (iii) use their reasonable best efforts to keep
effective the Shelf Registration Statement until the earlier of two years
(subject to certain exceptions) after the Issue Date or such time as all of the
applicable Notes have been sold thereunder. The Issuers will, in the event that
a Shelf Registration Statement is filed, provide to each Holder who so requests
a reasonable number of copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such Holder when the Shelf Registration for
the Notes has become effective and take certain other actions as set forth in
the Note Registration Rights Agreement. A holder that sells such Notes pursuant
to the Shelf Registration Statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Note Registration Rights Agreements that are applicable to
such a Holder (including certain indemnification rights and obligations).
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Issuers believe that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act or, (ii) any broker-dealer that purchases Notes from the Issuers
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. If any holder has any arrangement or understanding with respect to
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holders (i) cannot rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. A broker-dealer who holds Old Notes that were acquired for
its own account as a result of market making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore,
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deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Issuers
have agreed, pursuant to the Note Registration Rights Agreement and subject to
certain specified limitations therein, to use their reasonable best efforts to
register or qualify the New Notes for offer or sale under the securities or blue
sky laws of such jurisdictions as are necessary to permit the consummation of
the Exchange Offer.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, the Exchange Offer, the
Issuers will have fulfilled certain of their obligations contained in the Note
Registration Rights Agreement. Holders of Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold such Old Notes and will be
entitled to all the rights, and limitations applicable thereto, under the
Indenture, except for any such rights under the Note Registration Rights
Agreement that by their terms terminate or cease to have further effectiveness
as a result of the making of this Exchange Offer. See "Description of the
Notes." All untendered Old Notes will continue to be subject to the restrictions
on transfer set forth in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Old Notes could be adversely affected.
The Issuers may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Issuers have no present plan to acquire any Old Notes which
are not tendered in the Exchange Offer.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEVELOPMENT ACTIVITIES
The Company was organized in January 1997. Since that time, the Company's
activities have principally been limited to arranging the design, construction
and financing of the Aladdin and applying for certain permits, licenses and
approvals necessary for the development and operation of the Aladdin. The
Company plans to develop, construct and operate the Aladdin as the centerpiece
of an approximately 35 acre world-class resort, casino and entertainment complex
located on the site of the existing Aladdin hotel and casino (the "Project
Site"). The Aladdin will be situated at a premier location at the center of the
Strip in Las Vegas, Nevada. The original Aladdin hotel and casino was built on
the Project Site in 1966. The Theater was added in 1976. The Project Site was
purchased by the Trust, through a predecessor-in-interest to AHL, in December
1994. To maintain certain tax attributes obtained in connection with the Trust's
acquisition of the Project Site, the original hotel and casino continued to be
leased by JMJ, Inc., the company which leased the Project Site from the former
owners. The original Aladdin hotel and casino was demolished on April 27, 1998
to clear the Project Site for the development of the Complex. The Aladdin is
currently expected to open in the first four months of the year 2000.
Holdings was organized in December, 1997. Capital is a wholly owned
subsidiary of Holdings and was incorporated in December 1997 solely for the
purpose of serving as a co-issuer of the Units in order to facilitate the
Offering. Capital will not have any material operations or assets and will not
have any revenues. As a result, investors in the Notes should not expect Capital
to participate in servicing the principal, interest, premium, Liquidated
Damages, if any, or any other payment obligations on the Notes.
RESULTS OF OPERATIONS
The Issuers and the Company have had no significant operations to date.
Certain financial statements for Holdings (on a consolidated basis), Capital and
the Company are included herein. Such historical operating results are not
indicative of future operating results. Certain results of operations for London
Clubs are included herein as Annex A.
Future operating results of the Company, which will be relevant to the
ownership and operation of the Aladdin and so the Issuers, are subject to
significant business, economic, regulatory and competitive uncertainties and
contingencies, many of which are beyond the control of the Company and the
Issuers. While the Company and the Issuers believe that the Aladdin will be able
to attract a sufficient number of patrons and achieve the level of activity
necessary to permit the Issuers and the Company to meet their payment
obligations, including with respect to the Notes, no assurances can be given
that the Issuers or the Company will be able to do so.
LIQUIDITY AND CAPITAL RESOURCES
The approximately $790 million necessary to fund the development, financing,
construction and opening of the Aladdin (excluding the Company's $21.3 million
planned indirect cash contribution and $15.0 million appraised fair market value
land contribution to Aladdin Music, as part of the development funds for the
Music Project) will be derived from a combination of (i) borrowings of up to
$410.0 million under the Bank Credit Facility; (ii) operating lease and loan
obligations aggregating $80.0 million under the FF&E Financing; (iii) the Equity
and Series A Preferred Interest Financing, comprising an equity contribution by
London Clubs of $50.0 million in cash, $7.0 million in pre-development costs
incurred by AHL in 1996 and 1997, $150.0 million appraised fair market value in
land by Holdings and $115.0 million of gross proceeds from the Offering; and
(iv) anticipated reimbursement pursuant to the Site Work Agreement of $14.2
million, including interest. See "Use of Proceeds."
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On the Issue Date, the Company entered into the Bank Credit Facility with
the Bank Lenders. The Bank Credit Facility, which closed concurrently with the
closing of the Offering, consists of three separate term loans. Term A Loan
comprises a term loan of $136.0 million and matures seven years after the
initial borrowing date. Term B Loan comprises a term loan of $114.0 million and
matures eight and one-half years after the initial borrowing date. Term C Loan
comprises a term loan of $160.0 million and matures ten years after the initial
borrowing date. The Term B Loan and the Term C Loan were funded on the Issue
Date into the Cash Collateral Account, and subject to satisfaction of the
conditions in the Disbursement Agreement, are expected to be drawn down
beginning in June 1998 (approximately four months after the Issue Date). It is
anticipated that the Company will begin to draw down the Term A Loan, subject to
satisfaction of the conditions in the Disbursement Agreement, in December 1999
(approximately 21 months after the Issue Date). See "Risk Factors--Conditions to
Draw Down of Funds Under Funding Transactions." All of the Loans will convert
from construction loans into amortizing loans on the Conversion Date, with
substantial amounts due during the final six quarters of the Term B Loan and the
Term C Loan. The Company has the option to pay interest at either LIBOR or
Scotiabank's ABR, in both cases plus certain margins. See "Description of
Certain Indebtedness and Other Obligations--Bank Credit Facility."
The FF&E Financing provides for the operating lease financing of up to $60.0
million and loans of $20.0 million to obtain the Gaming Equipment and the
Specified Equipment. Under the terms of the FF&E Financing, repayments of
principal and interest are due in quarterly installments. The FF&E Financing is
secured by all of the Gaming Equipment and Specified Equipment financed pursuant
thereto. See "Description of Certain Indebtedness and Other Obligations--FF&E
Financing."
Pursuant to the Equity and Series A Preferred Interest Financing, Holdings
contributed to the Company the following property: (a) approximately $107
million in cash (comprising net proceeds from the Offering), (b) an
approximately 22.75 acre portion of the Project Site upon which the Aladdin, the
Music Project and the Plant will be built (together with adjacent land of
approximately 0.8 acres), which has an appraised fair market value of $150.0
million, (c) $7.0 million in the form of certain pre-development costs incurred
by AHL in 1996 and 1997, and (d) the London Clubs Contribution, consisting of
$50.0 million in cash.
London Clubs, the Trust and Bazaar Holdings have entered into the Bank
Completion Guaranty for the benefit of the Bank Lenders, pursuant to which
London Clubs, the Trust and Bazaar Holdings are required, whenever there are
certain construction cost increases in connection with the work to be performed
pursuant to the Design/Build Contract, and subject to certain qualifications, to
contribute cash to the Company to fund all such increases in construction costs.
Holders of the Notes will, subject to certain exceptions and conditions delaying
and limiting the enforceability of the Noteholder Completion Guaranty, be
entitled to certain rights under the Noteholder Completion Guaranty. See "Risk
Factors-- Lack of Available Information on the Trust's Ability to Perform Its
Obligations Under Certain Agreements," "--Limitations Under Bank Completion
Guaranty and Noteholder Completion Guaranty," "Description of Certain
Indebtedness and Other Obligations--Bank Completion Guaranty" and "Description
of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder
Completion Guaranty."
AHL, London Clubs, and Bazaar Holdings have entered into the Keep-Well
Agreement for the benefit of the Bank Lenders. Pursuant to the Keep-Well
Agreement, AHL, London Clubs and Bazaar Holdings have agreed to contribute funds
to the Company to ensure the Company's compliance with certain financial ratios
and other requirements under the Bank Credit Facility for the period up to the
earlier of the date on which the Company complies with all the financial
covenants set forth in the Bank Credit Facility for six consecutive quarterly
periods from and after the Conversion Date or the date on which the aggregate
outstanding principal amounts of the Bank Credit Facility are reduced below
certain amounts and prior to certain dates, subject to certain conditions. See
"Controlling Stockholders--Keep-Well Agreement."
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The funds provided by the Funding Transactions are expected to be sufficient
to develop, complete and commence the operations of the Aladdin, assuming no
delays or construction cost overruns which (i) are not covered by the $31.8
million Contingency or (ii) Fluor and/or the Design/Builder are not responsible
for pursuant to the Fluor Guaranty and the Design/Build Contract, respectively.
As of May 31, 1998, the Company expended $1.7 million of the Contingency. It is
not expected that additional external funding will need to be obtained in order
to develop and commence the operations of the Aladdin.
Following the commencement of operations of the Aladdin, the Company expects
to fund its operating and capital needs, as currently contemplated, with $15.0
million of working capital from the Funding Transactions and operating cash
flows. In addition, upon the opening of the Aladdin, the Company is expected to
have an aggregate of $10.0 million available under a working capital facility.
Although no additional financing is contemplated, the Company will seek, if
necessary and to the extent permitted under the Indenture and the terms of the
Bank Credit Facility, additional financing through additional bank borrowings or
debt or equity financings. There can be no assurance that additional financing,
if needed, will be available to the Company, or that, if available, the
financing will be on terms favorable to the Company. There can also be no
assurance that estimates by the Company of its reasonably anticipated liquidity
needs are accurate or that new business developments or other unforeseen events
will not occur, resulting in the need to raise additional funds.
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BUSINESS
OVERVIEW OF THE COMPLEX
The Company plans to develop, construct and operate the Aladdin as the
centerpiece of an approximately 35 acre world-class resort, casino and
entertainment complex located on the site of the existing Aladdin hotel and
casino in Las Vegas, Nevada, a premier location at the center of the Strip. The
Aladdin has been designed to include a luxury theme hotel of approximately 2,600
rooms, an approximately 116,000 square foot casino, an approximately 1,400-seat
production showroom and seven restaurants. The Casino's main gaming area will
contain approximately 2,800 slot machines, 87 table games, keno and a race and
sports book facility. Included on a separate level of the Casino will be the
15,000 square foot luxurious Salle Privee, which is expected to contain an
additional 20 to 30 high denomination table games and approximately 100 high
denomination slot machines. The Salle Privee will cater to wealthy clientele and
be operated and marketed in conjunction with London Clubs, a prestigious,
multi-national casino operator which caters to international premium players.
The Complex, which has been designed to promote Casino traffic and to provide
customers with a wide variety of entertainment alternatives, will comprise (i)
the Aladdin; (ii) the themed entertainment Desert Passage shopping mall with
approximately 522,000 square feet of retail space; (iii) the Music Project,
which will be a second hotel and casino with a music and entertainment theme,
expected to be known as "Sound Republic Hotel and Casino;" (iv) the newly
renovated 7,000-seat Theater; and (v) the approximately 4,800-space Carpark. The
Mall Project and the Music Project will be separately owned by affiliates of the
Company. The Company's business and marketing strategies are expected to
capitalize on the Complex's premier location, its superior designed, mixed-use,
themed development, and strong strategic partnering with highly successful
public companies. The grand opening date for the Aladdin and the Mall Project is
currently anticipated to occur during the first four months of the year 2000,
with the opening of the Music Project expected to occur within six months after
the opening of the Aladdin.
The Company's management team is led by Chief Executive Officer Richard J.
Goeglein, the former President and Chief Executive Officer of Harrah's Hotels
and Casinos and President and Chief Operating Officer of Holiday Corp., who
during his term at Harrah's oversaw the expansion of the Harrah's brand,
including the development of Harrah's Hotel and Casino in Atlantic City.
Assisting Mr. Goeglein as Senior Vice President of the Company and
President/Chief Operating Officer of the Aladdin Hotel and Casino is James H.
McKennon, who as President and Chief Operating Officer of Caesars Tahoe was
instrumental in its financial turnaround and as President of Caesars World
International Marketing Corp. was responsible for the global marketing of the
Caesars brand.
It is expected that approximately $75 million will be spent on theming in
the Aladdin and the Desert Passage, of which approximately $35 million will be
spent by the Company on the Aladdin. This theming will create an environment in
the Aladdin that will be based upon the Legends of the 1001 Arabian Nights,
including the intriguing tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad
and other legendary stories woven around ancient wealth and wonders. The Aladdin
theme will be carefully crafted through the interior and exterior architecture
of the facility. The Aladdin's exterior will be designed to include a highly
articulated streetscape, a themed Casino exterior shaped like a Bedouin tent,
fountains, walkways, sculptures and an outdoor restaurant. The sophisticated
interior of the Aladdin will utilize rich colors, textures and design, enhancing
the fantasy of a mystical romantic time and place. A significant feature of the
Desert Passage will be the themed area to be known as the "Lost City." The Lost
City is expected to contain a re-creation of an ancient mystical mountain city
and will house a variety of specialty shops and restaurants underneath a
10-story high ceiling. The Company believes that the Aladdin, with its unique
theme, together with the Desert Passage and Music Project, will ensure its place
as a "must-see" destination in one of the world's largest entertainment cities.
The Company believes that upon completion, the Aladdin, the Mall Project and
the Music Project together will constitute one of the largest and best-planned
integrated, mixed-use entertainment resorts in
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the world. Bazaar Holdings, a subsidiary of the Trust, and THB, a subsidiary of
TrizecHahn, have entered into a joint venture agreement and formed Bazaar to
develop, construct, own and operate the Mall Project. TrizecHahn is the
principal retail subsidiary of TrizecHahn Corporation, one of the largest
publicly-traded real estate companies in North America. The Desert Passage is
expected to include an array of high-fashion specialty stores, exotic boutiques,
theme restaurants, cafes and other entertainment offerings. The Desert Passage
will be directly connected to the Casino to maximize Casino traffic.
AMH and a subsidiary of Planet Hollywood have entered into the Music Project
Memorandum of Understanding, relating to the ownership and development of the
Music Project. The Music Project Memorandum of Understanding is subject to the
finalization of financing commitments. Planet Hollywood is a creator and
worldwide developer of themed restaurants and consumer brands, most notably
"Planet Hollywood" and the "Official All Star Cafe." Planet Hollywood has
announced that it intends to position a brand of music-oriented entertainment
venues as its third major brand. The Music Project, which will be managed by the
Company, is expected to include an approximately 1,000 room hotel, a 50,000
square foot casino, four restaurants, including a music-themed restaurant which
will feature its own 1,000-person nightclub, a health spa and an outdoor
swimming pool. As part of the development of the Complex, the Company expects to
indirectly contribute to Aladdin Music $21.3 million in cash and land having an
appraised fair market value of $15.0 million in exchange for a preferred
membership interest and to lease the existing 7,000-seat Theater to Aladdin
Music for a nominal amount. It is anticipated that Aladdin Music will carry out
an approximately $8 million renovation of the Theater, improving its decor,
light and sound systems and other facilities. A further distinguishing feature
of the Music Project is the anticipated active involvement of famous artists and
celebrities, some of whom are expected to be stockholders of Planet Hollywood
(or an affiliate), participate in the marketing of the Music Project brand and
perform at the Theater or make other personal appearances at the Music Project.
The Music Project, with its music and entertainment theme, will complement the
Aladdin and it is expected that together the two hotels will offer an excitement
and variety of entertainment alternatives that will further distinguish the
Complex from other venues on the Strip.
The development of the Aladdin commenced during the first quarter of 1998.
The existing Aladdin hotel and casino closed for business on November 25, 1997
and the original facility was demolished on April 27, 1998. The development of
the Mall Project is expected to commence during the second quarter of 1998,
followed thereafter by the expected commencement of the development of the Music
Project in the second half of 1998.
There can be no assurance, however, that either of the Mall Project or the
Music Project will, in fact, be completed. If the Mall Project is not completed,
the Company will need to expend additional amounts (expected to be approximately
$23 million) with respect to the completion of shared structural space and the
cost of surface parking. See "Risk Factors--Completion of the Mall Project and
the Music Project."
PREMIER LOCATION
The Aladdin's 800 feet of Strip frontage is located on the section of the
Strip between Flamingo Road at the north and Tropicana Boulevard at the south.
Based upon independent research and assuming completion of the Bellagio, Paris
and Venetian development projects, average vehicular traffic that will pass the
Complex each day is expected to be approximately 54,000.
AIRPORT ACCESS. Another major feature of the Complex will be its easy
access from Las Vegas' McCarran Airport, only 2.5 miles away. According to the
LVCVA, the number of visitors to Las Vegas has increased at a steady and
significant rate for the last 15 years, growing from approximately 10 million in
1980 to approximately 19 million in 1990 to over 30 million in 1997, with
approximately 47% of these visitors in 1997 arriving by air through McCarran
Airport. McCarran Airport, the tenth busiest airport in the United States, is
currently in the process of expanding its capacity through the addition of 26
new gates, and it is expected that following completion thereof, the number and
percentage of visitors arriving in Las
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Vegas by air will further increase, making easy access from McCarran Airport to
Las Vegas' resorts even more crucial.
VEHICLE ACCESS. The Complex will also offer easy access from other major
Las Vegas attractions, including the Las Vegas Convention Center, Hughes Center
office park, and the University of Nevada Las Vegas, the site of the Thomas &
Mack arena, via the main vehicular access on Harmon Avenue. As part of the
Complex, Harmon Avenue, which borders the Project Site, is expected to become a
major east/west thoroughfare and be widened from its existing four lanes to six
lanes. These improvements will allow visitors to access the Aladdin's
approximately 5,000 car spaces (including the approximately 4,800-space Carpark)
without having to traverse the traffic congestion on the Strip, but while still
utilizing major freeways and roads. In addition, by the use of a circular
internal roadway, guests arriving by limousine, car service or private vehicles
will be able to enter the Complex directly and easily from the Strip, Audrie
Lane and Harmon Avenue, further distinguishing the Hotel from many of its
competitors.
PEDESTRIAN ACCESS. The main entrance to the Aladdin will be located on the
Strip. The Complex's 800 feet of Strip frontage will provide pedestrians with
easy access to the Casino and the Desert Passage. A signaled crosswalk is
expected to be installed on the Strip to provide pedestrians with easy access
from the Bellagio. In addition, overhead pedestrian walkways have been
designated for at least two segments of the Harmon Avenue/Strip intersection
that will facilitate pedestrian traffic to the Aladdin.
MASTER-PLANNED, MIXED-USE DEVELOPMENT
The Aladdin has been carefully and strategically designed to promote Casino
traffic by an experienced and dedicated team with extensive backgrounds in real
estate development and construction; hotel, casino and restaurant operations;
and retail development and management. Each element of the Complex has been
sited and planned in a manner that maximizes pedestrian and vehicular traffic so
as to facilitate access to and from the Complex, as well as circulation between
the different parts of the Complex. The combination of the two distinct hotels
and casinos (catering to different but complementary market segments), the Mall
Project, the Theater and the Salle Privee will make the Complex a unique
integration of high-end and upper-middle market uses that benefit each other and
distinguish the Complex from other resorts on the Strip.
The Casino will be located in front of the Hotel, and unlike many of the
newer projects on the Strip, will provide easy access for pedestrians without
requiring long walks into the Complex. The Casino will be the nexus for the vast
majority of pedestrian traffic in the fully integrated Complex, including the
Desert Passage, the Music Project, and the Theater. Significant portions of the
Desert Passage and all of the Theater's entrances and exits will be accessed
through, or be adjacent to, the Casino. The Complex's 800 feet of Strip frontage
will provide pedestrians with easy access to the Casino and the Desert Passage
from the Strip. Pedestrian visitors to the Aladdin entering from the Strip will
be able to enter directly through the Casino or through the Desert Passage
entrances.
Another feature of the design of the Complex which will further distinguish
the Aladdin from its competitors will be the ease of both vehicular and
pedestrian traffic flow. Through the use of a circular internal roadway, guests
arriving by limousine, car service or private vehicle will be able to enter the
Complex directly and easily from the Strip and Harmon Avenue. Furthermore, by
the use of bridges and access ways, pedestrians will not be required to cross
roadways while moving between different attractions on the Complex, thus
facilitating ease of movement between various parts of the Complex and the
Strip.
UNIQUE ENTERTAINMENT FACILITIES
The Aladdin is expected to benefit from the Casino traffic generated from
the broad variety of entertainment facilities located throughout the Complex.
The Aladdin will be adjacent to the existing Theater, which will continue to be
used to hold major concerts and theatrical performances, and is one of the few
venues of its size and type in Nevada. The Company expects to lease the existing
Theater for a
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nominal amount to Aladdin Music, which intends to carry out an approximately $8
million renovation of the Theater, improving its decor, light and sound systems
and other facilities. The Theater's renovation is expected to transform it into
a first-class venue and provide an additional source of visitor traffic to the
Complex. Under the Theater Lease (as defined herein), the Company will retain
certain rights to use the Theater for Company-promoted events at agreed
commercial rates.
The Aladdin will also include a 1,400-seat showroom which will provide live
nightly entertainment on its mezzanine level for the Hotel, Casino, Desert
Passage and other guests. The showroom will feature a 1001 Arabian Nights-themed
production show, including elegant, exotic costuming, music, lighting and
choreography. Furthermore, the Music Project will contain a 1,000-person
nightclub featuring regular live performances.
The Desert Passage will be designed to engage the customer in a themed
shopping, entertainment and dining experience. Of the approximately 522,000
square feet of retail space within the Desert Passage, it is anticipated that
approximately 25% will be devoted to high pedestrian traffic-generating food,
beverage and entertainment experiences. A significant feature of the Desert
Passage will be the themed area to be known as the "Lost City." The "Lost City"
is expected to contain a re-creation of an ancient mystical mountain city and
will house a variety of specialty shops and restaurants underneath a 10-story
high ceiling.
PRESTIGIOUS STRATEGIC PARTNERS
The Company has assembled a unique combination of partners for the
development of the Complex - London Clubs, TrizecHahn, Planet Hollywood and
Unicom Corporation. These partners bring a wealth of knowledge, capital,
networks and experience to the Complex.
LONDON CLUBS INVESTMENT. London Clubs, a prestigious multi-national casino
operator, owns through LCNI 25% of the outstanding Holdings Common Membership
Interests. As reflected on page A-17 hereof, London Clubs' Net Cash Flow From
Operating Activities for the 53 weeks ended March 30, 1997 was approximately
L44.8 million and for the 52 weeks ended March 29, 1998 was approximately L23.3
million. London Clubs believes that based on its financial statements and
current business operations it will be able to meet its commitments under the
Bank Completion Guaranty, the Noteholder Completion Guaranty and the Keep-Well
Agreement. London Clubs has extensive experience in the international marketing
of casinos to premium players and maintains a strong presence in the United
Kingdom (where it controls the largest share of the London casino market),
Europe, Asia and the Middle East. In addition to its 25% ownership of the
outstanding Holdings Common Membership Interests, London Clubs, through LCNI,
will direct the operations of, and act as marketing consultant to, the Salle
Privee, the luxurious 15,000 square foot gaming area to be located on the
mezzanine level of the Casino which will be designed to cater to the needs of
the international premium-play guest. The Company believes that the Salle Privee
will be the first of its kind in the United States managed by a European
operator and based on the European concept of full service gaming areas for
premium players. The Salle Privee's primary business and marketing focus will be
to access London Clubs' worldwide member base of upscale casino clientele. Salle
Privee Hotel guests will be escorted through a private entrance to a dedicated
registration lobby and then taken via a private elevator to the Salle Privee's
five private floors of suites at the apex of the Aladdin's main tower. Once
there, the 24-hour butler and concierge will cater to the care and comfort of
the Salle Privee guest. In the elegantly appointed Salle Privee casino, the
customer may dine in the 100-seat exclusive restaurant, offering fine cuisine
from around the world.
London Clubs provides the Aladdin with an extensive international network of
premium casino players, having established substantial goodwill and customer
loyalty from high-end customers in the United Kingdom, Europe, Asia and the
Middle East. In addition, London Clubs is an experienced service provider to
high-end gaming customers and brings a wealth of knowledge to the Aladdin in
building and maintaining relationships with and customer loyalty from such
clientele. London Clubs also provides the Company with superb promotional
opportunities, not only by word of mouth through its network of
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contacts, but also through international sporting sponsorships, including horse
racing and motor racing, which are well recognized in the United Kingdom,
Cyprus, Hong Kong, Dubai and Malaysia, and its international print publications,
which are distributed to members worldwide utilizing London Clubs' substantial
database of premium clientele.
JOINT VENTURE WITH PLANET HOLLYWOOD. Through a subsidiary, Planet Hollywood
has agreed to be a 50% partner (on a fully diluted basis) in the Music Project.
Planet Hollywood is a creator and worldwide developer of consumer brands, most
notably "Planet Hollywood" and the "Official All Star Cafe," that capitalize on
the universal appeal of the high energy environment of movies, sports and other
entertainment-based themes. As of December 31, 1997, there were 78 Planet
Hollywood brand restaurants and nine Official All Star Cafe brand restaurants
worldwide. Planet Hollywood has announced that it intends to position its brand
of music-themed entertainment venues as its third major brand. A distinguishing
feature of the Music Project is the anticipated active involvement of famous
artists and celebrities, some of whom are expected to be stockholders of Planet
Hollywood, participate in the marketing of Planet Hollywood's music-oriented
brand and help generate significant media attention and publicity. Planet
Hollywood plans to utilize its strategy of celebrity involvement with its
music-themed brand. The Company believes this exposure will enhance the Aladdin
by providing immediate excitement and press coverage for the Complex. On July
21, 1998, Planet Hollywood announced that it has retained financial advisors in
connection with a review of Planet Hollywood's financial and strategic
alternatives and is continuing with an operational plan to address current
financial and operational performance issues. There can be no assurance that the
Music Project will proceed with Planet Hollywood. See "Risk Factors--Completion
of the Mall Project and the Music Project."
STRATEGIC RELATIONSHIP WITH TRIZECHAHN. The Mall Project will be owned,
developed and operated by Aladdin Bazaar, a joint venture between Bazaar
Holdings and TBH, a wholly-owned subsidiary of TrizecHahn. TrizecHahn is a
wholly-owned subsidiary of TrizecHahn Corporation, one of the largest publicly
traded real estate companies in North America.
TrizecHahn was the developer of the Fashion Show Shopping Mall on the Strip
and other major shopping malls including Horton Plaza in San Diego, Bridgewater
Commons in New Jersey, Valley Fair in San Jose and Park Meadows in Denver. The
Company believes that TrizecHahn's proven ability in designing well laid-out
retail centers, attracting high quality tenants and successfully promoting and
operating its retail projects will benefit the Aladdin by attracting a
consistent stream of visitors to the Complex and its various attractions.
Investors should note that TrizecHahn has announced that it is considering
selling its operating portfolio of regional shopping centers and on April 6,
1998, announced the sale of 20 regional shopping centers for over $2.5 billion.
While TrizecHahn's announcement is limited to the sale of its current operating
portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert Passage.
Accordingly, investors cannot be assured that TrizecHahn will own and operate
the Desert Passage once it becomes operational, and as a result, pedestrian
traffic to the Aladdin may decrease. See "Risk Factors--Completion of the Mall
Project and the Music Project."
ENERGY PLANT CONTRACT WITH ENERGY PROVIDER. The Energy Provider, a
subsidiary of UTH, will be the energy provider for certain parts of the Complex.
The predecessor entity of UTH was founded in 1993 to develop district energy
projects, and UTH has developed the largest district cooling system in the
world, located in Chicago, Illinois. UTH is also a partner in energy ventures in
Boston, Houston and Windsor, Ontario. The Energy Provider's obligations under
the Development Agreement up to $30.0 million will be guaranteed by its ultimate
parent, Unicom. See "Risk Factors--Completion of the Energy Project."
CLOSE RELATIONSHIP BETWEEN MANAGEMENT AND OWNERS. On completion, it is
expected that the Complex will be one of only two independently constructed
hotel, casino and retail major Strip projects in Las Vegas (the other being the
Venetian Hotel and Casino). All other major competitors of the Aladdin are
corporate projects, such as the Bellagio, owned by Mirage Resorts, Inc. and
Paris Casino owned by Hilton.
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Management believes that the close relationship between the Company's members
and management will be conducive to more efficient decision making and
ultimately assist in the successful development and operation of the Complex.
STRATEGY
The Company's business and marketing strategies are linked together by the
Complex's premier location, its superior design, mixed-use theme development and
strong strategic partnering with highly successful public companies.
CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin,
with its unique, well-executed design, together with the Desert Passage and the
Music Project (including the newly renovated Theater), will ensure its place as
a "must-see" destination in one of the fastest growing entertainment cities in
the world. The Aladdin theme will be supported by a sophisticated interior
design enhancing the fantasy of mystical and romantic time and place. The
Aladdin's main Casino traffic will be driven not only by Hotel guests, but also
by the customers directly attracted from the Strip. Visitor traffic to the
Aladdin will also be enhanced by the attractiveness of the Desert Passage. With
the addition of the Music Project, which will address a somewhat younger
clientele, the Complex will have a combined room count of approximately 3,600
rooms and appeal to a broader customer demographic.
MARKET POSITIONING. The Company intends to focus on three different market
segments to attract customers to the Aladdin:
- UPSCALE CLIENTELE. The Hotel will be designed to appeal to upscale
clientele, providing the amenities and level of service such high-end
guests expect. In particular, each of the Hotel's approximately 2,600
guest rooms and suites will have an area of not less than 450 square
feet--exceeding that of the average Las Vegas hotel room of approximately
360 to 400 square feet--and 24% of the Hotel's guest rooms and suites will
have an area exceeding 620 square feet. The Hotel's room inventory for the
upscale market will include 400 "king parlors" (ranging from 620 to 680
square feet), 136 "tower end-cap suites" (ranging from 732 to 1,162 square
feet) and 58 "center king suites" (585 square feet). Each of the rooms and
suites will have a large four or five fixture bathroom with a separate
shower, bathtub, up to two washbasins and an enclosed watercloset. A
special feature of each of the rooms and suites will be the added width
given to the interior design allowing for a more residential feel. The
Hotel will provide extensive recreational facilities for its guests,
including a 20,000 square foot health spa with steam, sauna and massage
services and an outdoor swimming-pool complex located above the Desert
Passage and surrounded by gardens and fountains. The Company intends to
promote the Hotel's many features to the upscale market through a variety
of media, including high-end print publications, travel agents and events
sponsorships. A targeted relationship marketing program is expected to
ensure clientele retention and repeat visitation.
- INTERNATIONAL PREMIUM PLAYER CLIENTELE. The Company believes that the
Salle Privee will be the first of its kind in the United States managed by
a European operator and based on the European concept of full-service
gaming areas for premium players. The focus of the Salle Privee's business
will be the wealthy clientele that form the core of London Clubs' business
in London and elsewhere. The Hotel will include 30 suites primarily for
use by Salle Privee clientele, including 25 "Salle Privee" suites (ranging
from 815 to 930 square feet) and five "mega-suites" (ranging from 2,125 to
3,500 square feet). The Company will maintain the Salle Privee's premium
player atmosphere through more sophisticated dining options, higher table
limits and more formal levels of service and dress.
- UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms, six of
its seven restaurants and the 1,400-seat production showroom, combined
with the heavily-themed Casino, Theater and Desert Passage, are expected
to appeal broadly to the upper-middle market guest. In addition, the Music
Project is expected to appeal to the upper-middle market by attracting
younger, affluent
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customers to the Complex through its music and entertainment-based theme.
The Music Project is expected to include an approximately 1,000 room
hotel, four restaurants, including a music-themed restaurant which will
feature its own 1,000-person nightclub, a health spa and outdoor swimming
pool, together with a 50,000 square foot casino. The Theater, which will
be a major feature of the Complex, will be central to the Company's
promotional strategies for this market segment, with publicity expected to
be gained through the booking of popular performers, many of which are
expected to be broadcast live to Planet Hollywood's other music-themed
entertainment venues. Cooperative advertising and promotion through
various media, such as television, radio and print, will be used to
promote the Complex to the upper-middle market.
LEVERAGE FROM STRATEGIC RELATIONSHIPS. The Company and its affiliates have
chosen as strategic partners an experienced team of retail, casino and themed
entertainment developers and operators. The Company intends to utilize the
unique expertise of its partners from the preliminary development stages of the
Complex through its promotion and operation.
- DEVELOPMENT EXPERTISE. In establishing a strategic relationship with
TrizecHahn, the Company has obtained the knowledge, skills and capital of
a partner who has expertise in the coordination, construction and
completion in a timely manner of large, high quality projects.
- MANAGEMENT AND OPERATING ABILITIES. The Complex will benefit from the
experience of TrizecHahn, London Clubs and Planet Hollywood in its
operations. Through its management and ownership of several shopping
centers, TrizecHahn has demonstrated its ability to successfully design,
configure and attract high quality tenants to its retail shopping
projects. London Clubs has extensive experience in the international
marketing and operation of casinos, in particular to premium players. In
addition, Planet Hollywood has successfully grown its concepts to 87
company-owned and franchised Planet Hollywood and Official All Star Cafe
units (as of December 31, 1997) since commencing business in 1991.
- CAPITALIZING ON BRAND NAMES. With access to some of the most well-known
names in the relevant markets, the Company expects to capitalize on the
worldwide brand recognition of Planet Hollywood, London Clubs and
TrizecHahn.
- ACCESSING NEW CLIENT BASE. London Clubs and Planet Hollywood are expected
to provide the Complex with access to market segments which the Company
believes have not been extensively penetrated by other hotel/casinos in
Las Vegas. London Clubs provides the Aladdin with one of the best networks
of international premium players in the world and superb promotional
opportunities. Furthermore, it is expected that Planet Hollywood will
introduce a younger, affluent clientele to the Complex through, among
other things, celebrity involvement in the Music Project.
CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS. The Company anticipates the
total cost of developing, financing, constructing and opening the Aladdin to be
approximately $790 million (excluding the Company's $21.3 million planned
indirect cash contribution and $15.0 million appraised fair market value land
contribution to Aladdin Music as part of the development funds for the Music
Project). As part of the Company's strategy of carefully managing construction
costs and risks, the Company has hired Tishman, a privately held company with
extensive experience in building quality hotels and casinos, to be the
construction manager. As construction manager, Tishman will advise with respect
to scheduling, administration and reporting in connection with the construction
activities of the Design/Builder. In addition, the following arrangements have
been made to ensure the full and timely completion of the Aladdin.
BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY. London Clubs,
the Trust and Bazaar Holdings have entered into the Bank Completion Guaranty for
the benefit of the Bank Lenders, under which they have agreed, among other
things, to guarantee the completion of the Aladdin. The Bank Completion
Guaranty, which became effective as of the closing of the Offering, is not
subject to any maximum dollar limitations. The holders of the Notes are not
party to the Bank Completion Guaranty,
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however, London Clubs, the Trust and Bazaar Holdings have entered into the
Noteholder Completion Guaranty for the benefit of the holders of the Notes,
under which they have guaranteed completion of the Aladdin, subject to certain
important exceptions, limitations and qualifications. The Noteholder Completion
Guaranty contains certain intercreditor provisions which significantly limit the
rights of the Trustee under the Noteholder Completion Guaranty. In particular
the Noteholder Completion Guaranty sets forth certain standstill periods during
which the Trustee or the holders of the Notes may not enforce the Noteholder
Completion Guaranty or seek remedies thereunder even if there is a default under
the Bank Completion Guaranty and the Bank Lenders are no longer advancing funds.
In addition, there are limitations and restrictions on the rights of the Trustee
to enforce the Noteholder Completion Guaranty, particularly following any
exercise of remedies by the Bank Lenders. No financial information regarding the
Trust is available for the purpose of evaluating the Trust's creditworthiness
and, accordingly, purchasers of Notes should not rely upon the Trust's
performance under the Bank Completion Guaranty or Noteholder Completion Guaranty
when making their investment decision. See "Risk Factors--Limitations Under Bank
Completion Guaranty and Noteholder Completion Guaranty," "Description of Certain
Indebtedness and Other Obligations--Bank Completion Guaranty" and "Description
of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder
Completion Guaranty."
DESIGN/BUILD CONTRACT. Fluor Daniel, Inc. is the design/builder for the
Aladdin. The Design/Builder has entered into a guaranteed maximum price
design/build contract (subject to scope changes) with the Company to construct
the Aladdin. The Design/Build Contract provides the Design/Builder with
incentives for completing the Aladdin ahead of schedule and within budget and
for payment of liquidated damages to the Company for certain delays. The
Design/Build Contract is guaranteed by Fluor Corporation, the parent of the
Design/Builder, pursuant to the Fluor Guaranty. See "Certain Material
Agreements-- Design/Build Contract."
MALL FINANCING AND MALL GUARANTY. Bazaar has entered into a building loan
agreement with the Mall Lenders to fund the construction of the Mall Project.
Furthermore, TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL have agreed to
guarantee completion of the Mall Project and Bazaar's indebtedness to the Mall
Lenders until certain earnings and loan to value targets have been met. Funding
under the Mall Financing is subject to certain conditions. See "Risk
Factors--Completion of the Mall Project and the Music Project" and "Certain
Material Agreements--Mall Financing."
THE ALADDIN
OVERVIEW. The Aladdin will comprise the Hotel and the Casino and will be
owned, developed and operated by the Company. The Aladdin will be constructed of
high quality materials, including floors covered in stone, marble and granite
set in intricate patterns; carpeting of wool axminster; and wall surfaces of
covered architectural veneers, tiles of stone, ceramic and mosaic. The main
ceiling treatment will combine actual tent drape with texture and design of a
matching motif.
THE ALADDIN HOTEL. The Hotel building is expected to comprise a 34-story,
400 foot main tower attached to two 17 story towers. The approximately
2,600-room Hotel room inventory will include standard rooms, 400 "king parlors"
(ranging from 620 to 680 square feet), 136 "tower end-cap suites" (ranging from
732 to 1,162 square feet), 58 "center king suites" (585 square feet), 25 "Salle
Privee Suites" (ranging from 815 to 930 square feet) and five "mega-suites", the
largest of which will be approximately 3,500 square feet. The design and
furnishings of the rooms will be spacious and luxurious, with appointments
inspired by the Aladdin theme. All guest rooms will include such amenities as a
dual line phone in the bathroom and two additional dual line speakerphones with
modem hook-up. The king parlors, tower end-cap, center king and Salle Privee
suites and the mega-suites will include a king-size or two queen-size beds, with
over-sized bathrooms featuring a separate bathtub and shower, dual sinks,
enclosed watercloset and, for the center king, Salle Privee and mega-suites,
such amenities as a separate living area with a fully-stocked minibar and a work
area with modem hook-up, fax machine/printer and video telephone technology. The
suites will be
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designed to accommodate informal business meetings involving both business
travelers and convention attendees. Approximately 93 of the suites will be of a
larger size, allowing for the possibility of casually entertaining up to forty
persons in the living area. The main tower will also house luxury suites
designed for Salle Privee and other VIP guests, including premium casino players
and convention and trade show attendees who require additional space for
entertaining.
The Hotel is expected to provide extensive recreational facilities designed
to pamper its guests, including a 20,000 square foot health spa with steam,
sauna and massage services and an outdoor swim-ming-pool complex located above
the Desert Passage and surrounded by gardens and fountains.
The Aladdin is expected to include seven restaurants, with combined seating
capacity for over 2,300 customers, offering a wide range of dining selections.
Food service facilities at the Aladdin will include a buffet and food plaza
seating 800 customers, a 24-hour casual dining facility seating 575 customers
and a high-energy restaurant with indoor and outdoor seating which will overlook
the Strip and be located on the Casino level. This "al fresco" dining
experience, one of the first on the Strip, will further distinguish the Aladdin
from its competitors and will provide a lively attraction for pedestrians
traversing the Strip. The mezzanine level, which will offer a panoramic view of
the main casino floor, will feature a themed restaurant of 150 seats and a
steakhouse of 150 seats, both of which will offer indoor and outdoor terrace
dining. A Sushi/Chinese noodle shop with 50 seats and a casual dining/coffee bar
will complete the food offerings on the mezzanine. There will also be a poolside
restaurant with capacity to seat 150 people. To ensure consistent, high quality
service throughout the Aladdin, the Company will own and operate all food
service facilities in the Aladdin (other than the exclusive Salle Privee
restaurant, which will be operated by London Clubs).
THE SHOWROOM. In keeping with the Aladdin's Arabian Nights theme, the
Aladdin will include, on its mezzanine level, a 1,400-seat showroom which will
provide nightly entertainment for Hotel, Casino and other guests. The showroom
will feature a 1001 Arabian Nights-theme production show including elegant,
exotic costuming, music, lighting and choreography.
CONVENTION, MEETING AND RECEPTION FACILITIES. The Aladdin is expected to
include on the mezzanine floor of the main building over 70,000 square feet of
convention, conference, trade show and reception facilities, including a 28,500
square foot main ballroom, 25,600 square feet of pre-function space and 17,400
square feet of breakout space in 16 separate rooms. These facilities will be
made available for business and other conventions, trade shows, private
receptions and conferences throughout the year. Management believes that
convention, meetings and special events customers will represent an important
market for the Aladdin, helping the Hotel obtain consistently high occupancy
rates and levels. See "-- Guest Mix--Conventions, Meetings and Special Events
Customers."
GUEST MIX. The Hotel guest mix, in order of magnitude, is expected to
include free and independent travelers, targeted casino customers (both
complimentary and at casino rates), convention, meetings and special events
customers, and tour and travel customers. Of these groups, all but one
(convention, meeting and special events customers) generally have substantial
leisure time to take advantage of the Complex's many attractions. According to
the LVCVA, approximately 72% of the visitors to Las Vegas came to Las Vegas for
vacation and pleasure in 1997.
The planned guest mix by category is as follows:
<TABLE>
<CAPTION>
SEGMENT MIX
- ------------------------------------------------------------------------------------ -------------
<S> <C>
Free and Independent Travelers...................................................... 30%
Casino Customers.................................................................... 30%
Convention/Meeting.................................................................. 20%
Tour & Travel....................................................................... 20%
</TABLE>
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FREE AND INDEPENDENT TRAVELERS. Free and independent travelers will be the
primary focus of the Complex with its array of resort services including
luxurious rooms, swimming pool and spa, fine restaurants (both in the Hotel,
Casino and the Desert Passage), extensive retail opportunities, and the multiple
entertainment offerings of the Theater, the Aladdin/Arabian Nights production
show and the Desert Passage. Free and independent travelers include persons who
travel to Las Vegas from throughout the world who are not affiliated with a
traveling group and make their reservations at the property of their choice.
These travelers are characterized by travel budgets higher on average than the
typical "tour group" traveler budget. They generally pay higher room rates, are
predominantly weekend customers and have a relatively high non-gaming budget but
still spend more money on gaming activities than the typical Las Vegas visitor.
Management believes the Aladdin's emphasis on high-quality accommodation and an
upscale integrated entertainment complex will broadly appeal to this market.
CASINO CUSTOMERS. Casino customers will be drawn from the upscale,
international premium and upper-middle segments of the market. Utilizing both
the resources of London Clubs and those internal to the Company, the Casino
marketing network will cover Europe, the Middle East, the Pacific Rim, Mexico
and Latin America, as well as the United States. The Company believes that the
Aladdin's high levels of service, distinctive and private accommodations and the
Salle Privee and its amenities will help differentiate it from its competitors.
Where appropriate, management will offer complementary suites to high quality,
repeat casino players and other premium players. In addition, the Casino will
offer a range of popular gaming alternatives, designed to attract the
upper-middle market guest.
CONVENTIONS, MEETINGS AND SPECIAL EVENTS CUSTOMERS. Conventions, meetings
and special events customers are expected to fill the mid-week time periods when
the demand by free and independent travelers is lower. Las Vegas is currently
the largest trade show market and the fourth largest convention market in the
United States, with Las Vegas hotels obtaining premium occupancy rates during
large conventions. By utilizing the Aladdin's 70,000 square feet of convention
and meeting space, the Aladdin will focus on groups that have both a good hotel
and gaming revenue profile. Demand for convention and meeting room nights will
be supplemented by convention guests being displaced from neighboring hotels.
TOUR AND TRAVEL CUSTOMERS. The tour and travel market consists of customers
who utilize "packages" to reduce the cost of travel, lodging and entertainment.
According to the LVCVA, approximately 28% of Las Vegas' visitors utilized such
tour packages in 1997. These "packages" are produced by wholesalers and travel
agents and emphasize mid-week stays in Las Vegas. Management believes that it
will be able to capture a significant portion of this market segment by offering
the extensive facilities (including non-gaming attractions and amenities) of the
Complex to tour and travel visitors during off-peak periods. The tour and travel
market will be utilized to fill rooms mid-week with nominal room blocks on the
weekends when demand by free and independent travelers is at its peak. With the
upper-middle and upscale focus of the Hotel, the Aladdin will focus on the
higher-end tour and travel guest from both domestic and international tour
operators.
THE CASINO. A highly-themed approximately 116,000 square foot casino will
be at the center of the Complex. The Casino's main gaming area will contain
approximately 2,800 slot machines, 87 table games, keno and a race and sports
book facility. Included on a separate level of the Casino will be the luxurious
15,000 square foot Salle Privee, which is expected to contain an additional
approximately 100 high limit slot machines and 20 to 30 high limit table games.
The Salle Privee will cater to wealthy clientele and will be operated and
marketed in conjunction with London Clubs, a prestigious, multi-national casino
operator which caters to international premium players. The Casino will be
located in front of the Hotel, and unlike many of the newer projects on the
Strip, will provide easy access for pedestrians without requiring long walks
into the Complex. The Casino will be the nexus for the vast majority of
pedestrian traffic on the fully integrated Complex, including the Desert
Passage, the Music Project and the Theater. The Casino's exterior will be
designed in the style of a large Bedouin sheik's tent, helping to introduce the
Aladdin theme to visitors even before they reach the Complex. On entering the
Casino, patrons will be surrounded
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by the Aladdin theme through sculptured surroundings, rich fabrics, strategic
lighting and music, evoking the mystery and luxury of the Legends of the 1001
Arabian Nights. At the center of the Casino will be "Scheherazade's Palace," a
series of themed architectural elements of domes, arches, and 65 foot polished
stone columns. The main level of Scheherazade's Palace will have a bar and live
entertainment lounge overlooking the Casino and across to the Mezzanine level.
THE SALLE PRIVEE AND THE SALLE PRIVEE MANAGEMENT AGREEMENT. A distinctive
feature of the Casino will be the Salle Privee, located on the mezzanine level
which will be designed to cater to the needs of the international premium guest.
The Salle Privee will contain 20 to 30 high limit table games including
baccarat, double zero roulette, single zero roulette and blackjack, and
approximately 100 high limit slot machines.
Management believes that the Aladdin's Salle Privee will be the first of its
kind in the United States managed by a European operator and based on the
European concept of a luxurious, full-service, gaming area for international and
domestic premium players. The focus of the Salle Privee's business will be the
wealthy clientele that form the core of London Clubs' business in London and
elsewhere. The Company will maintain the Salle Privee's premium player
atmosphere through more sophisticated dining options, higher table limits and
more formal levels of service and dress.
Management believes that the Salle Privee will prove to be a significant
attraction for premium players to stay at the Hotel and play at the Casino. In
order to take full advantage of this potential, the Company has entered into a
consulting and marketing services agreement (the "Salle Privee Management
Agreement") with London Clubs, one of the Controlling Stockholders, under which
London Clubs will promote the Salle Privee, marketing this aspect of the Aladdin
through its international network of premium casino customers. See "Certain
Material Agreements -- Salle Privee Management Agreement."
With an equity market capitalization of over $461 million as of May 29,
1998, London Clubs has extensive experience in the international marketing of
casinos to premium players. London Clubs operates seven casinos in London, one
in Cannes, France, three in Egypt and one in Lebanon. Each of London Clubs'
casinos offer their own individual style, but with comparable internationally
recognized standards of service. In recent years, London Clubs has embarked upon
a period of expansion, acquiring the Park Tower Casino in London's Knightsbridge
in October 1995 and re-opening and managing the casino operations of the famous
Casino du Liban in Lebanon in December 1996.
London Clubs maintains a strong presence in the United Kingdom (where it
controls a leading share of the London casino market), Europe, Asia and the
Middle East. Its international sporting sponsorships, including horse racing and
motor racing, are widely recognized, particularly in the United Kingdom, Cyprus,
Hong Kong, Dubai and Malaysia. In addition, London Clubs produces a print
publication for its clientele utilizing its substantial database of premium
customers which is a valuable means of direct communication with its clientele
worldwide. Each issue features developments in London Clubs' clubs, lifestyle
articles, member profiles and a popular social diary.
Under the Salle Privee Management Agreement, London Clubs will earn an
incentive fee based on the operating performance of the Salle Privee. As a
result of London Clubs' substantial network of casino players in the United
Kingdom, Europe, Asia and the Middle East and management's own extensive network
in North and South America and the Pacific Rim, management believes that the
Salle Privee will provide the Aladdin with a significant competitive advantage
over other hotels and casinos on the Las Vegas Strip in attracting customers
from the profitable international premium player market. Through London Clubs'
involvement in the promotion of the Salle Privee, its equity interest in
Holdings and its commitment to the Aladdin (demonstrated in part by the
Keep-Well Agreement and the Completion Guaranty), management also believes that
the Aladdin's international profile and financial stability will be
significantly strengthened.
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THE MALL PROJECT
OVERVIEW. Located on the Complex adjacent to the Aladdin will be the Desert
Passage, a shopping mall with approximately 522,000 square feet of retail space,
and the approximately 4,800-space Carpark, each of which will be developed,
owned and operated by Bazaar, a joint venture between Bazaar Holdings and THB, a
wholly-owned subsidiary of TrizecHahn. TrizecHahn has extensive experience in
developing retail properties, and prior to its recently announced sale of 20
regional shopping centers, owned and managed 27 regional centers throughout the
United States, comprising over 25 million square feet.
TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, one of
the largest publicly traded real estate companies in North America. Investors
should note that TrizecHahn has announced that it is considering selling its
entire operating portfolio of regional shopping centers and on April 6, 1998
announced the sale of 20 regional shopping centers for over $2.5 billion. While
TrizecHahn's announcement is limited to the sale of its current operating
portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert Passage.
Accordingly, investors cannot be assured that TrizecHahn will own and operate
the Desert Passage once it becomes operational, and as a result, pedestrian
traffic to the Aladdin may decrease. See "Risk Factors-- Completion of the Mall
Project and the Music Project."
THE DESERT PASSAGE. The Desert Passage entertainment shopping mall will
constitute a key aspect of the Complex, and, like the Aladdin, will be heavily
themed on the Arabian Nights legends. With a strong presence and entrances on
the Strip, the Desert Passage will wrap around the Casino and Hotel buildings
and the Theater. The Desert Passage will consist of two stories of prime retail
space in the area closest to the Strip, reducing to one-level in the areas near
the rear of the Hotel, the Carpark and the Music Project. While the Desert
Passage will be of a similar size to the successful Forum Shops at Caesars
Palace, it will not be set back from the Strip, but will instead be located
close to the Strip, allowing passing pedestrian traffic to gain easy access.
Pedestrian visitors to the Aladdin entering from the Strip will be able to enter
directly through the Casino or through the Desert Passage entrances and
significant portions of the Desert Passage will flow directly into the Casino.
It is expected that the Desert Passage will provide a steady source of
pedestrians and Hotel guests to the Complex, many of whom it is expected will
also want to visit the Casino or dine at the Hotel.
The Desert Passage will be designed to engage the customer in a highly
themed shopping, entertainment and dining experience. Of the approximately
522,000 square feet of retail space within the mall, it is anticipated that
approximately 25% will be devoted to high pedestrian traffic-generating food,
beverage and entertainment experiences. The food service facilities located in
the Desert Passage will consist predominantly of establishments which complement
the dining alternatives in the Aladdin. A significant feature of the Desert
Passage will be the themed area to be known as the "Lost City." The "Lost City"
is expected to contain a re-creation of an ancient mystical mountain city and
will house a variety of specialty shops and restaurants underneath a 10-story
high ceiling.
CARPARK. As part of the Mall Project, Bazaar will develop an approximately
4,800-space carpark facility, to be located at the rear of the Complex, together
with an additional approximately 350 surface level parking spaces. The Carpark
will be accessible from Audrie Lane, the same street from which the Paris Casino
public carpark will be accessed, and from the circular internal roadway on the
Complex (accessible from Harmon Avenue and the Strip) which will provide direct
vehicular access to the Hotel. The Carpark will be directly linked through the
Desert Passage to the Hotel and Casino and the Music Project. Bazaar is
considering retaining an independent management company to operate the Carpark.
The Carpark and related surface level parking areas will include certain car
parking spaces to be used principally for valet parking. In addition, in
connection with the development of the Aladdin, parking facilities for
approximately 500 vehicles will be developed beneath the Hotel.
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THE MUSIC PROJECT
THE MUSIC PROJECT HOTEL AND CASINO. The Music Project is the second stage
of development to the Complex. The Music Project will involve the development of
a second hotel and casino, with a music and entertainment theme, on the
southeast edge of the Complex on the corner of Audrie Lane and Harmon Avenue.
AMH and a subsidiary of Planet Hollywood have entered into the Music Project
Memorandum of Understanding to own and operate the Music Project, subject to
finalization of financing, with each joint venture partner holding a 50%
interest (on a fully-diluted basis). See "Risk Factors--Completion of the Mall
Project and the Music Project" and "Certain Material Agreements--Music Project
Memorandum of Understanding."
The Music Project is expected to include an approximately 1,000 room hotel,
four restaurants, including a music-themed restaurant which will feature its own
1,000-person nightclub with regular live entertainment, a health spa and outdoor
swimming pool, together with a 50,000 square foot casino. The Music Project will
aim to expand the market by having a different theme and attracting a different
market segment to the Aladdin. The Music Project is expected to appeal to the
upper-middle market, attracting younger, affluent customers to the Complex
through its music and entertainment-based theme. In order to enhance the
Complex, the Music Project is intended to be integrated through walkways,
bridges and the internal circular roadway with the Aladdin, the Desert Passage
and the Carpark, providing yet another attraction on the Complex and
contributing to its mixed-use nature.
Through a subsidiary, Planet Hollywood will be a 50% partner (on a fully
diluted basis) in the Music Project. Planet Hollywood is a creator and worldwide
developer of consumer brands, most notably "Planet Hollywood" and the "Official
All Star Cafe," that capitalize on the appeal of the high-energy environment of
movies, sports and other entertainment-based themes. As of December 31, 1997,
there were 78 Planet Hollywood brand restaurants and nine Official All Star
Cafes brand restaurants worldwide. Planet Hollywood has announced that it
intends to position a brand of music-themed hotels and entertainment venues as
its third major brand. A distinguishing feature of the Music Project is the
anticipated active involvement of famous artists and celebrities, some of whom
are expected to be stockholders of Planet Hollywood, participate in the
marketing of Planet Hollywood's music-themed brand, perform at the Theater or
make other personal appearances at the Music Project, and help to generate
significant media attention and publicity. Brand recognition is expected to be
further enhanced through the high visibility of Planet Hollywood's music brand's
merchandise, such as jackets, T-shirts, sweatshirts and hats. The Company
believes this exposure will enhance the Aladdin by providing immediate
excitement and press coverage for the Complex. See "Risk Factors--Completion of
the Mall Project and the Music Project."
It is currently anticipated that construction of the Music Project will
commence during the second half of 1998. Neither the development of the Aladdin
nor the Mall Project is contingent on the development of the Music Project.
THEATER OF THE PERFORMING ARTS. The Aladdin and the Desert Passage will be
adjacent to the Theater, a 7,000-seat entertainment facility that will be
accessible through the Casino. The Theater is an entertain-ment auditorium with
high-quality sight lines and acoustics and, with its 15,000 square foot stage,
is one of the few venues of its size and type in Nevada. As part of the
development of the Complex, the Company intends to enter into a 69-year lease of
the existing Theater for a nominal amount with Aladdin Music, which expects to
carry out an approximately $8 million renovation of the Theater, improving its
decor, light and sound systems and other facilities. The renovation will also
allow the Theater to be condensed into a smaller, approximately 2,000-seat
auditorium for more intimate performances. The Company will retain certain
rights to use the Theater for Company-promoted events at agreed commercial
rates.
In the past the Theater has hosted major concert artists, championship
boxing matches and Broadway shows and it is expected that the Theater will
continue to be used to hold major concerts and theatrical performances. The
renovation and integration of the Theater into the first class resort Complex is
expected to provide another source of visitor traffic to the Complex.
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THE LAS VEGAS MARKET
OVERVIEW. Las Vegas is one of the fastest growing entertainment markets in
the country. Las Vegas hotel occupancy rates are among the highest of any major
market in the United States. According to the LVCVA, the number of visitors
traveling to Las Vegas has increased at a steady and significant rate for the
last ten years from 16.2 million in 1987 to 30.4 million visitors in 1997, a
compound annual growth rate of 6.5%. Aggregate expenditures by these visitors
increased at a compound annual growth rate of 10.2% from $8.6 billion in 1986 to
approximately $25 billion in 1997. Although the number of visitors to Las Vegas
has increased, there has been a greater increase in the supply of hotel rooms.
Such competition and increased supply, with steady visitor counts, has affected
and may continue to affect room prices, occupancy rates and profits. See "Risk
Factors--Risk of Overcapacity; Competition and Planned Construction in Las
Vegas."
EXPANDING HOTEL AND GAMING MARKET. Las Vegas has one of the strongest and
most resilient hotel markets in the country and is the largest gaming market in
the world. The number of hotel and motel rooms in Las Vegas has increased by
71.6% from 61,394 in 1988 to 105,347 in 1997. Major properties on the Strip
opening over this time period include the Mirage, Excalibur, MGM Grand, Treasure
Island, the Luxor, Monte Carlo and New York New York. In addition, a number of
existing properties on the Strip embarked on expansions including Harrah's Las
Vegas, Caesars Palace, Circus Circus and the Luxor. Despite this significant
increase in the supply of rooms in Las Vegas, hotel occupancy rates exceeded on
average 90.4% for the years 1990 to 1996, averaged 93.4% in 1996 and averaged
90.3% in 1997. By the end of 1999, it is estimated that approximately 20,000
additional hotel rooms will be opened on the Strip, including the Bellagio, the
Venetian, Mandalay Bay and Paris resorts, all of which are currently under
construction.
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VISITOR STATISTICS
LAS VEGAS VISITOR VOLUME
A trend analysis of the Las Vegas visitor volume for the past ten years is
presented in the following chart. The number of visitors to Las Vegas has grown
by 77.1% since 1988.
<TABLE>
<CAPTION>
VISITOR PERCENTAGE
YEAR VOLUME CHANGE
- --------- ------------- -----------
<S> <C> <C>
1988 17,199,808 6.1%
1989 18,129,684 5.4%
1990 20,954,420 15.6%
1991 21,315,116 1.7%
1992 21,886,865 2.7%
1993 23,522,593 7.5%
1994 28,214,362 19.9%
1995 29,002,122 2.8%
1996 29,636,361 2.2%
1997 30,464,635 2.8%
</TABLE>
[GRAPH]
SOURCE: Las Vegas Convention and Visitors Authority
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VISITOR STATICSTICS
VISITOR DOLLAR CONTRIBUTION (INCLUDES GAMING REVENUES)
Tourists and conventioneers spent approximately $25.0 billion in the Las
Vegas area during 1997. An analysis of the visitor dollar contribution since
1988 for Las Vegas is presented below.
<TABLE>
<CAPTION>
VISITOR
DOLLAR PERCENTAGE
YEAR CONTRIBUTION CHANGE
- --------- ------------------ -----------
<S> <C> <C>
1988 $ 10,039,448,236 16.7%
1989 11,912,941,021 18.7%
1990 14,320,745,600 20.2%
1991 14,326,553,719 0.0%
1992 14,686,644,065 2.5%
1993 15,127,266,781 3.0%
1994 19,163,212,044 26.7%
1995 20,686,800,160 8.0%
1996 22,533,257,750 8.9%
1997 24,952,188,808 10.7%
</TABLE>
PER VISIT EXPENDITURES EXCLUDING GAMING FOR 1997:
Trade show delegates: $1,517 Convention/meeting delegates: $963
Tourists: $551
[GRAPH]
SOURCE: Las Vegas Convention and Visitors Authority
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ROOM INVENTORY
NUMBER OF HOTEL/MOTEL ROOMS
The total hotel/motel room inventory for Las Vegas increased by 43,953 rooms
from 1988 to 1997. This represents a percentage increase of 71.6%. The inventory
analysis follows.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
YEAR HOTEL/MOTEL ROOMS CHANGE
- --------- ----------------- -----------
<S> <C> <C>
1988 61,394 5.0%
1989 67,391 9.8%
1990 73,730 9.4%
1991 76,879 4.3%
1992 76,523 (0.5%)
1993 86,053 12.5%
1994 88,560 2.9%
1995 90,046 1.7%
1996 99,072 10.0%
1997 105,347 6.3%
</TABLE>
[GRAPH]
SOURCE: Las Vegas Convention and Visitors Authority
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AIRPORT STATISTICS
TOTAL ENPLANED AND DEPLANED PASSENGERS
Since 1988, the total number of passengers enplaning and deplaning at
McCarran International airport has increased by 87%.
<TABLE>
<CAPTION>
TOTAL ENPLANED/ PERCENTAGE
YEAR DEPLANED PASSENGERS CHANGE
- --------- ------------------- -----------
<S> <C> <C>
1988 16,231,199 4.2%
1989 17,106,948 5.4%
1990 19,089,684 11.6%
1991 20,171,557 5.7%
1992 20,912,585 3.7%
1993 22,492,156 7.6%
1994 26,850,486 19.4%
1995 28,027,239 4.4%
1996 30,459,965 8.7%
1997 30,305,822 (0.5%)
</TABLE>
[GRAPH]
SOURCE: McCarran International Airport
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AUTOMOBILE TRAFFIC
AVERAGE DAILY TRAFFIC (ALL FOUR DIRECTIONS COMBINED)
The Nevada Department of Transportation provides average daily traffic
counts on the four principal highways servicing travelers to and from Las Vegas.
The traffic counters are located on I-15 South (MEASURING SOUTHERN CALIFORNIA
TRAFFIC), I-15 North (MEASURING UTAH TRAFFIC), US 95 North (MEASURING TONOPAH,
RENO TRAFFIC), and US 95 South (MEASURING ARIZONA TRAFFIC). The figures reported
include both inbound and outbound traffic.
<TABLE>
<CAPTION>
TOTAL PERCENTAGE
YEAR VEHICLES CHANGE
- --------- ----------- -----------
<S> <C> <C>
1988 41,234 7.4%
1989 45,222 9.7%
1990 48,607 7.5%
1991 50,150 3.2%
1992 51,411 2.5%
1993 53,467 4.0%
1994 56,875 6.4%
1995 58,917 3.6%
1996 59,777 1.5%
1997 63,261 5.8%
</TABLE>
[GRAPH]
SOURCE: Nevada Department of Transportation
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GAMING REVENUE
CLARK COUNTY GROSS GAMING REVENUE
A summary of the gross gaming revenue in Clark County for the period
covering 1988 through 1997 is shown in the following table.
<TABLE>
<CAPTION>
GROSS PERCENTAGE
YEAR GAMING REVENUE CHANGE
- --------- --------------- -----------
<S> <C> <C>
1988 3,136,901,000 12.5%
1989 3,430,851,000 9.4%
1990 4,104,001,000 19.6%
1991 4,152,407,000 1.2%
1992 4,381,710,000 5.5%
1993 4,727,424,000 7.9%
1994 5,430,651,000 14.9%
1995 5,717,567,000 5.3%
1996 5,783,735,000 1.2%
1997 6,152,415,000 6.4%
</TABLE>
[GRAPH]
SOURCE: Nevada State Gaming Control Board
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<PAGE>
Gaming has continued to be a strong and growing business in Las Vegas.
According to the LVCVA, Clark County gaming revenues have increased at a
compound annual rate of 7.3% from approximately $2.8 billion in 1986 to
approximately $6.1 billion in 1997. As a result of the increased popularity of
gaming, Las Vegas has sought to increase its popularity as an overall vacation
resort destination. Management believes that the growth in the Las Vegas market
has been enhanced as a result of a dedicated program by the LVCVA and major Las
Vegas hotels to promote Las Vegas as a major vacation and convention site, the
increased capacity of McCarran Airport and the introduction of large, themed
destination resorts in Las Vegas. Notwithstanding, there has recently been
volatility in stock prices of Las Vegas-based gaming companies. The Issuers
believe this volatility is a result of a perceived saturation of the Las Vegas
market and uncertainty arising from the Asian economic downturn and its effect
on Asian gaming customers.
GROWTH OF LAS VEGAS RETAIL SECTOR AND NON-GAMING REVENUE EXPENDITURES. The
Las Vegas market continues to evolve from its historical gaming focus to a
broader entertainment offering. In addition to the traditional attractiveness of
gaming, the market is continuing to expand to include retail, sporting
activities, major concerts and other entertainment facilities. This
diversification has contributed to the growth of the market and broadened the
universe of individuals who would consider Las Vegas as a vacation destination.
The more diversified entertainment offerings present significant growth
opportunities.
An increasing number of destination resorts are developing non-gaming
entertainment to complement their gaming activities in order to draw additional
visitors. According to the LVCVA, while gaming revenues in Clark County have
increased from approximately $2.8 billion in 1986 to approximately $6.1 billion
in 1997, the percentage of an average tourist's budget spent on gaming has
declined from 32.6% in 1986 to 25.8% in 1996 with non-gaming tourist revenues
increasing from $5.8 billion in 1986 to $16.7 billion in 1996. The newer large
theme destination resorts have been designed to capitalize on this development
by providing better quality sleeping rooms at higher rates and by providing
expanded shopping, dining and entertainment opportunities to their patrons in
addition to gaming.
LAS VEGAS AS A CONVENTION CENTER ATTRACTION. Las Vegas is one of the
largest convention and trade show destinations in the country. In 1987,
approximately 1.7 million persons attended conventions in Las Vegas providing
approximately $1.2 billion in non-gaming convention revenue. In 1997, the number
of convention attendees increased to more than 3.5 million, providing $4.4
billion in non-gaming convention revenue. Las Vegas offers convention and trade
shows unique infrastructure for handling the world's largest shows, including a
concentration of high-end hotel rooms located on the Strip, two convention
centers with a total of over 2.3 million square feet of convention and
exhibition space and unparalleled entertainment options. The proposed expansion
of the Las Vegas Convention Center ("LVCC") and the planned construction of the
Congress Center will further increase convention and exhibit space. Management
believes that Las Vegas will continue to evolve as one of the country's
preferred convention destinations.
MCCARRAN AIRPORT EXPANSION. During the past five years, the facilities of
McCarran Airport, the tenth busiest airport in the United States, have been
expanded to accommodate the increased number of airlines and passengers which it
services. The number of passengers traveling through McCarran Airport has
increased from approximately 15.6 million in 1987 to approximately 30.3 million
in 1997, a compound annual growth rate of 6.7%. According to the LVCVA, in 1997
visitors to Las Vegas arrived by the following methods of transportation: 47% by
air; 41% by auto; 6% by bus; and 5% by recreational vehicle. An approximately
$500 million expansion project at McCarran Airport is scheduled for completion
in 1998. Long-term expansion plans for McCarran Airport provide for additional
runways, three new satellite concourses, 65 additional gates, improved public
transportation, roads and other infrastructure leading from McCarran Airport to
the Strip and other facilities which would allow McCarran Airport to
significantly increase visitor capacity. To the extent that McCarran Airport is
not expanded in accordance with its plans, the occupancy rates and average daily
hotel room rates in Las Vegas could be adversely affected due to the planned
construction of new hotel rooms. During the first quarter of 1998, visitor
counts at McCarran Airport were down 4.1% from the same period in 1997. Airline
traffic is a significant
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<PAGE>
contributor to the overall visitor volume to Las Vegas as approximately 44% of
visitors arrive by air. A reduction in visitation to the market could result in
lower average room rates, lower hotel occupancy percentages and reduce revenues
for the Company.
STATISTICS ON THE LAS VEGAS GAMING INDUSTRY. The following table sets forth
certain information derived from published reports of the LVCVA and the Nevada
State Gaming Control Board concerning Las Vegas Strip gaming revenues and
visitor volume and hotel data for the years 1986 to 1997. As shown in the table,
the Las Vegas market has achieved significant growth in visitor volume and
tourist revenues and favorably absorbed significant additional room capacity
despite the occurrence of a series of adverse economic, regulatory and
competitive events during the past decade such as the recession of the early
1990s, the expansion of gaming into new jurisdictions, the modification of
existing regulations in other jurisdictions and the expansion of Native American
gaming.
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<PAGE>
HISTORICAL DATA FOR LAS VEGAS GAMING INDUSTRY(1)
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Las Vegas Visitor
Volume..................... 16,216,102 17,199,808 18,129,684 20,954,420 21,315,116 21,886,865 23,522,593 28,214,362
Percentage Change............ 6.7% 6.1% 5.4% 15.6% 1.7% 2.7% 7.5% 19.9%
Total Visitor
Expenditures(2)............ $8,602,966 $10,039,448 $11,912,941 $14,320,746 $14,326,554 $14,686,644 $15,127,267 $19,163,212
Percentage Change............ 15.3% 16.7% 18.7% 20.2% 0.0% 2.5% 3.0% 26.7%
Las Vegas Convention
Attendance................. 1,677,716 1,702,158 1,508,842 1,742,194 1,794,444 1,969,435 2,439,734 2,684,171
Percentage Change............ 10.4% 1.5% (11.4)% 15.5% 3.0% 9.8% 23.9% 10.0%
Las Vegas Hotel
Occupancy Rate............. 87.0% 89.3% 89.8% 89.1% 85.2% 88.8% 92.6% 92.6%
Las Vegas Hotel/Motel Room
Supply..................... 58,474 61,394 67,391 73,730 76,879 76,523 86,053 88,560
Percentage Change............ 3.5% 5.0% 9.8% 9.4% 4.3% (0.5)% 12.5% 2.9%
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Las Vegas Visitor
Volume..................... 29,002,122 29,636,631 30,464,635
Percentage Change............ 2.8% 2.2% 2.8%
Total Visitor
Expenditures(2)............ 20,686,800 22,533,258 24,952,189
Percentage Change............ 8.0% 8.9% 10.7%
Las Vegas Convention
Attendance................. 2,924,879 3,305,507 3,519,424
Percentage Change............ 9.0% 13.0% 6.5%
Las Vegas Hotel
Occupancy Rate............. 91.4% 93.4% 90.3%
Las Vegas Hotel/Motel Room
Supply..................... 90,046 99,072 105,347
Percentage Change............ 1.7% 10.0% 6.3%
</TABLE>
- ------------------------
(1) Sources: LVCVA and Nevada State Gaming Control Board for the fiscal years
ended December 31.
(2) In thousands.
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<PAGE>
CONSTRUCTION SCHEDULE AND BUDGET
The development of the Aladdin commenced during the first quarter of 1998.
The original Aladdin hotel and casino closed for business on November 25, 1997
and the implosion of the original facility is occurred on April 27, 1998. The
development of the Mall Project is expected to commence during the second
quarter of 1998, followed soon thereafter by the commencement of the development
of the Music Project in the second half of 1998. The Company anticipates the
cost of developing, financing, constructing and opening the Aladdin to be
approximately $790 million (excluding the Company's $21.3 million planned
indirect cash contribution and $15.0 million appraised fair market value land
contribution to Aladdin Music, as part of the development funds for the Music
Project). Pursuant to the Design/Build Contract, the Design/Builder has
committed itself to a 26 month work schedule to complete the Aladdin, subject to
certain scope changes. An equitable adjustment in the Contract Date (as defined
herein) and guaranteed maximum price will be made for changes that either
increase or decrease the Design/Builders' time for performance and/or cost of
construction. See "Certain Material Agreements--Design/Build Contract." The
Company believes that the construction budget is reasonable and the Design/Build
Contract sets forth a procedure designed to ensure the timely completion of the
Aladdin. However, given the risks inherent in the construction process, it is
possible that construction costs could be significantly higher than budget and
that delays could occur. If construction costs do exceed the amounts set forth
in the construction budget, it is expected the potential sources to pay such
excess include (a) the $31.8 million Contingency; (b) London Clubs, the Trust,
and Bazaar Holdings pursuant to their obligations under the Bank Completion
Guaranty; and (c) the Design/Builder, a subsidiary of Fluor, pursuant to its
liability under the Design/Build Contract, which liability is guaranteed by
Fluor pursuant to the Fluor Guaranty. As of May 31, 1998, the Company has
expended $1.7 million under the Contingency. See "Risk Factors--Risks of New
Construction" and "--Risks Under Design/Build Contract and Fluor Guaranty" and
"Certain Material Agreements."
The Mall Project is not being developed by the Company, but is being
developed by Bazaar. The Mall Project is budgeted to cost approximately $259.0
million, all of which amount will be paid by Bazaar. Upon completion of the Mall
Financing, TrizecHahn, the Trust, Bazaar Holdings and AHL agreed to guarantee
completion of the Mall Project and Bazaar's indebtedness to the Mall Lenders
until certain earnings and loan to value targets have been met. See "Risk
Factors--Risk of New Construction" and "--Completion of the Mall Project and the
Music Project," "Use of Proceeds" and "Certain Material Agreements--Bazaar LLC
Operating Agreement."
The Aladdin, together with the Mall Project, will be developed as the first
phase of a planned two-phase redevelopment of the Complex. In the second phase,
Aladdin Music will develop the Music Project which, like the Mall Project, will
be financed independently and such financing will not be guaranteed by the
Company. It is expected that upon the completion of the division of the Project
Site into separate legal parcels, the Company will be required to transfer
ownership of the land parcel upon which the Music Project will be built to
Aladdin Music. The opening of the Music Project is expected to occur within six
months after the opening of the Aladdin. See "Risk Factors--Completion of the
Mall Project and the Music Project," "--Possible Conflicts of Interest" and
"Certain Material Agreements--The Music Project Memorandum of Understanding."
The completion and full operation of the Aladdin is not contingent upon the
subsequent financing or completion of the Mall Project or the Music Project.
Investors should note that funding arrangements for the completion of the Music
Project have not yet been finalized and funding under the Mall Financing is
subject to certain conditions, and there can be no assurance that such funding
arrangements for the Music Project will be finalized at any time or that the
Mall Project or Music Project will be completed. See "Risk Factors--Completion
of the Mall Project and the Music Project."
DESIGN AND CONSTRUCTION TEAM
The Company has assembled what it believes to be a highly qualified team of
specialists to design and construct the Aladdin.
TISHMAN. Tishman has been appointed as the construction manager for the
Aladdin. Tishman is a privately-held construction firm. Tishman or its
affiliates have built or renovated over 30,000 hotel rooms
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<PAGE>
nationwide, including the 500-room, one million square foot Golden Nugget hotel
and casino in Atlantic City, the 635-room, two million square foot Trump Castle
Hotel and Casino in Atlantic City, the 400-room expansion of Harrah's Hotel and
Casino in Atlantic City, the 2,300-room Walt Disney World Dolphin and Swan Hotel
and convention complex, the 1,200-room Sheraton Chicago Hotel & Towers, the
800-room Hilton in Walt Disney World Village and the 600-room Westin Rio Mar
Beach Resort & Country Club.
Entertainment projects built by Tishman include Caesars Magical Empire in
Las Vegas, several Official All Star Cafes throughout the United States, the
Goodwill Games '98 Aquatics Center, Pacific Park in California, restoration of
the New Amsterdam Theater in New York and EPCOT Center in Orlando, Florida.
FLUOR DANIEL. Fluor Daniel, Inc. is the design/builder for the Aladdin. The
Design/Builder is a subsidiary of Fluor, a Fortune 500 Company offering
architectural, engineering, construction management, construction and
maintenance services to projects around the world. The Design/Builder has been
ranked the number one engineering and construction company in the United States
based on total revenue by Engineering News-Record for nine of the last ten
years. In October 1997, the Design/Builder was recognized by Fortune as the most
admired public engineering firm in the world. The Design/Builder has entered
into a guaranteed maximum price Design/Build Contract (subject to scope changes)
with the Company to design and construct the Aladdin. The Design/Build Contract
provides the Design/Builder with incentives for completing the Aladdin ahead of
schedule and within budget and for payment of liquidated damages to the Company
for certain delays. The Design/Build Contract is guaranteed by Fluor, the parent
of the Design/Builder, pursuant to the Fluor Guaranty. See "Certain Material
Agreements-- Design/Build Contract."
ADP/FD OF NEVADA, INC. ADP, an indirect subsidiary of Fluor, will be the
Complex architect. ADP is wholly-owned by ADP Marshall, Inc. ("ADP Marshall").
ADP Marshall, which is based in Phoenix, Arizona, is well-known for its
architecture work and mixed-use projects. Such projects include resorts, hotels,
timeshare/vacation ownership, gaming, mixed-use/planning, recreational (golf
clubs, spas, tennis centers, etc.) and specialty entertainment/retail/restaurant
projects. Among ADP Marshall's many award-winning efforts are Five Star ranked
properties. Its client list includes Princess Hotels, Inc. (Scottsdale and
Acapulco), Carefree Resorts (The Boulders, The Peaks, Carmel Valley Ranch) and
PGA Family Golf Center (Scottsdale).
ADP's philosophy is that design and systems efficiency must support the
operations of a project, especially where the client has a long-term involvement
in the completed development. The firm aims to establish strong client
relationships by thoroughly understanding its clients' needs, the intricacies of
their operations and their development, financial and market specific goals.
TRIZECHAHN. THB, a wholly-owned subsidiary of TrizecHahn, is the joint
venture partner of Bazaar Holdings in the Mall Project. Prior to its recently
announced sale of 20 regional shopping centers, TrizecHahn owned and managed 27
regional centers in major markets throughout the United States, comprising over
25 million square feet, and was one of the largest owners, developers and
managers of regional shopping centers in the United States. Investors should
note that TrizecHahn has announced that it is considering selling its operating
portfolio of regional shopping centers and on April 6, 1998 announced the sale
of 20 regional shopping centers for over $2.5 billion. While TrizecHahn's
announcement is limited to the sale of its current operating portfolio of
regional shopping centers, there can be no assurance that TrizecHahn will not
similarly decide to sell its interest in the Desert Passage. Accordingly,
investors cannot be assured that TrizecHahn will own and operate the Desert
Passage once it becomes operational, and as a result, pedestrian traffic to the
Aladdin may decrease. See "Risk Factors--Completion of the Mall Project and the
Music Project."
BBGM. The interior designer for the project, BBGM, specializes in
hospitality design and has experience in casinos, restaurants, retail,
spa/fitness centers and specialty/theme projects. BBGM's experience includes the
recently renovated and expanded Caesars Atlantic City hotel, casino, restaurants
and public space. Other projects have included the Mohegan Sun Casino in
Connecticut and TropWorld in
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<PAGE>
Atlantic City. BBGM's hotel projects have included the St. Regis, The Plaza and
the Sheraton Hotel & Towers located in New York City.
THE ENERGY PROVIDER. The Energy Provider, a wholly-owned subsidiary of UTH,
will be the energy provider for certain parts of the Complex, including the
Aladdin. The predecessor to UTH was founded in July 1993 as a subsidiary of
Unicom to develop district energy projects. Unicom is listed on the New York
Stock Exchange. Unicom is also the parent of Commonwealth Edison Company, one of
the largest electric utilities in the United States. Since 1993, UTH has
developed the largest district cooling system in the world, located in Chicago,
Illinois, and is a partner in energy ventures in Boston, Houston and Windsor,
Ontario.
OPERATIONAL FACILITIES
The Complex has been designed to include certain operational facilities and
advantages which will assist the Company in providing a high level of service to
guests.
SERVICE FACILITIES. The north side of the Complex will border on a service
road, which will include service elevators, loading docks, receiving and
purchasing facilities and storage areas. These service facilities will be
located near the majority of the Complex's restaurants and food service areas,
which will be the principal users of such facilities.
ELEVATOR BANKS. The Hotel will be designed so that elevator banks are
located at strategic locations, enabling Hotel guests and employees to access
the Hotel guest areas easily. Within the Hotel, special waiter elevators will
provide waiters with direct access from Hotel kitchens to rooms and suites,
allowing guests to receive full room service on a timely basis.
ENERGY. The Complex, once fully constructed, will require substantial
amounts of electricity, hot and cold water and heating and cooling. For this
purpose, the Company has entered into certain agreements with the Energy
Provider for the supply of electricity and heating and cooling to certain parts
of the Complex. The Energy Provider has agreed to provide the Aladdin with all
its electricity, heating and cooling needs, as specified by the Company, from
the date of completion of the Aladdin. Pursuant to the Development Agreement, in
order to supply the Aladdin's energy requirements, the Energy Provider has
agreed to construct and operate, at its own cost, a thermal energy plant (the
"Plant") on an approximately 0.64 acre portion of the Complex (the "Plant
Site"). The Energy Provider's obligations under the Development Agreement are
guaranteed up to $30.0 million by the Energy Provider's ultimate parent, Unicom,
one of the largest electric utility companies in the United States. See "Certain
Material Agreements--Development Agreement," "--Unicom Guaranty" and "--Energy
Service Agreement."
The Music Project will also use electricity, hot and cold water and heating
and cooling supplied by the Energy Provider. TrizecHahn will utilize the Plant
for the provision of electricity and cold water for the Mall Project.
SECURITY. The Aladdin will include state-of-the-art security systems,
including internally operated camera surveillance systems for the Casino. The
Company will employ extensive supervision and accounting procedures to control
the handling of cash in the Casino. These measures will include security
personnel, closed-circuit television for observation of critical areas of the
casino, locked cash boxes, independent auditors and observers, strict sign-in
and sign-out procedures which ensure, to the extent practicable, that gaming
chips issued by and returned to the Casino cashiers' cages are accurately
accounted for, and procedures for the regular observation of gaming employees.
EMPLOYEES
The Company anticipates that immediately prior to completion of the Aladdin,
it will employ approximately 3,600 employees in connection with the Aladdin. The
Company will be required to undertake a major recruiting and training program
prior to the opening of the Aladdin at a time when other major new facilities
may be approaching completion and also recruiting employees. The Company
believes it will be able to attract and retain a sufficient number of qualified
individuals to operate the Aladdin. However, there can be no assurance that it
will be able to do so. Furthermore, the Company does
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<PAGE>
not know whether or to what extent such employees will be covered by collective
bargaining agreements, as that determination will be ultimately made by such
employees.
SERVICE MARKS
On the Issue Date, AHL transferred to the Company four federally registered
service marks involving the word "Aladdin" and used in connection with the
provision of casino and casino entertainment services and hotel and restaurant
services (the "Marks"). Two of the Marks were registered on July 13, 1993, a
third on July 29, 1993 and the fourth on August 24, 1993. A statement of
continuing use with respect to each of the Marks must be filed with the United
States Patent and Trademark Office (the "PTO") between the fifth and sixth
anniversary of the date such Mark was registered in order to maintain the
effectiveness of the registration with respect to such Mark. Although the
Company will not be using the Marks during the period of the Aladdin's
construction, the Company does not expect that this will adversely affect its
registration of the Marks, provided that the reason for the non-use of the Marks
is explained to the PTO at the time the statement of continuing use is filed.
Each of the registrations for the Marks has a duration of ten years and, unless
renewed, will expire on the tenth anniversary of such Mark's date of
registration. The Company has recorded its ownership of the Marks with the PTO.
A lien on the Marks was granted to the Bank Lenders on the Issue Date. See
"Description of Certain Indebtedness and Other Obligations--Bank Credit
Facility."
INSURANCE
Prior to the commencement of operation of the Aladdin, the Company intends
to obtain the types and amounts of insurance coverage that it considers
appropriate for a company in its business. While management intends to ensure
that the Company's insurance coverage will be adequate, if the Company were held
liable for amounts exceeding the limits of its insurance coverage or for claims
outside of the scope of its insurance coverage, the Company's business and
results of operations could be materially and adversely affected.
With respect to the construction of the Aladdin, the Company and the
Design/Builder have elected to implement a controlled insurance program (the
"CIP") whereby the Design/Builder will provide General Liability, Workers'
Compensation, Excess Liability, Contractual Liability, Builders Risk and Transit
coverages for the Design/Builder and all subcontractors. The Company will pay
the Design/Builder for all premiums and costs associated with the CIP. Where
necessary, the Company will be named as a named insured or as an additional
insured on each policy procured by the Design/Builder pursuant to the CIP. In
addition, in lieu of procuring a liquidated damages insurance policy or a
business interruption insurance policy to compensate for late completion of the
Aladdin, the Company has paid the Design/Builder $2.0 million as a bonus
advance. The Design/Builder may elect to purchase liquidated damages insurance
or it may elect to self-insure. In either event, the Design/Builder is entitled
to keep the bonus advance if the Aladdin is finished on or before the date set
for Substantial Completion (as defined herein) (the "Contract Date"). As a
further bonus, the Design/Builder will receive $100,000 for each day, up to but
not to exceed 90 days, that the Aladdin is substantially completed in advance of
the Contract Date. If the Aladdin is not substantially completed by the Contract
Date, the Design/Builder must pay back the advance bonus plus $100,000 per day
commencing on the first day following the Contract Date and continuing up to 90
days thereafter. See "Certain Material Agreements--Design/Build Contract."
LITIGATION
The Company and the Issuers are not currently party to any pending claim or
legal action. However, Mr. Jack Sommer, who is the Chairman of the Holdings
Board and the Company Board (each as defined herein), a director of Holdings,
Capital, the Company and Enterprises and a trustee of the Trust, and the other
trustees of the Trust are currently co-defendants in a legal action relating to
the original Aladdin hotel and casino. See "Controlling Stockholders--Trust
Litigation."
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REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local
regulations. The operation of the Casino by the Company will be subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada
Commission, the Nevada Board, and the CCLGLB are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Any change in such laws, regulations and
procedures could have a material adverse effect on the proposed gaming
operations of the Aladdin and the financial condition and results of operations
of the Company and so the Issuers.
As operator and manager of the Aladdin, the Company will conduct
nonrestricted gaming operations at the Casino and so will be required to be
licensed by the Nevada Gaming Authorities. A nonrestricted gaming license
permits the holder to operate sixteen or more slot machines, or any number of
slot machines with at least one table game. The gaming license will require the
periodic payment of fees and will not be transferable. No person will be able to
become a member of, or receive any percentage of the profits of, the Company
without first obtaining Gaming Approvals. In connection with licensing of the
Company, Holdings will be required to be registered and found suitable as a
holding company of the Company and to be licensed as a member of the Company. In
connection with the registration and licensing of Holdings as a holding company
and a member, each direct and indirect owner of Holdings, including, but not
limited to, Enterprises, London Clubs, LCNI, London Clubs Holdings Ltd. (a
wholly owned subsidiary of London Clubs and the holding company for LCNI) AHL,
the Trust, Sommer Enterprises, GAI and their respective owners (all such parties
collectively, the "Aladdin Owners") will be required to obtain from the Nevada
Gaming Authorities applicable Gaming Approvals. Capital will also be subject to
being called forward for a finding of suitability as a co-issuer of the Notes
and the New Notes in the discretion of the Nevada Gaming Authorities.
Upon the effectiveness of the Exchange Offer, Holdings will be a "publicly
traded corporation" as that term is defined in the Nevada Act. If the Company
becomes an IPO Entity, it will also become a "publicly traded corporation" as
that term is defined in the Nevada Act. In order for a company that is a
publicly traded corporation to receive a gaming license, the Nevada Commission
must exempt the company from a regulatory provision in the Nevada Act which
makes publicly traded corporations ineligible to apply for or hold a gaming
license. However, the Nevada Commission has exempted companies from this
provision in the past and has granted gaming licenses to publicly traded
corporations. If the Company becomes an IPO Entity, the Company intends to apply
for an exemption from this eligibility requirement (the "Exemption") in
connection with its application for a gaming license. In connection with
licensing and receipt of the Exemption, Holdings, London Clubs, Enterprises and
the Company will each also be required to be registered by the Nevada Commission
as a publicly traded corporation (a "Registered Company"). The following
regulatory requirements will be applicable to the Company, Holdings and the
Aladdin Owners upon their receipt of all necessary Gaming Approvals from the
Nevada Gaming Authorities. The Company, Holdings and the Aladdin Owners have not
yet obtained from the Nevada Gaming Authorities the Gaming Approvals required in
order for the Company to conduct gaming operations at the Aladdin
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and there can be no assurances given that such Gaming Approvals will be
obtained, or that they will be obtained on a timely basis. There can also be no
assurances that the Company's officers, managers and key employees will obtain
Gaming Approvals from the Nevada Gaming Authorities.
As a Registered Company and Company Licensee, the Company will be required
to periodically submit detailed financial information and operating reports to
the Nevada Commission and furnish any other information that the Nevada
Commission may require. No person may become a member of, or receive any
percentage of profits from a 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, the Company, Holdings
and the Aladdin Owners to determine whether such individual is suitable or
should be licensed as a business associate of a Company Licensee. Officers,
managers and certain key employees of the Company and Holdings must file
applications with the Nevada Gaming Authorities and will be required to be
licensed by the Nevada Gaming Authorities in connection with the Company's
application. The Nevada Gaming Authorities may deny an application for licensing
or a finding of suitability for any cause 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. The
applicant for licensing or a finding of suitability, or the gaming licensee by
whom the applicant is employed or for whom the applicant serves, must pay 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 licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a company position.
If the Nevada Gaming Authorities were to find an officer, manager or key
employee of the Company or Holdings unsuitable for licensing or to continue
having a relationship with the Company or Holdings, the Company or Holdings, as
the case may be, would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company or Holdings, as the case
may be, to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company will be required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions by the Company will be
required to be reported to or approved by the Nevada Commission. If the Company
is licensed by the Nevada Gaming Authorities, any (i) guarantees of the Notes
issued by the Company or its members, (ii) hypothecation of assets of the
Company as security for the Notes, and pledges of the equity securities of the
Company as security for the Notes will require the approval of the Nevada
Commission in order to remain effective. An approval by the Nevada Commission of
a pledge of equity securities does not constitute approval to foreclose on such
pledge. Separate approval is required to foreclose on a pledge of equity
securities of a Company Licensee and such approval requires the licensing of the
indenture trustee unless such requirement is waived upon the application of the
indenture trustee. Additionally, any (i) restrictions on the transfer of, and
(ii) agreements not to encumber the equity securities of the Company in respect
of the Notes may require the approval of the Nevada Commission in order to
remain effective.
If it were determined that the Nevada Act was violated by the Company or
Holdings, the Gaming Approvals they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company, Holdings and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor
could be appointed by the Nevada Commission to operate the Aladdin and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Aladdin) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any Gaming
Approval or license or the appointment of a supervisor could
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(and revocation of any Gaming Approval would) materially adversely affect the
gaming operations of the Aladdin and the financial position and results of
operations of the Company and the Issuers.
Any beneficial holder of a Registered Company's voting or non-voting
securities (including warrants exercisable into such securities), regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Registered
Company's securities determined if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the state of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Company's voting securities (including warrants
exercisable into voting securities) to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of a
Registered Company's voting securities apply to the Nevada Commission for a
finding of suitability within thirty days after the Chairman of the Nevada Board
mails the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more than
10%, but not more than 15%, of the Registered Company's voting securities
(including warrants exercisable into voting securities) may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall 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 of directors of the Registered Company, and change in the
Registered Company's corporate charter, bylaws, management, policies or
operations of the Registered Company, or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
the 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: (i) voting on all matters voted on by stockholders or
interest holders; (ii) 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 (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable in a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, 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 stockholder or beneficial owner found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the common stock or other equity securities of a Registered Company beyond such
period of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Registered Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company, the Registered Company (i) pays
that person any dividend, distribution or interest upon voting securities of the
Registered Company, (ii) allows that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Company (such as the Notes) to file an application, be
investigated and be found suitable to own the debt security of a Registered
Company. If the Nevada Commission determines that a person is unsuitable to own
such security, then pursuant to the Nevada Act, the Registered Company can be
sanctioned, including
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the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company will be required to maintain a current members' ledger in Nevada
that may be examined by the Nevada Gaming Authorities at any time. The Nevada
Commission has the power to require that their respective members' certificates
bear a legend indicating that such securities are subject to the Nevada Act. It
is unknown at this time whether the Nevada Commission will impose this
requirement on the Company.
After becoming a Registered Company, London Clubs, Enterprises, the Company
and Holdings may not make a public offering of any securities (including, but
not limited to, the Common Stock of Enterprises upon the exercise of the
Warrants) without the prior approval of the Nevada Commission if the securities
or the proceeds therefrom are intended to be used to construct, acquire or
finance gaming facilities in Nevada, or to retire or extend obligations incurred
for such purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
The regulations of the Nevada Board and the Nevada Commission also provide
that any entity which is not an "affiliated company," as such term is defined in
the Nevada Act, or which is not otherwise subject to the provisions of the
Nevada Act or such regulations, such as the Company and Holdings, which plans to
make a public offering of securities intending to use such securities, or the
proceeds from the sale thereof for the construction or operation of gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes, may apply to the Nevada Commission for prior approval of such
offering. The Nevada Commission may find an applicant unsuitable based solely on
the fact that it did not submit such an application, unless upon a written
request for a ruling, the Nevada Board Chairman has ruled that it is not
necessary to submit an application. The Exchange Offer will qualify as a public
offering. Holdings has filed a written request (the "Ruling Request") with the
Nevada Board Chairman for a ruling that it is not necessary to submit the
Exchange Offer for prior approval. No assurance can be given that the Ruling
Request will be granted or that it will be considered on a timely basis. If the
Nevada Board Chairman rules that approval of the Exchange Offer is required,
Holdings will file an application for such approval. If the Ruling Request is
not granted, the Exchange Offer could be significantly delayed while Holdings
seeks approval of the Nevada Board and the Nevada Commission for the Exchange
Offer. No assurance can be given that approval of the Exchange Offer, if
required, will be granted. If Holdings or the Company shall become an IPO Entity
prior to receiving its Gaming Approvals, they intend to file a Ruling Request
with the Nevada Board Chairman for a ruling that it is not necessary to submit
the Qualified Public Offering for prior approval. No assurance can be given that
such a Ruling Request will be granted or that it will be considered on a timely
basis. If the Nevada Board Chairman rules that approval of the Qualified Public
Offering is required, the Company or Holdings, as applicable, will file an
application for such approval. If the Ruling Request is not granted, the
Qualified Public Offering could be significantly delayed while the Company or
Holdings seeks approval of the Nevada Board and the Nevada Commission for the
Qualified Public Offering. No assurance can be given that approval of the
Qualified Public Offering, if required, will be granted.
Changes in control of a Registered Company through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Company must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Company. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
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involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Companies that are affiliated
with those operations, may be injurious to stable and productive corporate
gaming. The Nevada Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Nevada's gaming
industry and to further Nevada's policy to: (i) assure the financial stability
of corporate gaming operators and their affiliates; (ii) preserve the beneficial
aspects of conducting business in the corporate form; and (iii) promote a
neutral environment for the orderly governance of corporate affairs. Approvals
are, in certain circumstances, required from the Nevada Commission before the
Registered Company can make exceptional repurchases of voting securities above
the current market price thereof and before a corporate acquisition opposed by
management can be consummated. The Nevada Act also requires prior approval of a
plan of recapitalization proposed by the Registered Company's Board of Directors
in response to a tender offer made directly to the Registered Company's
stockholders or interest holders for the purposes of acquiring of the Registered
Company.
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 Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax also will also be paid by the Company where certain
entertainment is provided in a cabaret, nightclub, cocktail lounge or casino
showroom in connection with admissions and the serving or selling of food,
refreshments or merchandise.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are also required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities or
enter into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or a finding of
suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by the Company on the premises of the
Aladdin is also subject to licensing, control and regulation by the CCLGLB. All
licenses are revocable and are not transferable. The CCLGLB have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
financial position and results of operations of the Company and the Issuers.
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MANAGEMENT
The following table sets forth the executive officers and the directors of
the Company, which will own, develop and operate the Aladdin, and of Holdings
and Capital. A "director" of the Company or Holdings, as such term is used in
this Prospectus, shall refer to a person who sits on the Board of Managers of
the Company (the "Company Board") or Holdings (the "Holdings Board").
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Jack Sommer.................................. 51 Chairman of the Company Board and the Holdings Board;
Director of Capital
Richard J. Goeglein.......................... 64 Chief Executive Officer and President of the Company,
Holdings and Capital; Director of the Company, Holdings and
Capital
Ronald Dictrow............................... 54 Executive Vice President/Secretary and Director of the
Company, Holdings and Capital
Alan Goodenough.............................. 54 Director of the Company, Holdings and Capital
G. Barry C. Hardy............................ 50 Director of the Company, Holdings and Capital
James H. McKennon............................ 44 Senior Vice President of the Company, Holdings and Capital;
President/Chief Operating Officer of the Aladdin Hotel and
Casino
Cornelius T. Klerk........................... 44 Senior Vice President/Chief Financial Officer/ Treasurer of
the Company, Holdings and Capital
Lee A. Galati................................ 55 Senior Vice President/Human Resources of the Company,
Holdings and Capital
Jose A. Rueda................................ 61 Senior Vice President/Electronic Gaming of the Company,
Holdings and Capital
David Attaway................................ 43 Senior Vice President of the Company, Holdings and Capital;
President and Chief Operating Officer of the Music Project
Patricia Becker.............................. 46 Senior Vice President/General Counsel of the Company,
Holdings and Capital
</TABLE>
JACK SOMMER is the Chairman of the Holdings Board and the Company Board and
a director of Capital. Mr. Sommer has been a full time resident of Las Vegas
since 1988. Mr. Sommer is both a trustee and contingent beneficiary of the
Trust. He has over 25 years of experience in developing residential and
commercial real estate, including luxury residential projects such as North
Shore Towers, in Queens County, New York, and The Sovereign at 425 East 58th
Street in Manhattan. The Sommer family has been in the real estate development
business for over 100 years, operating for part of that time as Sommer
Properties ("Sommer Properties") founded by Mr. Sommer's father (who passed away
in 1979), and which is controlled by Mr. Sommer and his mother, Mrs. Viola
Sommer. Other well known developments of Sommer Properties have included 280
Park Avenue, Manhattan, an 820,000 square foot office building in Manhattan
formerly owned and currently partially occupied by the Bankers Trust Company;
135 West 50th Street, Manhattan, an 800,000 square foot office building also
known as the AMA Building; and 600 Third Avenue, Manhattan, a 500,000 square
foot office building. Sommer Properties has also developed over 35,000 single
family homes, primarily in New Jersey.
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RICHARD J. GOEGLEIN is Chief Executive Officer and a director of the
Company, Holdings and Capital. Mr. Goeglein has spent over 28 years in the
hotel/casino and food service industry. He was an Executive Vice President and a
member of the Board of Directors of Holiday Inns and Holiday Corp. from 1978
through 1987 and led the management team that consummated the 1980 acquisition
of Harrah's Hotels and Casinos ("Harrah's") for Holiday Inns. Mr. Goeglein
subsequently served as President and Chief Executive Officer of Harrah's from
1980 to the Fall of 1984 and as President and Chief Operating Officer of Holiday
Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns and Embassy
Suites) from October 1984 through 1987. From 1988 to 1992, Mr. Goeglein
participated in several corporate turnarounds in the technology and consumer
services fields. In 1992, Mr. Goeglein formed Gaming Associates, Inc. ("Gaming
Associates") to take management control of Dunes Hotel and Casino in Las Vegas
and to prepare a plan of closure for and carry out the closure of the property.
He remains a principal of that company. Gaming Associates provided consulting
services to the lodging and gaming industries. Mr. Goeglein recently served as a
member of the Gaming Oversight Committee of Marriott Corporation ("Marriott")
and through Gaming Associates, provided consulting services to Marriott's gaming
operations situated outside of the United States through December 1997. Mr.
Goeglein is also a director of Hollywood Park, Inc.
RONALD DICTROW is Executive Vice President/Secretary and a director of the
Company, Holdings and Capital. Mr. Dictrow spent the first 12 years of his
professional career as a CPA with the New York accounting firm David Berdon &
Company and has a master's degree in accounting and taxation. In 1979, he was
hired by Sigmund Sommer as Controller with financial responsibility for all of
Mr. Sommer's properties. In 1984, Mr. Dictrow became Treasurer and Chief
Financial Officer of the Trust with the additional responsibility for the
operations and management of these properties. Mr. Dictrow is an advisor and
consultant to Mrs. Viola Sommer and has been an officer and director of
Sovereign Apartments, Inc., a New York City cooperative apartment building since
1979. Mr. Dictrow has had business dealings with the Sommer family for over 20
years.
ALAN GOODENOUGH is a director of the Company, Holdings and Capital. Mr.
Goodenough, who is chief executive officer of London Clubs, has over 30 years of
experience in the leisure and gaming industry, having worked as a public company
director and at other senior levels with several major public leisure and casino
companies in the United Kingdom. In 1990 Mr. Goodenough founded Lyric Hotels
Limited, a United Kingdom hotel company, raising over $40 million from United
Kingdom-based institutions. He remains Chairman of the Lyric Group which
currently operates three and four star hotels throughout England. As chief
executive officer of London Clubs, Mr. Goodenough was instrumental in that
company's initial public offering on the London Stock Exchange in June 1994. Mr.
Goodenough is also presently a fellow of the United Kingdom Hotel and Catering
Institute and a member of the Institute of Directors of England and Wales.
G. BARRY C. HARDY is a director of the Company, Holdings and Capital. Mr.
Hardy has served as Finance Director of London Clubs since 1989. Before joining
London Clubs, Mr. Hardy had extensive business experience in the leisure and
gaming industries. Such experience included executive level positions with
Pleasurama, plc where he held the offices of Development Director, Group Finance
Director and Company Secretary. In addition, Mr. Hardy was actively involved in
the development of Pleasurama's leisure and casino interests. In 1988, after the
acquisition of Pleasurama by Mecca Leisure Ltd., Mr. Hardy was appointed to
Mecca's Board as Managing Director of its casino division.
JAMES H. MCKENNON is Senior Vice President of the Company, Holdings and
Capital and President/ Chief Operating Officer of the Aladdin Hotel and Casino.
Mr. McKennon's career spans over 21 years in the hotel and casino industry in a
variety of executive positions. He was President and Chief Operating Officer of
Caesars World International Marketing (the casino marketing division of Caesars
World) from 1994 to 1996 and served as the President and Chief Operating Officer
of Caesars Tahoe from 1991 to 1994. Mr. McKennon first joined Caesars as the
Senior Vice President-Hotel Operations for Caesars Palace in
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Las Vegas, a position he held until his promotion in 1991. From 1976 to 1988 he
held a variety of managerial positions at both the property and corporate level
for Westin Hotels.
CORNELIUS T. KLERK is the Senior Vice President/Chief Financial Officer of
the Company, Holdings and Capital. He has over 19 years of experience in the
hotel and casino industry both at the corporate and property level. From 1993 to
1997 Mr. Klerk was Vice President--Finance for Hilton Gaming Division (the
gaming division of Hilton Hotels Corporation ("Hilton")). In that position he
was responsible for the financial oversight of all gaming properties owned and
operated by Hilton. He was employed by Harrah's from 1979 to 1985 and again from
1989 to 1993 in a variety of financial management positions ranging from Casino
Controller for Harrah's Atlantic City to Vice President, Finance--Southern
Nevada. From 1985 to 1987, Mr. Klerk was Vice President of Gilpin, Peyton and
Pierce, a regional advertising agency and from 1987 to 1989, he was Corporate
Controller for Forte Hotels International in San Diego, California. Mr. Klerk
was previously a CPA with the accounting firm of Price Waterhouse.
LEE A. GALATI is the Senior Vice President/Human Resources of the Company,
Holdings and Capital. Mr. Galati has 22 years of human resources experience in a
variety of industries in both the public and private sectors. He was most
recently the Director of Human Resources for Sky Ute Casino in Durango, Colorado
from 1996 to 1997. Mr. Galati served as the Director of Human Resources for La
Plata County, Colorado from 1993 to 1995. From 1990 to 1993, Mr. Galati served
as an adjunct professor in the School of Business at Fort Lewis College in
Durango, Colorado. His experience also includes serving as Director of
Operations Support Services and Human Resources for Northern Telecom in San
Diego from 1984 to 1990 as well as Director of Human Resources for Beckman
Instruments in Fullerton, California from 1980 to 1984. Mr. Galati earned a
Masters in Human Resources and Organization Development from the University of
San Francisco in 1984.
JOSE A. RUEDA is the Senior Vice President of Electronic Gaming for the
Company, Holdings and Capital. Mr. Rueda's 28 years experience in the gaming
industry includes gaming operations as well as the sale and distribution of
gaming equipment. He was the Vice President, North East Region of Mikohn Gaming
Corporation from 1995 to 1997. Mikohn is a leading supplier of gaming equipment
to the casino industry. Prior to joining Mikohn, Mr. Rueda was with Harrah's for
24 years in a variety of management positions that included Director of Slot
Operations, Harrah's Atlantic City, from 1986 to 1994; Vice President of
Gaming/Slots, Harrah's Corporate from 1984 to 1986; Vice President of
Operations, Harrah's at Trump Plaza from 1983 to 1984 and Vice President of
Gaming, Harrah's Corporate from 1980 to 1983. Mr. Rueda has extensive experience
in property research and development along with creative product positioning. He
holds a business management degree from the University of Nevada at Reno.
DAVID ATTAWAY is the Senior Vice President of the Company, Holdings and
Capital and President and Chief Operating Officer of the Music Project. Mr.
Attaway has 17 years experience in the entertainment, hotel and casino industry
in a variety of executive positions. He joined Caesars Tahoe in 1986 and held
the following positions during his 12 year tenure: Senior Vice President and
General Manager from 1996 to 1998; Senior Vice President of Casino Operations
and Marketing, 1996 and Senior Vice President of Marketing, 1992 to 1996. Prior
to joining Caesars Tahoe, Mr. Attaway was the Director of Marketing and Finance
for Lawlor Event Center in Reno, Nevada from 1983 to 1985. He held management
positions with Five Flag Center in Dubuque, Iowa from 1981 to 1983. Mr. Attaway
holds a Bachelors Degree in Theater Management from Ohio University and he
completed the Masters Program in Marketing at the same institution.
PATRICIA BECKER is the Senior Vice President/General Counsel of the Company,
Holdings and Capital. Ms. Becker currently is a director of Powerhouse
Technologies, Inc. and Fitzgeralds Gaming Corporation and chairs the Compliance
Committee for both companies. From 1993 to 1995, Ms. Becker was Chief of Staff
for Nevada Governor, Bob Miller. From 1985 to 1993 Ms. Becker was with Harrah's
Hotels and Casinos, where she held the position of Senior Vice President and
General Counsel. Prior to joining
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Harrah's, she was a member of Nevada State Gaming Control Board. She holds a
Juris Doctorate degree from California Western School of Law.
COMMITTEES
The Holdings Operating Agreement provides that there will be Executive
Management Committees which will be responsible for the day to day management of
Holdings and the Company. The Executive Management Committee of the Company
includes the following persons: the President and Chief Executive Officer of the
Company, the Chief Financial Officer of the Company, the President and Chief
Operating Officer of the Aladdin, the President and Chief Operating Officer of
the Music Project, the Senior Vice President of Human Resources of the Company,
the Senior Vice President of Electronic Gaming of the Company, the Senior Vice
President/General Counsel of the Company and the Managing Director of the Salle
Privee. See "Certain Material Agreements--Holdings Operating Agreement." The
Holdings Board may also establish committees of the Holdings Board as it may
deem necessary or advisable. Each of London Clubs and Sommer Enterprises is
entitled to have one of its nominee Holdings Board members on each such
committee. Presently, no committees of the Holdings Board have been established.
COMPENSATION
The following table summarizes the compensation earned during 1997 by the
Company's, Holdings' and Capital's Chief Executive Officer and the only other
executive officer of the Company, Holdings or Capital who earned over $100,000
in 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION(1)
-------------------------------- --------------------------------------------
OTHER ANNUAL RESTRICTED STOCK
NAME AND PRINCIPAL OCCUPATION(2) SALARY COMPENSATION AWARDS OTHER
- --------------------------------- --------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Richard J. Goeglein; Chief
Executive Officer.............. $ 650,000(3) --(4) $ 0(5) $16,343(6)
James H. McKennon; Senior Vice
President...................... $ 243,750(7) --(8) $ 0(9) $635(6)
</TABLE>
- ------------------------------
(1) All of the executive officers of the Company, Holdings and Capital (other
than Mr. Dictrow) are compensated by the Company. Mr. Dictrow is principally
employed by the Trust and is compensated by the Trust. Compensation has been
paid on the Company's behalf by AHL since the Company's inception in January
1997.
(2) No other executive officer of the Company, Holdings or Capital received a
total annual salary and bonus exceeding $100,000 in 1997 from the Company,
Holdings or Capital.
(3) Includes $150,000 paid to GAI in 1997 for consulting fees.
(4) GAI purchased vested Holdings Common Membership Interests representing 3% of
the outstanding Holdings Common Membership Interests for $1,800. The price
paid by GAI for such interests was equal to the fair market value of such
interests at the time of purchase. The aggregate amount of all perquisites
and other personal benefits received by Mr. Goeglein in 1997 was less than
$50,000.
(5) Mr. Goeglein purchased unvested Holdings Common Membership Interests
representing 2% of the outstanding Holdings Common Membership Interests for
a purchase price of $1,200. Such interests had a fair market value of $1,200
on the date of purchase and vest on the earlier of (a) July 1, 2002 and (b)
the date on which such interests become publicly traded.
(6) Represents life insurance premiums paid on behalf of the executive in 1997.
(7) Mr. McKennon's employment with the Company began mid-year 1997. Mr.
McKennon's Employment Agreement provides for an annual salary of $325,000
per year ($350,000 effective April 1998), plus certain other benefits. See
"--Employment Agreements."
(8) The aggregate amount of all perquisites and other personal benefits received
by Mr. McKennon was less than 10% of the salary and bonus he was paid in
1997.
(9) Mr. McKennon purchased unvested Holdings Common Membership Interests
representing approximately 1.0% of the outstanding Holdings Common
Membership Interests for a purchase price of $600. Such interests had a fair
market value of $600 on the
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date of purchase. Twenty-five percent of such interests vest on the date of
the opening of the Aladdin and an additional 25% vests on each annual
anniversary of such opening date.
EMPLOYMENT AGREEMENTS
Richard J. Goeglein, James H. McKennon, Cornelius T. Klerk, Lee A. Galati
and Jose A. Rueda (the "Officers") each signed an employment agreement (each, an
"Employment Agreement") with the Company during 1997. David Attaway and Patricia
Becker are currently negotiating employment agreements with the Company which
are expected to be comparable to the employment agreements discussed herein. The
terms of the Employment Agreements were amended on February 26, 1998 such that
Holdings became a party and the Officers contributed their Restricted Membership
Interests in the Company to Holdings in return for Restricted Membership
Interests in Holdings. The initial term of Mr. Goeglein's Employment Agreement
is five years and six months, and the remaining Officers' Employment Agreements
have an initial duration of four years. Pursuant to each Employment Agreement,
the Officers have such authority, responsibilities and duties as are customarily
associated with their positions with the Company. The Employment Agreements
provide that, during the term of their employment, the Officers will devote
their full time, efforts and attention to the business and affairs of the
Company.
The terms of the Employment Agreements provide for an annual base salary for
Mr. Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda of $500,000
($600,000 after the opening of the Aladdin), $325,000 ($350,000 effective April
1998), $200,000, $150,000 and $250,000, respectively, plus any bonus granted by
the Board of Directors based on relevant criteria and performance standards. All
of the Officers have been receiving and are expected to continue to receive
their compensation from the Company, except that prior to the Issue Date, such
amounts were paid by AHL on the Company's behalf. Mr. Goeglein's Employment
Agreement provides for annual bonuses based upon "on target" performances,
ranging from 50% to 75% of his base salary, and is subject to certain tax
provisions. The Company Board will consider increases to the Officers' base
salary no less frequently than annually, commencing at the end of each Officer's
first employment year. Any increase in base salary shall be within the sole
discretion of the Company Board. The Employment Agreements provide that the
Officers' salary cannot be reduced. After the initial term of Mr. Goeglein's
Employment Agreement, the Company has agreed to retain Mr. Goeglein as a
consultant to the Company for an additional five years at $100,000 per year. The
Officers are entitled to receive other employee benefits from the Company, such
as health, pension and retirement and reimbursement of certain expenses.
Pursuant to the terms of the Employment Agreements, as amended, Mr.
Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda have purchased for a
total purchase price of $1,200, $600, $450, $150 and $450, respectively,
unvested Common Membership Interests which were contributed to Holdings on
February 26, 1998 in return for unvested Holdings Common Membership Interests
representing approximately 2.0%, 1.0%, .75%, .25% and .75% (subject to dilution
upon exercise of the Warrants, whether vested or unvested at such time),
respectively of the Holdings Common Membership Interests (the "Restricted
Membership Interests") subject to the receipt of applicable Gaming Approvals.
The Officers' Restricted Membership Interests will be diluted upon exercise of
the Warrants so that Sommer Enterprises and the Officers share pro rata the
ultimate effect of the exercise of the Warrants. Sommer Enterprises' percentage
interest will be adjusted upward to the same degree. Enterprises' interest in
Holdings will be unaffected by the vesting of the Officers' Restricted
Membership Interests. Except with respect to Mr. Goeglein, during the terms of
the Employment Agreements, 25% of each Officer's Restricted Membership Interests
vest on the date of the opening of the Aladdin, and a further 25% vest on each
annual anniversary of the opening of the Aladdin. If the Company continues to
employ each Officer after the expiration of the term of his Employment
Agreement, 25% of the Officer's Restricted Membership Interests will continue to
vest on each anniversary of the opening date until such interests are fully
vested. After the terms of the Employment Agreements, if the Company does not
continue to employ the Officer other than for Cause, or if the Officer no longer
continues his employment for Good Reason, only an
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additional 25% of the Officer's Restricted Membership Interests vest. Mr.
Goeglein's Restricted Membership Interests become fully vested at the earlier of
July 1, 2002 and the date on which such interests become publicly traded,
conditioned upon Mr. Goeglein's continued relationship with the Company. If an
Officer's employment with the Company and Holdings terminates, the Company and
Holdings have the right to repurchase any unvested portion of the Officer's
Restricted Membership Interest for an amount equal to the purchase price
originally paid by the Officer for the Common Membership Interests. Under
certain circumstances as set forth in the Employment Agreements, including if an
initial public offering with respect to the Restricted Membership Interests has
not occurred prior to the full vesting of such interests, the Officers have the
right to sell their vested Restricted Membership Interests to Holdings at fair
market value (subject to the receipt of applicable Gaming Approvals and to
certain restrictions on restricted payments set forth in the Indenture and the
Bank Credit Facility). If Holdings does not satisfy its obligation to purchase
the Restricted Membership Interests within seven days, the Officers have the
right to require the Company to purchase such interests at fair market value
(subject to certain restrictions on Restricted Payments set forth in the
Indenture). After the Company has satisfied its obligation to purchase the
Restricted Membership Interests, Holdings has the right to call such interests
from the Company for nominal consideration. If, prior to the date of an initial
public offering with respect to the Restricted Membership Interests, an Officer
is terminated for Cause, except with respect to Mr. Goeglein, the Company and
Holdings have the right to purchase any vested Restricted Membership Interests
from the Officers at two times the original price paid by the Officer for such
interests (in each case with corresponding rights in Holdings to purchase the
Common Membership Interests which correspond to such Restricted Membership
Interests for nominal consideration).
The Employment Agreements may be terminated by the Company with or without
Cause (as defined in each Employment Agreement) or by the Officers for Good
Reason (as defined in each Employment Agreement). If an Officer is terminated
for Cause, he shall be entitled only to such salary, bonus and benefits then
accrued or vested. If an Officer is terminated without Cause or upon a Change in
Control (as defined in the Employment Agreements), the Officer shall be entitled
to such salary, bonus and benefits he would have been entitled for the remainder
of the four-year term or twelve months, whichever is longer (in the case of Mr.
Goeglein, any such amount remaining in connection with his term plus certain
other amounts).
Each Officer has agreed not to compete with the Company during the term of
the Employment Agreements (plus one additional year if the Officer was
terminated for Cause) and has agreed to refrain from certain other activities in
competition with the Company.
Each of the Employment Agreements provides that the Company shall indemnify
and hold the Officers harmless to the fullest extent permitted by Nevada law
against costs, expenses, liabilities and losses, including reasonable attorney's
fees and disbursements of counsel, incurred or suffered by the Officer in
connection with his services as an employee of the Company during the term of
the respective Employment Agreement.
Mr. Goeglein's Employment Agreement provides Mr. Goeglein with relocation
expense reimbursement, an interest-free mortgage loan of up to $500,000, and
certain excise tax gross-up provisions.
GAI CONSULTING AGREEMENT
The Company has entered into a consulting agreement (as amended, the
"Consulting Agreement") with GAI, LLC ("GAI"), a Nevada limited-liability
company 100% beneficially owned by Richard Goeglein, which was subsequently
amended on February 26, 1998 to add Holdings as a party and pursuant to which
amendment GAI contributed its Common Membership Interests in the Company to
Holdings in return for Holdings Common Membership Interests. Pursuant to the
Consulting Agreement, GAI will render such consulting services as are reasonably
requested by the Company Board until June 30, 2002.
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During the term of the Consulting Agreement, the Company shall pay GAI a
retainer of $12,500 each month as payment for remaining on call to provide
services and expertise for such month. In addition, GAI purchased a 3% Common
Membership Interest in the Company which was contributed to Holdings on February
26, 1998 in return for a 3% Holdings Common Membership Interest (the "GAI
Membership Interest") for a purchase price of $1,800. The GAI Membership
Interest is fully vested and is subject to certain anti-dilution provisions
contained in the Consulting Agreement (but subject to dilution upon exercise of
the Warrants). In addition, (a) if Richard Goeglein is terminated from his
employment with the Company other than for "Cause" or voluntarily terminates for
"Good Reason" (as such terms are defined in Mr. Goeglein's Employment Agreement
with the Company) after the consummation of the Funding Transactions and the
Offering or (b) if an initial public offering in respect of the GAI Membership
Interest has not occurred prior to July 1, 2002, GAI has the right to sell any
shares purchased under the Consulting Agreement back to Holdings at their fair
market value at the time of such sale (subject to the receipt of applicable
Gaming Approvals and to certain restrictions on restricted payments set forth in
the Indenture and the Bank Credit Facility). If Holdings does not satisfy its
obligation to purchase the GAI Membership Interest within seven days, GAI has
the right to require the Company to purchase such interests at fair market
value. After the Company has satisfied its obligation to purchase the GAI
Membership Interest, Holdings will have the right to call such interests from
the Company at nominal value.
Pursuant to the Consulting Agreement, GAI has certain "piggyback"
registration rights with respect to its interests purchased pursuant to the
Consulting Agreement. Holdings has agreed to indemnify GAI, its legal counsel
and independent accountants against all expenses, claims, losses, damages and
liabilities which may arise out of certain acts or omissions committed in
connection with the registration of such membership interests, and, in
connection with certain acts or omissions not committed in connection with the
registration of such membership interests, to the same extent that other senior
management and directors of the Company and Holdings are indemnified.
BONUS AND INCENTIVE PLANS
The Company and Holdings currently do not have any bonus or incentive plans.
However, the Company anticipates adopting such a plan at such time as it may
deem appropriate (subject to supermajority approval by the Holdings Members (as
defined herein), such approval not to be unreasonably withheld). It is expected
that the terms of any such plan would be comparable to those customary in the
industry.
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CONTROLLING STOCKHOLDERS
OVERVIEW
AHL owns 98.7% of the common membership interests of Sommer Enterprises, a
Nevada limited-liability company. Sommer Enterprises currently owns 100% of
Enterprises' capital stock and, on a fully diluted basis assuming full exercise
of the Warrants, will own 60% of the economic benefit of Enterprises' capital
stock. The Holdings Common Membership Interests are held 47.0% by Sommer
Enterprises, 25.0% by Enterprises (which is a wholly owned subsidiary of Sommer
Enterprises), 25.0% by London Clubs, through LCNI, and the remaining 3.0% by
GAI. Holdings owns all of the outstanding Common Membership Interests and Series
A Preferred Interests of the Company.
AHL, which indirectly owns approximately 71.1% of the Common Membership
Interests and Series A Preferred Interests, is a 95%-owned subsidiary of the
Trust, a private New York discretionary trust, the trustees of which are Mrs.
Viola Sommer, Mr. Eugene Landsberg and Mr. Jack Sommer and the beneficiaries of
which are certain members of the Sommer family. The Sommer family has been in
the business of developing residential and commercial real estate, predominantly
in the metropolitan areas of the States of New York and New Jersey, for over 100
years. The former Aladdin hotel and casino located on the Project Site was
acquired by a predecessor-in-interest to AHL in December, 1994. Mr. Jack Sommer
and the other trustees of the Trust are currently co-defendants in a legal
action relating to the acquisition of the Project Site in December, 1994. See
"--Trust Litigation".
There is a potential conflict of interest for the Trust with respect to its
indirect interest in the Mall Project, on the one hand, and its indirect
interest in the Aladdin on the other hand. If the Trust directs attention to
operations at the Mall Project and to increasing customers to the Desert
Passage, it may decrease the pedestrian traffic to the Aladdin, which could have
a material adverse effect on operations of the Company, and accordingly Holdings
and Enterprises.
London Clubs (together with AHL, the "Controlling Stockholders") owns 25% of
the Holdings Common Membership Interests through subsidiaries. On the opening
date of the Aladdin, 0.5% of the Holdings Common Membership Interests will be
transferred from London Clubs to Sommer Enterprises and, upon the vesting of
certain employees' membership interests in Holdings, London Clubs' percentage of
the Holdings Common Membership Interests, and Sommer Enterprises' percentage of
the Holdings Common Membership Interests, will be further diluted
proportionately to account for such vesting, subject to applicable Gaming
Approvals. London Clubs is one of the world's leading casino operators, with
seven casinos in London (including Les Ambassadors Club and 50 St. James), three
in Egypt and one in Lebanon. Each of London Clubs' casinos offers its own
individual style, but with the same internationally-recognized standards of
service.
In recent years, London Clubs has embarked upon a period of expansion,
acquiring the Park Tower Casino in London's Knightsbridge in October 1996 and in
December 1996 re-opening and managing the casino operations of the famous Casino
du Liban in Lebanon. London Clubs is listed on the London Stock Exchange. See
"Risk Factors--Controlling Stockholders" and "--Possible Conflicts of Interest."
HOLDINGS OPERATING AGREEMENT
The members of Holdings (the "Holdings Members") have entered into the
Holdings Operating Agreement which sets forth their agreement as to the
relationships between Holdings and the Holdings Members and among the Holdings
Members themselves and as to the conduct of the business and internal affairs of
Holdings and its subsidiaries. For a summary of certain key provisions of the
Holdings Operating Agreement, see "Certain Material Agreements--Holdings
Operating Agreement."
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EQUITY AND SERIES A PREFERRED INTEREST FINANCING
Concurrent with or prior to the Offering, the following contributions were
made in order to effect the Equity and Series A Preferred Interest contribution
to the Company by Holdings: (i) Sommer Enterprises (a) contributed a portion of
the Contributed Land and $7.0 million consisting of the benefit of certain
predevelopment costs incurred by AHL to Enterprises in exchange for Class A
Common Stock in Enterprises and (b) contributed a portion of the Contributed
Land to Holdings in exchange for Holdings Common Membership Interests, (ii)
Enterprises contributed the portion of the Contributed Land and the benefit of
the $7.0 million of certain predevelopment costs received from Sommer
Enterprises and the net proceeds allocable from the sale of the Warrants to
Holdings in exchange for Holdings Common Membership Interests ((i) and (ii)
collectively, the "Sommer Equity Financing"), (iii) Holdings contributed the
Contributed Land appraised at $150.0 million, approximately $42 million from the
London Clubs Contribution and the $7.0 million consisting of the benefit of
certain predevelopment costs incurred by AHL to the Company in exchange for
Common Membership Interests in the Company and (iv) Holdings contributed $115.0
million in cash, consisting of the net proceeds of the sale of the Units and
approximately $8 million of the London Clubs Contribution, to the Company in
exchange for Series A Preferred Interests of the Company.
LAND APPRAISAL. While the Notes are not secured by the Project Site, the
Project Site represents the Company's most material asset. The Bank of Nova
Scotia, as arranger of the Bank Credit Facility retained HVS International, a
division of Hotel Consulting, Inc., to prepare and deliver an appraisal of the
Project Site and the Hotel/Casino (the "Appraisal"). The Appraisal was
completed, and was delivered to the Bank of Nova Scotia and the Company on
October 7, 1997. The Appraisal states that as of August 7, 1997, the "market
value" of the Project Site was $180.0 million and of the site on which the
Aladdin and the Plant will be built (as well as an adjacent approximately 0.8
acre portion of the Project Site) was $135.0 million.
KEEP-WELL AGREEMENT
AHL, Bazaar Holdings and London Clubs (collectively, the "Sponsors") have
entered into the Keep-Well Agreement in favor of the Administrative Agent and
the Bank Lenders. The holders of the Notes are not a party to the Keep-Well
Agreement. Capitalized terms used and not defined in this section have the
meanings assigned to such terms in the Keep-Well Agreement.
The Keep-Well Agreement is the joint and several agreement of the Sponsors
to make certain quarterly Cash Equity Contributions (as defined below) to the
Company from and after the Conversion Date if the Company fails to comply with
the Minimum Fixed Charges Coverage Ratio set forth in the Bank Credit Facility.
The Bank Credit Facility defines the Minimum Fixed Charges Coverage Ratio as the
ratio of the Company's EBITDA for any period of four consecutive fiscal quarters
to the Company's fixed charges for such period. For the Company's first three
fiscal quarters after the Conversion Date, the Minimum Fixed Charges Coverage
Ratio shall be calculated by annualizing the Company's Minimum Fixed Charges
Coverage Ratio for such fiscal quarters.
The Cash Equity Contributions to the Company shall be in an amount that,
when added to the Company's EBITDA for the four quarter period ending on the
last day of such fiscal quarter, would rectify such breach. In no event shall
the aggregate Cash Equity Contributions required to be made by the Sponsors in
any fiscal year of the Company exceed $30.0 million. The $30.0 million annual
limitation on Cash Equity Contribution shall not apply to, or in any way limit,
any obligation of the Sponsors to pay the Accelerated Payment Amount (as defined
below).
The Cash Equity Contributions are cash contributions by the Sponsors to the
Company in exchange for Holdings Series A Preferred Interests or Holdings Series
B Preferred Interests having terms and conditions satisfactory to the Bank
Lenders (including, without limitation, no mandatory redemption provisions and
no requirements for the distribution of cash). The Holdings Operating Agreement
makes provision for adjustment of the proportion of Holdings Common Membership
Interests held by Sommer
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Enterprises and London Clubs for circumstances where the portion of payment made
by either Sponsor is in excess of 25% with respect to London Clubs and 75% with
respect to Sommer Enterprises. The Cash Equity Contributions and the issuance of
Holdings Common Membership Interests or the Holdings Series A Preferred
Interests and Holdings Series B Preferred Interests will require the approval of
the Nevada Gaming Authorities.
Cash Equity Contributions made under the Bank Completion Guaranty will not
count for purposes of the Keep-Well Agreement, and vice-versa.
The Keep-Well Agreement will terminate (the "Keep-Well Termination Date") on
the date which is the earliest of (i) the day on which full and indefeasible
payment of the Obligations of the Company under the Bank Credit Facility has
been made to reduce the commitments of the Bank Lenders thereunder (the
"Commitments") to $145.0 million or less, (ii) the last day of the period of six
consecutive fiscal quarters from and after the Conversion Date during which the
Company has satisfied each of the financial covenants set forth in the Bank
Credit Facility (without giving effect to any payments to or investments by the
Sponsors in or for the benefit of the Company), (iii) the date on which both of
the following shall have been satisfied: (a) construction of the Aladdin and
renovation of the Theater have been completed in accordance with the terms of
the Bank Credit Facility and (b) the Commitments and the aggregate outstanding
principal amount of the Obligations under the Bank Credit Facility shall have
been reduced to an amount not in excess of a certain amount specified for such
date pursuant to a schedule of the 20 quarters following the Conversion Date,
(iv) the date on which the Sponsors shall have made full payment of the
Accelerated Payment Amount (as defined below) or (v) in the case of London Clubs
only, the date on which it shall have made full payment of the Accelerated
Payment Amount in respect of certain London Clubs specified events.
The Accelerated Payment Amount is, as of any date, an amount equal to the
sum of (a) the product of (i) $7.5 million times (ii) the number of scheduled
quarterly amortization payments remaining under the Bank Credit Facility (which
have not been paid by or on behalf of the Company) plus (b) any accrued and
unpaid amounts owed by the Sponsors under certain provisions of the Keep-Well
Agreement; provided, however, that at no time shall the Accelerated Payment
Amount exceed the lesser of (x) the outstanding Obligations of the Company under
the Bank Credit Facility and (y) $150.0 million plus amounts due under clause
(b) above, minus the product of (A) $7.5 million and (B) the number of complete
calendar quarters that have elapsed since the date which is six calendar
quarters after the Conversion Date.
The maximum amount of the Accelerated Payment Amount will be $150.0 million
plus any unpaid Cash Equity Contributions previously required to be made under
the Keep-Well Agreement. The maximum amount of the Accelerated Payment Amount
shall decrease by $7.5 million for each quarterly amortization payment which is
paid or prepaid.
Should certain specified exceptional events under the Keep-Well Agreement
occur, London Clubs is obligated to pay the Accelerated Payment Amount. The
specified exceptional events will include breaches by London Clubs of various
financial covenants and a covenant limiting the amount of secured debt which
London Clubs can incur, as well as certain events which will be triggered if
other indebtedness of London Clubs is accelerated or if London Clubs becomes
insolvent. Any such payments by London Clubs shall be used to repay bank
indebtedness under the Bank Credit Facility.
The obligations of London Clubs under the Keep-Well Agreement are
subordinated to other obligations of London Clubs under certain of its
pre-existing senior debt facilities. In addition, obligations of London Clubs
under the Keep-Well Agreement are guaranteed by certain subsidiaries of London
Clubs, which subsidiaries currently guarantee other indebtedness of London
Clubs.
Pursuant to the Salle Privee Management Agreement, London Clubs will receive
certain fees in consideration for its obligations under the Keep-Well Agreement.
See "Certain Transactions--Other Payments to Controlling Stockholders."
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The Keep-Well Agreement contains representations and warranties, covenants
and events of default that are customary for the type of transaction.
TRUST LITIGATION
Mr. Jack Sommer, who is a trustee of the Trust, and the other trustees of
the Trust, are co-defendants in a legal action relating to the existing Aladdin
hotel and casino commenced by members of the Aronow family (the "Aronow
Plaintiffs") in May 1995 in the Supreme Court of the State of New York, County
of New York. In their complaint, the Aronow Plaintiffs allege that Mr. Jack
Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire and
develop the existing Aladdin hotel and casino and that Mr. Sommer breached such
alleged agreement when the Trust acquired an interest in the Aladdin hotel and
casino in December, 1994. The Aronow Plaintiffs are seeking (among other
remedies) to impress a constructive trust upon the Trust's interest in the
Aladdin hotel and casino, an accounting, compensatory damages of not less than
$200.0 million and punitive damages of not less than $500.0 million.
Mr. Sommer and the trustees of the Trust have informed the Company that they
intend to vigorously defend such action. However, in the event that the action
is successful, the Trust might be required to pay substantial damages and/or the
Aronow Plaintiffs might be entitled to part of the Trust's interest in the
Aladdin hotel and casino. An adverse decision could have a material and adverse
effect on the Company and the Issuers.
Mr. Sommer and the other trustees of the Trust were also co-defendants in a
legal action commenced by Edward Kanbar, Romano Tio and Adina Winston (the
"Kanbar Plaintiffs" and together with the Aronow Plaintiffs, the "Plaintiffs")
in January 1997 in the Supreme Court of the State of New York, County of New
York. In their complaint, the Kanbar Plaintiffs alleged that they were partners
in an alleged partnership with Joseph Aronow, which partnership was formed to
seek and develop business opportunities with Mr. Sommer. The Kanbar Plaintiffs
were seeking (among other remedies) to impress a constructive trust upon the
Trust's interest in the Aladdin hotel and casino, compensatory damages of not
less than $20.0 million and punitive damages of not less than $50.0 million. On
January 15, 1998, the court granted the trustees of the Trust's motion to
dismiss this action in its entirety.
In 1988, the Trust and two related entities commenced an action in the
Southern District of New York against certain entities owned and controlled by
Bronfman family interests (the "Bronfman Defendants") alleging, among other
things, that the Bronfman Defendants committed violations of Rule 10b-5 under
the Securities Exchange Act of 1934, as amended, as well as multiple breaches of
fiduciary duties as general partner of a partnership in which the Trust owns
limited partnership interests. Relief requested includes an accounting,
imposition of a constructive trust and damages in excess of $100.0 million.
The Bronfman Defendants have asserted counterclaims against plaintiffs and
certain Sommer family members individually alleging causes of action for breach
of contract, fraud and various related torts. The Bronfman Defendants claim
damages in excess of $100.0 million.
The trustees of the Trust have informed the Company that they intend to
vigorously defend the counterclaim. However, in the event the Bronfman
Defendants are successful, the Trust might be required to pay substantial
damages. An adverse decision could have a material and adverse effect on the
Trust.
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CERTAIN TRANSACTIONS
SALLE PRIVEE MANAGEMENT AGREEMENT
The Company, London Clubs and LCNI are parties to the Salle Privee
Management Agreement which relates to the Salle Privee. Under the Salle Privee
Management Agreement, London Clubs has agreed to guaranty the obligations of
LCNI. In consideration for the services to be furnished by London Clubs under
the Salle Privee Management Agreement, the Company will pay to London Clubs a
performance-based incentive fee (the "Incentive Marketing and Consulting Fee")
calculated as follows: (i) 10% of the Salle Privee EBITDA (defined in the Salle
Privee Management Agreement to mean gross revenue attributable to the Salle
Privee, less all costs and expenses directly attributable to the Salle Privee),
up to and including $15.0 million of EBITDA; plus (ii) 12.5% of the Salle Privee
EBITDA, in excess of $15.0 million, up to and including $17.0 million; plus
(iii) 25% of the Salle Privee EBITDA, in excess of $17.0 million, up to and
including $20.0 million; plus (iv) 50% of the Salle Privee EBITDA, in excess of
$20.0 million. The foregoing thresholds will be adjusted in accordance with
consumer price index changes every five years. See "Certain Material
Agreements--Salle Privee Management Agreement."
OTHER PAYMENTS TO CONTROLLING STOCKHOLDERS
In consideration for certain expenses incurred by the Trust prior to the
Issue Date relating to the management and coordination of the development of the
Aladdin, the Company reimbursed $3.0 million to the Trust on the Issue Date. In
addition, the Company will reimburse certain ongoing out-of-pocket expenses of
the Trust relating to the development of the Aladdin, not to exceed $0.9
million.
In consideration for its obligations under the Keep-Well Agreement and
related arrangements, under the London Clubs Purchase Agreement, the parties
agreed that London Clubs receive (a) an initial fee of 1.0% of the Company's
indebtedness with respect to a $265.0 million portion of the Bank Credit
Facility, which is supported and enhanced by the Keep-Well Agreement (such fee
was paid on the Issue Date) and (b) an annual fee of 1.5%, payable in arrears,
of the Company's annual average indebtedness with respect to a $265.0 million
portion of the Bank Credit Facility, which is supported and enhanced by the
Keep-Well Agreement for each relevant twelve month period ending on an
anniversary of the closing date of the Bank Credit Facility, which amount shall
reflect the extent, if any, by which the obligations under the Keep-Well
Agreement are reduced or eliminated over time (such fees accrue from the closing
date of the Bank Credit Facility, and shall be paid from available proceeds
after the opening date of the Aladdin).
KEEP-WELL AGREEMENT
On the Issue Date, the Sponsors entered into the Keep-Well Agreement in
favor of the Administrative Agent and the Bank Lenders. The Keep-Well Agreement
is the joint and several agreement of the Sponsors to make certain quarterly
Cash Equity Contributions to the Company from and after the Conversion Date if
the Company fails to comply with certain financial ratios set forth in the Bank
Credit Facility. See "Controlling Stockholders--Keep-Well Agreement."
BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY
London Clubs, the Trust and Bazaar Holdings have entered into the Bank
Completion Guaranty in favor of the Bank Lenders. Pursuant to the Bank
Completion Guaranty, such parties have guaranteed, among other things, the
timely completion of the Aladdin. The Bank Completion Guaranty is not subject to
any maximum dollar limitations. While holders of the Notes are not party to the
Bank Completion Guaranty, London Clubs, the Trust and Bazaar Holdings have
entered into the Noteholder Completion Guaranty for the benefit of the holders
of the Notes. See "Risk Factors--Limitations Under Bank Completion Guaranty and
Noteholder Completion Guaranty" and "--Lack of Available Information on the
Trust's Ability to Perform Its Obligations Under Certain Agreements,"
"Description of Noteholder
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Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty"
and "Description of Certain Indebtedness and Other Obligations--Bank Completion
Guaranty."
ARRANGEMENTS WITH RICHARD GOEGLEIN AND GAI
The Company has entered into the Consulting Agreement with GAI. Pursuant to
the Consulting Agreement, GAI will render such consulting services as are
reasonably requested by the Board of the Company until June 30, 2002. During the
term of the Consulting Agreement, the Company shall pay GAI a retainer of
$12,500 per month as payment for remaining on call to provide services and
expertise for such month. Pursuant to the Consulting Agreement, GAI purchased 3%
of the Common Membership Interests in the Company (which were contributed to
Holdings on February 26, 1998 for a 3% interest in Holdings) for $1,800. Such
membership interest is fully vested, subject to certain anti-dilution
provisions, put rights and certain "piggyback" registration rights. See
"Management--GAI Consulting Agreement." In addition, Mr. Goeglein's Employment
Agreement provides Mr. Goeglein with relocation expense reimbursement, an
interest free mortgage loan of up to $500,000 and certain excise tax gross-up
provisions.
MUSIC PROJECT MANAGEMENT AGREEMENT AND DEVELOPMENT AGREEMENT
It is anticipated that Aladdin Music will contract with the Company for the
construction, development and day-to-day management and operations of the Music
Project and the Theater and certain promotional development and the services,
pursuant to a development agreement (the "Music Project Development Agreement")
and a management agreement (the "Music Project Management Agreement"), each in
form and substance satisfactory to Aladdin Music and the Company. The terms of
the Music Project Management Agreement are expected to be at least as favorable
to the Company as those which are available from an independent third party
vendor. See "Certain Material Agreements--Music Project Memorandum of
Understanding."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth certain information with respect to the
beneficial ownership of the membership interests of Holdings by (i) each person
who, to the knowledge of the Issuers, beneficially owns more than 5% of the
outstanding membership interests; (ii) the directors of Holdings; (iii) all
executive officers of Holdings named in "Management"; and (iv) all directors and
executive officers of Holdings as a group. The membership interests of Holdings
are not presently listed or traded on any securities exchange or securities
market.
<TABLE>
<CAPTION>
ALADDIN GAMING HOLDINGS, LLC
------------------------------------------------------------------------
PERCENTAGE OWNERSHIP OF HOLDINGS PERCENTAGE OWNERSHIP OF HOLDINGS
COMMON MEMBERSHIP INTERESTS COMMON MEMBERSHIP INTERESTS
NAME OF BENEFICIALLY OWNED PRIOR TO BENEFICIALLY OWNED ASSUMING FULL
BENEFICIAL OWNER EXERCISE OF THE WARRANTS(9) EXERCISE OF THE WARRANTS(10)
- ------------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Viola Sommer, Jack Sommer and Eugene
Landsberg, as trustees of the
Trust(1)(2)............................. 71.1% 61.6%
Jack Sommer(2)............................ 71.1% 61.6%
London Clubs(3)........................... 25.0% 25.0%
Alan Goodenough(3)........................ 0.0% 0.0%
G. Barry C. Hardy(3)...................... 0.0% 0.0%
Ronald Dictrow(4)......................... * *
Richard J. Goeglein(5)(7)................. 3.0% 2.6%
James H. McKennon(6)(7)................... 0.0% 0.0%
Cornelius T. Klerk(6)(7).................. 0.0% 0.0%
Jose A. Rueda(6)(7)....................... 0.0% 0.0%
Lee A. Galati(6)(7)....................... 0.0% 0.0%
All Directors and Executive Officers as a
group (eight persons)(8)................ 75.0% 65.0%
</TABLE>
- ------------------------------
* Represents less than one percent of the outstanding Holdings Common
Membership Interests.
(1) The Trust has an option to acquire 5% of the common membership interests in
AHL from GW Vegas (representing all of GW Vegas' common membership interests
in AHL). Such option is exercisable at any time prior to December, 2001. The
address of the Trust is 280 Park Avenue, New York, New York.
(2) Mr. Jack Sommer, who is Chairman and a director of the Company and Holdings
and a director of Capital and Enterprises, is a trustee and contingent
beneficiary of the Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each
deemed to beneficially own the same interest as the Trust owns in Holdings
because each of them is a trustee of the Trust.
(3) Mr. Alan Goodenough is Chief Executive Officer of London Clubs and a
director of the Company and Holdings. As of March 16, 1998, Mr. Goodenough
held approximately 202,000 ordinary shares (representing less than one
percent of the share capital) of London Clubs. Mr. Barry Hardy is Finance
Director of London Clubs and a director of the Company and Holdings. As of
March 16, 1998, Mr. Hardy held approximately 901,000 ordinary shares
(representing less than one percent of the share capital) of London Clubs.
As of March 16, 1998, Mr. Hardy also held options to purchase 516,395
ordinary shares (options to purchase 512,400 ordinary shares presently
exercisable) of London Clubs. The address of London Clubs is 10 Brick
Street, London, W1Y, 8HQ, United Kingdom.
(4) Mr. Ronald Dictrow is a director of Enterprises and the Executive Vice
President/Secretary and a director of the Company, Holdings and Capital. Mr.
Dictrow's address is 280 Park Avenue, New York, New York.
(5) Mr. Richard J. Goeglein, who is Chief Executive Officer, President and a
director of the Company, Holdings and Capital, beneficially owns 100% of
GAI, which holds 3% of the Holdings' Common Membership Interests. Mr.
Goeglein's address is 831 Pilot Road, Las Vegas, Nevada.
(6) The address of Messrs. McKennon, Klerk, Rueda and Galati is 831 Pilot Road,
Las Vegas, Nevada.
(7) Messrs. Goeglein, McKennon, Klerk, Rueda and Galati have rights to acquire
beneficial ownership of Holdings Common Membership Interests representing an
aggregate of 4.75% of such interests (prior to exercise of the Warrants) and
4.12% of such interests (assuming full exercise of the Warrants), which
rights do not vest within 60 days. See "Management--Employment Agreements."
(8) The directors of Holdings are Messrs. Sommer, Goodenough, Dictrow, and
Goeglein. The executive officers of Holdings are Messrs. Goeglein, Dictrow,
McKennon, Klerk, Rueda and Galati.
(9) Holdings owns 100% of the Common Membership Interests and Series A Preferred
Interests of the Company. The Common Membership Interests were, on closing
of the Bank Credit Facility, pledged to the Bank Lenders. The Series A
Preferred Interests were, on closing of the Offering, pledged to the Trustee
for the benefit of the Holders.
(10) Enterprises owns 25% of the Holdings Common Membership Interests. Upon full
exercise of the Warrants, holders of the Warrant Shares will indirectly own
10% of the outstanding Holdings Common Membership Interests.
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[LOGO]
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ALADDIN BAZAAR, LLC OWNERSHIP STRUCTURE
[LOGO]
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DESCRIPTION OF THE NOTES
GENERAL
The Old Notes were issued pursuant to an indenture (the "Indenture") among
the Issuers and State Street Bank and Trust Company, as trustee (the "Trustee"),
in a private transaction that was not subject to the registration requirements
of the Securities Act. A copy of the Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. The New Notes
will also be issued pursuant to the Indenture, which will be qualified under the
Trust Indenture Act, upon the effectiveness of the Registration Statement of
which this Prospectus is a part. The form and terms of the New Notes include
those stated in the Indenture (including the form of Note) and those made part
of the Indenture by reference to the Trust Indenture Act. The New Notes are
subject to all such terms, and holders of the New Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. The definitions
of certain terms used in the following summary are set forth below under
"--Certain Definitions." For purposes of this Description of the New Notes, (i)
the term "Issuers" refers only to the Issuers and not to any of their respective
Subsidiaries, (ii) the term "Holdings" refers only to Aladdin Gaming Holdings,
LLC and not to any of its Subsidiaries, (iii) the term "Company" refers only to
Aladdin Gaming, LLC and not to any of its Subsidiaries and (iv) the term
"Holders" means holders of Old Notes or New Notes, as applicable.
Capital is a wholly owned subsidiary of Holdings and was incorporated
solely for the purpose of serving as a co-issuer of the Notes in order to
facilitate the Offering. Capital will not have any material operations or assets
and will not have any revenues. As a result, prospective holders of the New
Notes should not expect Capital to participate in servicing the principal,
interest, premium, or any other payment obligations on the Notes. See "--Certain
Covenants--Restrictions on Activities of Capital."
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, following the Separation Date
(as defined herein), the Old Notes will continue to be represented by a global
Note, and following the consummation of the Exchange Offer, the New Notes will
be issued in the form of one new global Note (the "Global Note"). The Global
Note will be deposited upon issuance with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Security
Holder").
New Notes that are issued as described below under "--Certificated Notes"
will be issued in the form of registered definitive certificates (the
"Certificated Notes"). Upon the transfer of Certificated Notes, such
Certificated Notes may, unless the Global Note has previously been exchanged for
Certificated Notes, be exchanged for an interest in the Global Note representing
the principal amount of New Notes being transferred.
The Depositary is a limited purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
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The Issuers expect that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants in respect of whose Old Notes have been accepted in the
Exchange Offer with portions of the principal amount of the Global Note and (ii)
ownership of the New Notes evidenced by the Global Note will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interest of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. 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 New Notes
evidenced by the Global Note will be limited to such extent.
So long as the Global Security Holder is the registered owner of any New
Notes, the Global Security Holder will be considered the sole holder under the
Indenture of any New Notes evidenced by the Global Note. Beneficial owners of
New Notes evidenced by the Global Note will not be considered the owners or
holders thereof 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 responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the New
Notes.
Payments in respect of the Accreted Value of, premium, if any, interest on
any New Notes registered in the name of the Global Security Holder on the
applicable record date will be payable by the Trustee to or at the direction of
the Global Security Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Issuers and the Trustee may
treat the persons in whose names New Notes including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Issuers nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of New Notes. The Issuers believe, however, that it is currently the policy of
the Depositary to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of New Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions set forth in the Indenture, any person
having a beneficial interest in the Global Note may, upon request to the
Trustee, exchange such beneficial interest for New Notes in the form of
Certificated Notes. Upon any such issuance, the Trustee is required to register
such Certificated Notes in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). If (i) the Issuers
notify the Trustee in writing that the Depositary is no longer willing or able
to act as a depositary and the Issuers are unable to locate a qualified
successor within 90 days or (ii) the Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of New Notes in the
form of Certificated Notes under the Indenture, then, upon surrender by the
Global Security Holder of its Global Notes, Certificated Notes in such form will
be issued to each person that the Global Security Holder and the Depositary
identify as being the beneficial owner of the related New Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Security Holder or the Depositary in identifying the beneficial owners of
New Notes and the Issuers and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Security Holder or the
Depositary for all purposes.
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SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global Note (including Accreted Value, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Security Holder. With respect to Certificated
Notes, the Issuers will make all payments of Accreted Value, premium, if any,
and interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. Secondary trading in long-term
notes and debentures of corporate issuers is generally settled in clearing house
or next day funds.
SEPARATION
The Old Notes were originally issued as part of a Unit consisting of; (i)
the Old Notes; and (ii) 10 Warrants to purchase 10 shares of Class B, non-voting
Common Stock, no par value of Enterprises. Pursuant to the Indenture, the Notes
and the Warrants were to become separately transferable (at the option of the
holders thereof) on the "Separation Date," being the earliest of: (i) September
1, 1998; (ii) the date on which a registration statement with respect to the
Notes or a registration statement with respect to the Warrants and the Warrant
Shares was filed with the Commission under the Securities Act; (iii) the
occurrence of a Change of Control (as defined in the Indenture) or a sale or
recapitalization of the Issuer, Holdings or the Company occurs (a "Triggering
Event"); (iv) 30 days after a Qualified Public Offering; (v) the occurrence of
an Event of Default (as defined in the Indenture); or (vi) such earlier date as
determined by Merrill Lynch & Co. in its sole discretion. The Separation Date
occurred on filing of the Registration Statement. The exchange of Old Notes for
New Notes pursuant to the Exchange Offer will separate the Units if such
separation has not occurred prior to the date of exchange.
RANKING; SUBORDINATION AGREEMENT
The Notes constitute joint and several senior obligations of the Issuers
limited in aggregate principal amount at maturity to $221.5 million. The Notes
rank PARI PASSU in right of payment to all current and future senior
Indebtedness of the Issuers and senior in right of payment to all current and
future subordinated Indebtedness of the Issuers. The Notes are secured by a
first priority pledge of all amounts in the Note Construction Disbursement
Account and the Series A Preferred Interests. Following the application of the
net proceeds of the Offering on the Issue Date to repay certain existing
Indebtedness and to pay certain fees and expenses in connection with the Funding
Transactions, the remaining proceeds from the Offering, which were deposited in
the Note Construction Disbursement Account, were approximately $35 million. As
of the close of business on April 1, 1998, the balance in the Note Construction
Disbursement Account was $32.7 million. See "Use of Proceeds."
The operations of Holdings are conducted entirely through its Subsidiaries
and, therefore, Holdings is entirely dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
See "Risk Factors--Limitations on Access to Cash Flow of Subsidiaries; Holding
Company Structure." As of the date hereof, the only direct and indirect
subsidiaries of Holdings are Capital, the Company and AMH, and the Company is
the only Restricted Subsidiary. Under certain circumstances, Holdings will be
able to designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture. As of the date hereof, AMH and Aladdin
Music are each designated an Unrestricted Subsidiary.
Holdings' only material assets are its ownership of 100% of the
outstanding Common Membership Interests (which are pledged to secure the
obligations of the Lenders under the Bank Credit Facility) and the Series A
Preferred Interests.
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The Notes are not guaranteed by any of Holdings' subsidiaries. Therefore,
the Notes are effectively subordinated to all Indebtedness and other liabilities
of Holdings' Subsidiaries (including, without limitation, to the Company's
obligations under the Bank Credit Facility). Additionally, any right of Holdings
to receive assets of any of its Subsidiaries upon such Subsidiary's liquidation
or reorganization is effectively subordinated to the claims of that Subsidiary's
creditors, except to the extent, if any, that Holdings itself is recognized as a
creditor of such Subsidiary, in which case the claims of Holdings would still be
subordinate to the claims of such creditors who hold security in the assets of
such Subsidiary to the extent of such assets and to the claims of such creditors
who hold Indebtedness of such Subsidiary senior to that held by Holdings. Upon
completion of the Aladdin, the Company is expected to have $430.0 million of
outstanding Indebtedness, including $410.0 million outstanding under the Bank
Credit Facility and $20.0 million outstanding under the loan portion of the FF&E
Financing (excluding $60.0 million in operating leases under the FF&E
Financing), and the Company is expected to have an aggregate of $10.0 million
available to be borrowed under a working capital facility. The Indenture permits
the incurrence of certain additional Indebtedness of Holdings and its Restricted
Subsidiaries in the future. See "--Certain Covenants-- Limitations on Incurrence
of Indebtedness and Issuance of Preferred Stock." The Notes are without recourse
to the Members.
The Bank Credit Facility restricts, subject to certain exceptions, the
Company from paying any dividends, if applicable, or making any other
distributions to Holdings. In addition, the Indenture provides that the Holders,
while free to exercise their rights and remedies against Holdings, are bound,
for so long as any portion of the Bank Credit Facility is outstanding, by
standstill provisions prohibiting the Holders from initiating or intervening in
an insolvency proceeding of the Company. Such provisions will also specifically
prohibit the Holders from seeking a substantive consolidation of Holdings, the
Company and/ or Capital. The Indenture also contains subordination provisions to
the effect that, in the event of a substantive consolidation of Holdings, the
Company and/or Capital, the Holders (i) will not be entitled to receive any cash
or other payments (other than securities subordinated to the prior payment in
full of the Bank Credit Facility to the same extent as the Notes) in respect of
the Notes until the Bank Credit Facility has been indefeasibly paid in full in
cash and (ii) will be required to turn over to the Lenders under the Bank Credit
Facility any payments received in violation of such provisions. Subject to such
subordination and other provisions, the Holders will be entitled in any such
consolidated proceeding (other than a consolidated proceeding resulting from the
assertion of substantive consolidation by the Holders in violation of the
foregoing provisions) to exercise all rights available to the Holders, as
creditors or otherwise, and the Lenders under the Bank Credit Facility, and any
agent on their behalf, will be prohibited from contesting the involvement in
such proceeding of the Holders and from seeking an equitable subordination of
the Holders' claims.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on March 1, 2010, and are limited in an aggregate
principal amount at maturity to $221.5 million. The Notes were issued at a
substantial discount from their principal amount at maturity to generate
aggregate gross proceeds of $115.0 million. Until March 1, 2003, no interest
will accrue on the Notes, but the Accreted Value will increase (representing
amortization of original issue discount) between the date of original issuance
and March 1, 2003, on a semi-annual bond equivalent basis using a 360-day year
comprised of twelve 30-day months, such that the Accreted Value will be equal to
the full principal amount at maturity of the Notes on March 1, 2003. Beginning
on March 1, 2003, cash interest on the Notes will accrue at the rate of 13 1/2%
per annum and will be payable semi-annually in arrears on March 1 and September
1 of each year until maturity, commencing on September 1, 2003, to Holders of
record on February 15 and August 15, respectively, immediately preceding such
interest payment date. Cash 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 March 1, 2003. Cash interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. Principal of, and interest, premium and
Liquidated Damages, if any, on the Notes will be payable at the office or agency
of the Issuers maintained for such purpose within the
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City and State of New York or, at the option of the Issuers, payment of interest
and Liquidated Damages, if any, may be made by check mailed to the Holders at
their respective addresses set forth in the register of Holders; PROVIDED that
all payments with respect to at least $1.0 million in aggregate principal amount
at maturity of Notes, the Holders of which have given wire transfer instructions
to Holdings, will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Issuers, the Issuers' office or agency in New York
will be the office of an affiliate of the Trustee maintained for such purpose.
The New Notes will be issued in registered form, without coupons, and in
denominations of $1,000 principal amount at maturity and integral multiples
thereof.
Holders of Old Notes should note that the amount of Liquidated Damages
payable by the Issuers to Holders on the occurrence of a Registration Default,
is intended to represent a genuine estimate by the parties of the loss that
would be suffered by Holders on occurrence of a Registration Default. If
however, a court were to determine that such estimate of loss instead
constituted a penalty, the obligation of the Issuers to pay Liquidated Damages
on the Old Notes could be unenforceable.
SERIES A PREFERRED INTERESTS
On the Issue Date, the Series A Preferred Interests had a liquidation
preference of $115.0 million. The liquidation preference of the Series A
Preferred Interests accretes on a semi-annual bond equivalent basis using a 360
day year comprised of twelve 30-day months. The Series A Preferred Interests
will have a liquidation preference of approximately $122.6 million on the date
of the consummation of the Exchange Offer (unless extended). On March 1, 2003,
the liquidation preference of the Series A Preferred Interests will be $221.5
million. All Series A Preferred Interests were issued to Holdings and pledged to
the Trustee for the benefit of the Holders of the Notes. From and after
September 1, 2003, distributions on the Series A Preferred Interests will be
payable in cash. Holdings is obligated under the Indenture to utilize such
distributions to make payments on the Notes.
The Series A Preferred Interests will be mandatorily redeemable on March
1, 2010. After March 1, 2003, the Series A Preferred Interests will be
redeemable at the option of the Company, so long as the proceeds thereof are
used by Holdings to make a redemption of the Notes or an offer to purchase
Notes, in each case, in accordance with the terms of the Indenture. See
"--Optional Redemption" and "--Gaming Redemption."
OPTIONAL REDEMPTION
Except as described below, the Notes are not redeemable at the option of
the Issuers prior to March 1, 2003. Thereafter, the Notes will be subject to
redemption at the option of the Issuers, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of Accreted Value) set forth below, plus accrued and unpaid interest
and Liquidated Damages, if applicable, thereon to the applicable date of
redemption, if redeemed during the twelve-month period beginning on of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-----------
<S> <C>
2003.................................................................. 106.75%
2004.................................................................. 104.50%
2005.................................................................. 102.25%
2006 and thereafter................................................... 100.00%
</TABLE>
Notwithstanding the foregoing, on or prior to March 1, 2001, the Issuers
may redeem up to an aggregate of 35% of the Accreted Value of the Notes at a
redemption price of 113 1/2% of the Accreted Value thereof, plus Liquidated
Damages, if any, thereon to the redemption date, with the proceeds of a
Qualified Public Offering (which proceeds may be advanced or contributed to the
Issuers by the IPO
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Entity); provided that at least 65% of the Accreted Value remains outstanding
immediately after the occurrence of such redemption; and PROVIDED, FURTHER, that
such redemption shall occur within 60 days of the date of such Qualified Public
Offering.
GAMING REDEMPTION
Notwithstanding any other provision hereof, if any Gaming Authority
requires that a holder or beneficial owner of Notes must be licensed, qualified
or found suitable under any applicable gaming law and such holder or beneficial
owner fails to apply for a license, qualification or finding of suitability
within 30 days after being requested to do so by such Gaming Authority (or such
lesser period that may be required by such Gaming Authority), or if such holder
or beneficial owner is notified by such Gaming Authority that such holder or
beneficial owner will not be so licensed, qualified or found suitable, the
Issuers shall have the right, at their option, (i) to require that such holder
or beneficial owner dispose of such holder's or beneficial owner's Notes within
30 days (or such earlier date as may be required by the applicable Gaming
Authority) of (a) the termination of the period described above for such holder
or beneficial owner to apply for a license, qualification or finding of
suitability or (b) receipt of the notice from such Gaming Authority that such
holder or beneficial owner will not be licensed, qualified or found suitable by
such Gaming Authority or (ii) to call for redemption of the Notes of such holder
or beneficial owner at a redemption price equal to the lesser of the price at
which such holder or beneficial owner acquired such Notes and the Accreted Value
thereof, together with, in either case, accrued and unpaid interest and
Liquidated Damages, if applicable, thereon to the date of redemption or the date
of the finding that such holder or beneficial owner will not be licensed,
qualified or found suitable, which may be less than 30 days following the notice
of redemption, if so ordered by such Gaming Authority or required by applicable
gaming laws.
Immediately upon a determination by any Gaming Authority that a holder or
beneficial owner of Notes will not be licensed, qualified or found suitable by
such Gaming Authority, such holder or beneficial owner shall have no further
rights with respect to the Notes (i) to exercise, directly or indirectly,
through any trustee, nominee or any other Person or entity, any right conferred
by the Notes or (ii) to receive any interest or any other distribution or
payment with respect to the Notes or any remuneration in any form from either of
the Issuers for services rendered or otherwise, except the redemption price of
the Notes. In connection with any such redemption, and except as may be required
by a Gaming Authority, the Issuers shall comply with the procedures contained in
the Indenture for redemptions of the Notes. Under the Indenture, the Issuers are
not required to pay or reimburse any holder or beneficial owner of Notes who is
required to apply for such license, qualification or finding of suitability for
the costs of the licensure or investigation for such qualification or finding of
suitability. Such expenses will, therefore, be the obligation of such holder or
beneficial owner. See "Regulation and Licensing."
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at Option of Holders," the
Issuers are not required to make mandatory redemptions or sinking fund payments
prior to maturity with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Issuers to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a price in cash equal to 101%
of the Accreted Value thereof, plus accrued and unpaid interest and Liquidated
Damages, if applicable, thereon to the date of purchase (the "Change of Control
Payment"). Within ten days following any Change of Control, the Issuers will
mail a notice to each Holder describing the transaction or transactions that
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constitute the Change of Control and offering to purchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed (the "Change of Control Payment
Date"), pursuant to the procedures required by the Indenture and described in
such notice. The Issuers 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 or regulations are applicable in connection with the purchase
of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
permitted by law, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the paying
agent an amount equal to the aggregate Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver, or cause to be
delivered, to the Trustee for cancellation the Notes so accepted together with
an Officers' Certificate stating that such Notes or portions thereof have been
tendered to and purchased by the Issuers. The paying agent will promptly mail to
each Holder of Notes so tendered the Change of Control Payment for such Notes,
and the Trustee will promptly authenticate and mail to each Holder (or cause to
be transferred by book entry) a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; PROVIDED, that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
The Change of Control provisions described above 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 to require that the Issuers purchase
or redeem the Notes in the event of a takeover, recapitalization or similar
transaction.
The Bank Credit Facility contains provisions which, subject to certain
exceptions, restrict the Company from paying any dividends, if applicable, or
making any other distributions to Holdings. If Holdings is unable to obtain
dividends, if applicable, or distributions from the Company sufficient to permit
the purchase of the Notes pursuant to the Change of Control Offer or the Company
does not repay the Bank Credit Facility or refinance the Bank Credit Facility so
it is no longer restricted from paying such dividends or making such
distributions, Holdings will likely not have the financial resources to purchase
the Notes. In any event, there can be no assurance that Holdings' Subsidiaries
will have the resources available to pay any such dividend or make any such
distribution. Prior to complying with the provisions of the preceding
paragraphs, but in any event within 30 days following a Change of Control,
Holdings will cause the Company to either repay or refinance all outstanding
Indebtedness under the Bank Credit Facility so that the Company is no longer
restricted from paying dividends, if applicable, or making distributions to
Holdings or obtain the requisite consents under the Bank Credit Facility to
permit the purchase of the Notes required by this covenant. If Holdings does not
obtain such a consent or repay such borrowings, Holdings will remain prohibited
from purchasing the Notes. In such a case, Holdings' failure to make a Change of
Control Offer when required or to purchase tendered Notes when tendered would
constitute an Event of Default under the Indenture. See "Risk
Factors--Substantial Leverage; Ability to Service Debt" and "--Limitation on
Access to Cash Flow of Subsidiaries; Holding Company Structure."
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 validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of Holdings and its Subsidiaries, taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precisely established definition of the phrase under
applicable law. Accordingly, the ability of a Holder to require the Issuers to
purchase such Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of Holdings and its Subsidiaries,
taken as a whole, to another Person or group may be uncertain.
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ASSET SALES
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale prior to the date the
Aladdin is Operating. After the date the Aladdin is Operating, Holdings will not
and will not permit any of its Restricted Subsidiaries to consummate an Asset
Sale, unless (i) no Default or Event of Default exists or is continuing
immediately prior to or after giving effect to such Asset Sale, (ii) Holdings or
the Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Managers or the Board of Directors, as the case may
be, and set forth in an Officers' Certificate delivered to the Trustee) of the
assets sold or otherwise disposed of and (iii) at least 75% of the consideration
therefor received by Holdings or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; PROVIDED, HOWEVER, that the amount of (a) any
liabilities (as shown on Holdings' or such Restricted Subsidiary's most recent
balance sheet (or the notes thereto)) of Holdings or such Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their terms
expressly subordinated to the Notes or any guarantee thereof) that are assumed
by the transferee of any such assets pursuant to a customary novation agreement
that releases Holdings and such Restricted Subsidiary, as the case may be, from
further liability and (b) any securities, notes or other obligations received by
Holdings or such Restricted Subsidiary from such transferee that are within 20
days thereof converted by Holdings or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 180 days after the receipt of any Net Proceeds of any Asset Sale,
Holdings or such Restricted Subsidiary, as the case may be, may apply such Net
Proceeds (i) to the making of a capital expenditure or the acquisition of
long-term tangible assets of Holdings or such Restricted Subsidiary used by or
useful to Holdings or such Restricted Subsidiary in the line of business in
which Holdings or such Restricted Subsidiary is permitted to be engaged pursuant
to the covenant described under "--Certain Covenants-- Line of Business"; or
(ii) following the date on which the Aladdin is Operating, to a repayment of, or
permanent reduction of commitments under Indebtedness of any Restricted
Subsidiary, including without limitation, amounts available under the Bank
Credit Facility. Pending the final application of any such Net Proceeds,
Holdings or such Restricted Subsidiary may temporarily reduce revolving credit
borrowings or invest in Cash Equivalents. Any Net Proceeds from Asset Sales that
are not invested or applied as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10.0 million, Holdings will be required to make an
offer to all Holders (an "Asset Sale Offer") to purchase the maximum Accreted
Value of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the Accreted Value thereof, plus
accrued and unpaid interest and Liquidated Damages, if applicable, thereon to
the date of purchase, which date shall be no less than 30 nor more than 60 days
after the date of the Asset Sale Offer, in accordance with the procedures set
forth in the Indenture; PROVIDED, HOWEVER, that if any Restricted Subsidiary of
Holdings receives proceeds from such Asset Sale, such Restricted Subsidiary
shall redeem, or make available to the Company such Excess Proceeds so that the
Company may redeem, an amount of Series A Preferred Interests sufficient for
Holdings to utilize the proceeds from such redemption to make the Asset Sale
Offer required by this provision. To the extent that the aggregate amount of
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
Holdings or the Restricted Subsidiary, as the case may be, may, subject to the
provisions of the Indenture use any remaining Excess Proceeds for general
corporate purposes. If the aggregate Accreted Value of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased in the manner described below under the caption
"Selection and Notice." Upon completion of any such Asset Sale Offer, the amount
of Excess Proceeds shall be reset at zero.
The Bank Credit Facility (subject to certain exceptions) restricts the
Company from paying any dividends, if applicable, or making any other
distributions to Holdings. If Holdings is unable to obtain dividends, if
applicable, or other distributions from the Company sufficient to permit the
purchase of the
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Notes pursuant to the Asset Sale Offer or the Company does not repay the Bank
Credit Facility or refinance the Bank Credit Facility so it is no longer
restricted from paying such dividends or making such distributions, Holdings
will likely not have the financial resources to purchase the Notes. In any
event, there can be no assurance that Holdings' Subsidiaries will have the
resources available to pay any such dividend, if applicable, or make any such
distribution. Holdings' failure to make an Asset Sale Offer when required to
purchase the Notes when tendered would constitute an Event of Default under the
Indenture. See "Risk Factors--Substantial Leverage; Ability to Service Debt" and
"--Limitations on Access to Cash Flow of Subsidiaries; Holding Company
Structure."
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed or purchased at any time,
selection of Notes for redemption or purchase will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such other method as the Trustee shall deem fair
and appropriate; PROVIDED, that no Notes of $1,000 or less shall be purchased or
redeemed in part. Notices of redemption or purchase shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date or
purchase date (except in the case of redemption required by any Gaming
Authority, which may be less than 30 days) to each Holder of Notes to be
redeemed or purchased at such Holder's registered address. Notices of redemption
may not be conditional. If any Note is to be redeemed or purchased in part only,
any notice of redemption or purchase that relates to such Note shall state the
portion of the principal amount thereof to be redeemed or purchased. A new Note
in principal amount equal to the unredeemed or unpurchased portion of any Note
redeemed or purchased in part will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption or purchase
date, interest and Liquidated Damages, if applicable, shall cease to accrue on
Notes or portions thereof called for redemption or purchase.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
(a) Prior to the date the Aladdin is Operating, the Indenture provides
that, except as permitted in clauses (iv), (v), (vi), (vii), (viii), (xi),
(xii), (xiv), (xv), (xix), (xx), (xxi), (xxii) or (xxiv) of paragraph (c) below,
Holdings will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend, if applicable, or make
any other payment or distribution on account of Holdings' or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving either of the
Issuers) or to the direct or indirect holders of Holdings' or any of its
Restricted Subsidiaries' Equity Interests in any capacity (other than dividends,
if applicable, or distributions payable in Equity Interests (other than
Disqualified Stock) of Holdings (or accretions thereon) or dividends, if
applicable, or distributions payable to Holdings by a Wholly Owned Subsidiary of
Holdings); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving either of the Issuers) any Equity Interests of Holdings or any
Subsidiary of Holdings or any direct or indirect parent of Holdings or other
Affiliate of Holdings (other than any such Equity Interests owned by Holdings or
any Wholly Owned Subsidiary of Holdings); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is PARI PASSU with or subordinated to the Notes
(other than the Notes), except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments").
(b) Following the date on which the Aladdin is Operating, subject to
paragraph (c) below, Holdings will not and will not permit any of its Restricted
Subsidiaries to make, directly or indirectly, any Restricted Payments unless, at
the time of and after giving effect to such Restricted Payment:
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(i) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(ii) Holdings would, at the time of such Restricted Payment, have a
Fixed Charge Coverage Ratio for its most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such Restricted Payment is proposed to be made
of at least 2.25 to 1.0, determined on a pro forma basis after giving effect
to such Restricted Payment as if it had been made at the beginning of such
four quarter period; and
(iii) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments (except as provided in the last sentence of
paragraph (c) below) made by Holdings and its Restricted Subsidiaries after
the Issue Date is less than the sum, without duplication, of (A) 50% of (1)
the Consolidated Net Income of Holdings for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing
after the date on which the Aladdin becomes Operating to the end of
Holdings' most recently ended fiscal quarter for which internal financial
statements are available (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit) less (2) the amount paid or
to be paid in respect of such period pursuant to clause (v) of paragraph (c)
below, plus (B) 100% of the aggregate net cash proceeds received by Holdings
since the Issue Date from capital contributions or the issue or sale of
Equity Interests of Holdings (other than Disqualified Stock) or Disqualified
Stock or debt securities of the Issuers that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Issuers and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), in any case other than (1) amounts
received by Holdings pursuant to payments being made by any party in
connection with its obligations under the Keep-Well Agreement or the Bank
Completion Guaranty or (2) any amounts received by Holdings or deemed
received by Holdings from a Restricted Subsidiary in connection with a
conversion by Holdings to a corporation (other than amounts received by
Holdings from a new issuance of Equity Interests of Holdings for cash), plus
(C) to the extent not otherwise included in Holdings' Consolidated Net
Income, 100% of the cash dividends, if applicable, or distributions or the
amount of the cash principal and interest payments received since the Issue
Date by Holdings or any Restricted Subsidiary from any Unrestricted
Subsidiary or in respect of any Restricted Investment (other than dividends,
if applicable, or distributions to pay obligations of or with respect to
such Unrestricted Subsidiary such as income taxes) until the entire amount
of the Investment in such Unrestricted Subsidiary has been received or the
entire amount of such Restricted Investment has been returned, as the case
may be, and 50% of such amounts thereafter. In the event that the Issuers
convert an Unrestricted Subsidiary to a Restricted Subsidiary, the Issuers
may add back to this clause (iii) the aggregate amount of any Investment in
such Subsidiary that was a Restricted Payment at the time of such
Investment.
(c) The Indenture provides that the provisions set forth in paragraph (b)
above will not prohibit (i) the payment of any dividend, if applicable, or
distribution within 60 days after the date of declaration thereof, if at the
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any PARI PASSU or subordinated indebtedness of Holdings or Equity
Interests of Holdings in exchange for, or out of the net cash proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of
Holdings) of, other Equity Interests of Holdings (other than any Disqualified
Stock); PROVIDED that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (b)(iii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase, retirement or other acquisition of any PARI
PASSU or subordinated indebtedness with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness; (iv) any redemption required pursuant to
the provisions of the Indenture described above under "--Gaming Redemption"; (v)
for so long as Holdings or the Company is treated as a pass-through entity, or
the Company is not
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treated as a separate entity, for United States federal income tax purposes (as
evidenced by an opinion of counsel, subject to usual qualifications and in
reliance on customary representations, at least annually), distributions to
equity holders of Holdings or the Company, as applicable, in an amount not to
exceed the Tax Amount for such period; PROVIDED, HOWEVER, that (A) prior to any
distributions of Tax Amounts, Holdings or the Company, as applicable, shall
deliver an officers' certificate to the Trustee to the effect that Holdings or
the Company, as applicable, is a limited-liability company taxable as a
partnership or other substantially similarly treated pass-through entity, or the
Company is not treated as a separate entity, for federal income tax purposes and
(B) at the time of such distributions, the most recent audited financial
statements of Holdings and the Company reflect that Holdings and the Company
were each treated as a limited-liability company taxable as a partnership or
other substantially similarly treated pass-through entity for federal income tax
purposes for the period covered by such financial statements; (vi) the grant on
or after the Issue Date by the Company to Aladdin Bazaar of a ground lease on
the Desert Passage Site and, upon the subdivision of the Project Site, the
transfer by the Company to Aladdin Bazaar of the fee interest in the Desert
Passage Site; (vii) the grant on or after the Issue Date of a ground lease
relating to the Energy Plant Site by the Company to the Energy Provider; (viii)
the grant on or after the Issue Date of a ground lease on the Music Project Site
by the Company to AMH and, upon consummation of the Music Project Financing, an
Investment not to exceed $21.3 million plus the transfer of the Music Project
Site, in each case by the Company to AMH and by AMH to Aladdin Music in exchange
for preferred membership interests in Aladdin Music pursuant to the Aladdin
Music Operating Agreement as in effect on the Issue Date; (ix) on and after
September 1, 2003, payments of cash distributions on the Series A Preferred
Interests by the Company to Holdings in an amount sufficient to enable Holdings
to make payments required to be made in respect of the Notes in an amount not to
exceed the amount payable thereunder in accordance with the terms thereof in
effect on the Issue Date; (x) payment to London Clubs of the Management Fee
pursuant to the Salle Privee Management Agreement as in effect on the Issue
Date; (xi) payment to London Clubs on the Issue Date of a fee equal to 1% of the
amount of Indebtedness supported and enhanced by the Keep-Well Agreement on the
Issue Date and payment of an annual fee equal to 1.5% of the annual average
Indebtedness outstanding under the Bank Credit Facility which is supported and
enhanced by the Keep-Well Agreement, in each case as set forth in the London
Clubs Purchase Agreement as in effect on the date of the Indenture; (xii)
payments or distributions by the Company to Holdings to effect redemptions of
the Series A Preferred Interests so long as Holdings utilizes the proceeds of
such payments to make an offer to purchase the Notes as required under the
Indenture or to redeem the Notes as permitted under the Indenture; (xiii) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Holdings or any of its Restricted Subsidiaries held by any
member of Holdings' or any of its Restricted Subsidiaries' management pursuant
to any management equity subscription agreement or stock option agreement,
including, without limitation, pursuant to the exercise of puts of common
membership interests of Holdings by employees of Holdings as set forth in any
Employment Agreement; PROVIDED that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$2.0 million in the aggregate prior to the maturity of the Notes in any
twelve-month period; (xiv) the payment of salary, bonus and other benefits
payable pursuant to the Employment Agreements as amended from time to time;
PROVIDED that any amendment to any Employment Agreement has been determined by
the Management Committee to have been made in the ordinary course of business on
terms customary in the hotel/casino business; (xv) the issuance of Holdings
Series A Preferred Interests or Holdings Series B Preferred Interests and
dividends, if applicable, and distributions thereon made pursuant to the
Operating Agreement as in effect on the Issue Date in exchange for any payments
required pursuant to the Keep-Well Agreement or the Bank Completion Guaranty;
(xvi) intercompany payments between Holdings and its Wholly Owned Restricted
Subsidiaries, including without limitation, debt repayments between or among
Holdings and its Wholly Owned Restricted Subsidiaries; (xvii) following a
Qualified Public Offering, dividends or common stock buybacks in an aggregate
amount in any calendar year not to exceed 6% of the aggregate net proceeds
received by the IPO Entity in connection with such Qualified Public Offering;
(xviii) repurchases of Capital Stock of Holdings deemed to occur upon exercise
of options to acquire Capital Stock of Holdings if such
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repurchased Capital Stock represents a portion of the exercise price of such
options; (xix) payments by the Company to Holdings to enable Holdings to pay any
Liquidated Damages on the Notes so long as Holdings utilizes the proceeds of
such payments for the payment of such Liquidated Damages; (xx) retainer payments
made pursuant to Section 4(a) of the GAI Consulting Agreement; (xxi) the payment
of up to $3.0 million to the Trust to reimburse the Trust for development costs
incurred by the Trust on behalf of the Company prior to the Issue Date and the
payment of up to $0.9 million to reimburse the Trust for development costs
incurred by the Trust on behalf of the Company after the Issue Date; (xxii)
distributions to Holdings or Enterprises in an amount not to exceed the fees and
expenses incurred in connection with the obligation to file and cause to become
effective registration statements as required by the Note Registration Rights
Agreement and the Warrant Registration Rights Agreement; (xxiii) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of Holdings held by employees of Holdings or the Company pursuant to any stock
ownership or option plan in effect from time to time; PROVIDED that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $2.0 million in any twelve-month period; and
(xxiv) cancellations or redemptions of Holdings Common Membership Interests held
by GAI, LLC or any member of Holdings' management pursuant to adjustments to be
made under the Operating Agreement as in effect on the Issue Date as a result of
the exercise of Warrants; PROVIDED that no payments permitted by clauses
(i)-(ix) and (xi)-(xxiv) above shall be made if a Default or an Event of Default
shall have occurred and be continuing as a consequence thereof. Any payments
made pursuant to clauses (ii), (iii), (v), (vi), (vii), (viii), (ix), (xi),
(xii), (xiv), (xv), (xvi), (xviii), (xx), (xxi), (xxii) and (xxiv) of this
paragraph shall not be taken into account for purposes of calculating the amount
of Restricted Payments in clause (b)(iii) above and all payments made pursuant
to the remaining clauses of this paragraph and under the definition of
"Permitted Investments" shall be taken into account for purposes of such clause
(b)(iii) above.
(d) The Board of Managers may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by Holdings
and its Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under paragraph (b) above. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
(e) The amount of all Restricted Payments (other than cash and those
Restricted Payments set forth in clauses (vi), (vii), (viii) and (xxiv) of
paragraph (c) of this covenant) shall be the fair market value on the date of
the Restricted Payment of the assets or securities proposed to be transferred or
issued by Holdings or such Restricted Subsidiary, as the case may be, pursuant
to the Restricted Payment. The fair market value of any non-cash Restricted
Payment shall be determined by the Board of Managers whose resolution with
respect thereto shall be delivered to the Trustee. Not later than the date of
making any Restricted Payment, Holdings shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that, except as provided in the following
paragraph, Holdings 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" and correlatively, an "incurrence" of)
any Indebtedness (including Acquired Indebtedness) or issue any shares of
Disqualified Stock, and that Holdings will not permit any of its Restricted
Subsidiaries to issue any shares of Preferred Stock.
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The Indenture provides that Holdings and its Restricted Subsidiaries may
incur the following Indebtedness:
(i) the Company may incur Indebtedness under the Bank Credit Facility;
PROVIDED that the aggregate principal amount of all Indebtedness outstanding
under the Bank Credit Facility after giving effect to each such incurrence,
including all Indebtedness incurred to refinance or replace any Indebtedness
incurred pursuant to this clause (i), does not exceed $430.0 million less
(a) the aggregate amount of all permanent principal repayments, optional or
mandatory, made from time to time after the date of the Indenture with
respect to such Indebtedness (other than repayments made in connection with
a refinancing thereof) and (b) permanent reductions in the available term
Indebtedness under the Bank Credit Facility resulting from the application
of Asset Sales proceeds; PROVIDED, FURTHER, that the maximum principal
amount of Indebtedness that may be outstanding under the Bank Credit
Facility pursuant to this clause (i) may be increased pursuant to the
incurrence of Indebtedness thereunder for the purposes and subject to the
maximum amounts and other limitations set forth in clauses (vii), (viii),
(ix) and (xvi) of this paragraph; provided that for any amount of such
Indebtedness incurred under this clause (i), the amount of Indebtedness
permitted to be incurred under such other clause shall be correspondingly
decreased;
(ii) Holdings or any of its Restricted Subsidiaries may incur any
Existing Indebtedness, including any Permitted Refinancing Indebtedness
incurred to refinance or replace any such Indebtedness;
(iii) the Issuers may incur Indebtedness represented by the Notes;
(iv) the Company may issue the Series A Preferred Interests to
Holdings, which shall pledge such interests to the Trustee for the benefit
of the Holders, and the Company may issue other shares of Preferred Stock so
long as such Preferred Stock is junior to the Series A Preferred Interests,
including any Preferred Stock issued in exchange therefor with terms no less
favorable to the holders of the Notes than the Series A Preferred Interests;
(v) Holdings may issue Holdings Series A Preferred Interests or
Holdings Series B Preferred Interests pursuant to the terms of the Operating
Agreement as in effect on the date hereof made in consideration of payments
under the Keep-Well Agreement or the Bank Completion Guaranty;
(vi) Holdings and its Restricted Subsidiaries may incur Indebtedness
represented by Capital Lease Obligations incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of Holdings
or such Restricted Subsidiary, in an aggregate principal amount, including
any Permitted Refinancing Indebtedness incurred to refinance or replace any
Indebtedness incurred pursuant to this clause (vi), not to exceed $10.0
million at any time outstanding;
(vii) Holdings and its Restricted Subsidiaries may incur Hedging
Obligations that are incurred (a) for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the Indenture to be outstanding or (b) for the
purpose of fixing or hedging currency exchange rate risk with respect to any
currency exchange; PROVIDED, HOWEVER, that the notional principal amount of
any such Hedging Obligation does not exceed the principal amount of
Indebtedness to which such Hedging Obligations relate;
(viii) Holdings and the Company may incur the FF&E Financing;
PROVIDED, HOWEVER, that (a) the principal amount of such Indebtedness does
not exceed the cost (including sales and excise taxes, installation and
delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase) of the FF&E purchased or
leased with the proceeds thereof and (b) the aggregate principal amount of
such Indebtedness, including any Permitted Refinancing Indebtedness incurred
to refinance or replace any Indebtedness incurred pursuant to this
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clause (viii), does not exceed $80.0 million (including obligations
characterized as operating leases or other off-balance sheet financing
arrangements) outstanding at any time;
(ix) to the extent that such incurrence does not result in incurrence
by Holdings or any of its Restricted Subsidiaries of any obligation for the
payment of borrowed money of others, Holdings or any of its Restricted
Subsidiaries may incur Indebtedness solely in respect of performance bonds,
standby letters of credit, bankers' acceptances or completion guarantees,
PROVIDED, that such Indebtedness was incurred in the ordinary course of
business of Holdings or any of its Restricted Subsidiaries and in an
aggregate principal amount outstanding under this clause (ix) at any one
time of not more than $10.0 million;
(x) the incurrence by Holdings or any Restricted Subsidiary of (a) at
any time prior to the Operating Deadline, additional Indebtedness under
clause (i) or (viii) of this paragraph in an aggregate amount not to exceed
$40.0 million, plus (b) after a default of the "In Balance" requirements of
the Indenture and at any time prior to the Operating Deadline, additional
Indebtedness under clause (i) or (viii) in an aggregate amount not to exceed
$50.0 million (PROVIDED that Indebtedness incurred pursuant to this clause
(x)(b) is matched, dollar for dollar, by additional equity investments by
the Principals or any Related Party);
(xi) after the Aladdin is Operating, Holdings may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock if
(a) the Fixed Charge Coverage Ratio for Holdings' 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 is issued would have been at least 2.25
to 1.0, 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 had been issued, as the case may be, at
the beginning of such four-quarter period;
(xii) after the Aladdin is Operating, any Restricted Subsidiary of
Holdings may incur Indebtedness (including Acquired Indebtedness) if the
Fixed Charge Coverage Ratio for such Restricted Subsidiary'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 would have been at least 2.5 to 1.0, determined on
a pro forma basis (including a pro forma application of the net proceeds
therefrom) as if the additional Indebtedness has been issued at the
beginning of such four-quarter period;
(xiii) Holdings and its Restricted Subsidiaries may incur Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, substitute or refund Indebtedness
that was permitted to be incurred under clauses (ii), (v), (vii), (xi),
(xii) and (xiii) of this covenant;
(xiv) after the Aladdin is Operating, intercompany Indebtedness
between or among Holdings and any of its Wholly Owned Restricted
Subsidiaries will be permitted; PROVIDED, HOWEVER, that (a) if Holdings is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all obligations with
respect to the Notes and (b)(1) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than Holdings or a Wholly Owned Restricted Subsidiary thereof
and (2) any sale or other transfer of any such Indebtedness to a Person that
is neither Holdings nor a Wholly Owned Restricted Subsidiary thereof shall
be deemed, in each case, to constitute an incurrence of such Indebtedness by
Holdings or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (xiv);
(xv) after the Aladdin is Operating, the guaranty by Holdings or any
Restricted Subsidiary of Indebtedness of Holdings or a Restricted Subsidiary
that was permitted to be incurred by another provision of this covenant will
be permitted;
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(xvi) after the Aladdin is Operating, the Company may incur
Indebtedness under any Working Capital Facility in an aggregate amount at
any time outstanding not to exceed $20.0 million; and
(xvii) Holdings and its Restricted Subsidiaries may incur Indebtedness
in an aggregate principal amount outstanding not to exceed $10.0 million.
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 Indebtedness permitted in clauses of the second or third paragraph
of this covenant, the Issuers shall, in their sole discretion, classify such
item of Indebtedness in any manner that complies with this covenant and such
item of Indebtedness will be treated as having been incurred pursuant to only
such clause or clauses. Accrual of interest, the accretion of the accreted value
or principal and the payment of interest in the form of additional Indebtedness
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
The Indenture also provides that Holdings will not incur any Indebtedness
that is contractually subordinated in right of payment to any other Indebtedness
of Holdings unless such Indebtedness is also contractually subordinated in right
of payment to Notes on substantially identical terms; PROVIDED, HOWEVER, that no
Indebtedness of Holdings shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of Holdings solely by virtue of being
unsecured.
LIENS
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset owned as of the Issue Date or thereafter
acquired, or any proceeds, income or profits therefrom, or assign or convey any
right to receive income therefrom, unless the Notes are equally and ratably
secured (except that Liens securing Indebtedness which is subordinated to the
Notes shall not be permitted in any circumstances), except for (a) Liens
securing the Notes; (b) Liens securing Indebtedness which is incurred to
refinance Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of the
Indenture; PROVIDED, HOWEVER, that such Liens do not extend to or cover any
property or assets of Holdings or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced; and (c) Permitted Liens.
DISTRIBUTION AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any such Restricted Subsidiary to (i) (a) pay dividends, if
applicable, or make any other distributions to Holdings or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits or (b) pay any Indebtedness
owed to Holdings or any of its Restricted Subsidiaries, (ii) make loans or
advances to Holdings or any of its Restricted Subsidiaries or (iii) transfer any
of its properties or assets to Holdings or any of its Restricted Subsidiaries,
except, in each case, for such encumbrances or restrictions existing under or by
reason of (a) the Bank Credit Facility, as in effect as of the Issue Date, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings, are no more restrictive with respect to such
dividend, if applicable, and other payment restrictions than those contained in
the Bank Credit Facility as in effect on the Issue Date, (b) the Indenture and
the Notes, (c) any instrument governing Indebtedness or Capital Stock of a
Person acquired by Holdings or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness 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
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Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, PROVIDED, FURTHER, that any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of any such instrument are no more restrictive, taken as a whole,
than those contained in such instrument, (d) customary non-assignment provisions
in leases entered into in the ordinary course of business, (e) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature discussed in clause (iii) above on the property so
acquired, (f) any agreement for the sale of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending its sale, (g)
applicable law or any applicable rule or order of any Gaming Authority, (h)
Permitted Liens, (i) Permitted Refinancing Indebtedness, PROVIDED that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (j) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that limits or
restricts the right of the debtor to dispose of the assets securing such
Indebtedness, (k) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business, (l) rights of first refusal
substantially of the type set forth in the Operating Agreement, (m) contractual
restrictions in effect on the Issue Date and (n) any encumbrances or
restrictions imposed by any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses (b) and (d) through
(n) above, PROVIDED, that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings are,
in the good faith judgment of the Board of Managers, no more restrictive with
respect to such dividend, if applicable, and other payment restrictions than
those contained in the dividend, if applicable, or other payment restrictions
prior to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that neither of the Issuers will and Holdings will
not permit the Company to, consolidate or merge with or into (whether or not
such entity is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions (other than (i) the transfer of the Aladdin
Site and other assets of the Company as a result of the exercise of remedies in
respect of the Deed of Trust and other Lender security documents, including a
foreclosure by the Lenders pursuant to the terms of the Deed of Trust or the
acceptance by the Lenders of a transfer in lieu of foreclosure or other exercise
of remedies and (ii) the transfer of the Common Membership Interests as a result
of the exercise of remedies by the Lenders in respect of the pledge of such
Common Membership Interests pursuant to the Lenders' security documents) to, any
Person unless (i) such Issuer or the Company is the surviving Person or the
Person formed by or surviving any such consolidation or merger (if other than
such Issuer or the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made is a Person organized or
existing under the laws of the United States, any state thereof, or the District
of Columbia; (ii) the Person formed by or surviving any such consolidation or
merger (if other than such Issuer or the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made assumes all the obligations of such Issuer (but not the Company),
under the Note Registration Rights Agreement, the Notes, the Indenture and the
Pledge Agreements in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; (iv)
such transaction will not result in the loss or suspension or material
impairment of any material Gaming Approval; (v) except in the case of a merger
of such Issuer or the Company with or into a Wholly Owned Restricted Subsidiary
of such Issuer, such Issuer or any Person formed by or surviving any such
consolidation or merger (if other than such Issuer or the Company), or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made (a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of such Issuer
or
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the Company, as the case may be, immediately preceding the transaction and (b)
will, at the time of such transaction and after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to (A) in the case of a merger of either of the Issuers,
the Fixed Charge Coverage Ratio test described above in clause (xi) of the
second paragraph under the caption "Limitations on Incurrence of Indebtedness
and Issuance of Preferred Stock" and (B) in the case of a merger of the Company,
the Fixed Charge Coverage Ratio test described above in clause (xii) of the
second paragraph under the caption "Limitations on Incurrence of Indebtedness
and Issuance of Preferred Stock"; and (vi) such transaction would not require
any Holder or beneficial owner of Notes (other than any Person acquiring such
Issuer or the Company or its assets and any Affiliate thereof) 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. The Indenture will provide that, notwithstanding the above, neither
of the Issuers may consolidate or merge into the other prior to and in
connection with a Qualified Public Offering.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries
to, 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, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to Holdings or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by Holdings or such
Restricted Subsidiary with an unrelated Person and (ii) Holdings delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above, (b) with respect to any Affiliate Transaction or
series of Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Management Committee set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved unanimously by the
Management Committee and (c) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing. The foregoing provisions will not apply to any payments, transfers or
dispositions pursuant to the following: (i) any employment, indemnification,
noncompetition or confidentiality agreement entered into by Holdings or any of
its Restricted Subsidiaries in the ordinary course of business on terms
customary in the hotel/casino business; (ii) transactions between or among
Holdings and any of its Restricted Subsidiaries; (iii) Restricted Payments
permitted by the provisions of the Indenture described above under the caption
"--Restricted Payments"; (iv) the Noteholder Completion Guaranty; (v) the
Keep-Well Agreement; (vi) the Salle Privee Management Agreement; (vii) the
Reciprocal Easement Agreement as in effect on the Issue Date; (viii) the Parking
Use Agreement as in effect on the Issue Date; (ix) any amendments,
modifications, restatements, renewals, supplements and replacements to the
Reciprocal Easement Agreement or the Parking Use Agreement; provided, that the
Board of Managers determines in good faith that any such amendment is not
materially adverse to the Holders; (x) the Theater Lease; (xi) the payment by
Aladdin Bazaar to the Company of up to $14.2 million pursuant to Section 4.5(a)
of the Site Work Agreement, (xii) loans or advances to employees of Holdings or
its Restricted Subsidiaries to fund the exercise price of options granted under
employment agreements or stock option plans or agreements of Holdings or its
Restricted Subsidiaries, in each case, as in effect on the Issue Date, not to
exceed $0.5 million outstanding at any one time; and (xiii) the payment of
reasonable fees to members of the Board of
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Managers or the Board of Directors, as the case may be, of Holdings or any of
its Restricted Subsidiaries who are not employees of Holdings or any of its
Restricted Subsidiaries.
LINE OF BUSINESS
The Indenture provides that for so long as any Notes are outstanding,
Holdings shall not, and shall not permit any of its Restricted Subsidiaries to,
engage in any business or activity other (i) than the gaming and hotel resort
businesses and such business activities as are incidental or related thereto or
a reasonable extension, development or expansion thereof or ancillary thereto,
including, without limitation, any entertainment, recreation, convention, trade
show, meeting, retail or other activity or business designed to promote, market,
support, develop, construct or enhance such business and (ii) the management of
gaming activities at Mountain Spa. In addition, until the Aladdin is Operating,
Holdings shall not, and shall not permit any of its Restricted Subsidiaries to,
engage in any business, development or investment activity other than (i) at or
in conjunction with the Complex and (ii) the management of gaming activities at
Mountain Spa.
INSURANCE
The Indenture provides that, until the Notes have been paid in full,
Holdings will, and will cause its Restricted Subsidiaries to, maintain insurance
with responsible carriers against such risks and in such amounts as is
customarily carried by similar businesses with such deductibles, retentions,
self insured amounts and coinsurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, property and
casualty, and shall have provided insurance certificates evidencing such
insurance to the Trustee prior to the Issue Date and shall thereafter provide
such certificates prior to the anniversary or renewal date of each such policy,
which certificate shall expressly state the expiration date for each policy
listed.
GAMING APPROVALS
The Indenture provides that Holdings will, and will cause its Subsidiaries
to, use their best efforts to obtain and retain in full force and effect at all
times all Gaming Approvals necessary for the operation of the Aladdin and the
Music Project.
CONSTRUCTION
The Indenture provides that Holdings shall cause the Company to (i) (a)
prosecute the construction of the Aladdin with due diligence and continuity, in
an expeditious and first-class workmanlike manner, (b) until the Minimum Aladdin
Facilities are completed, cause the Aladdin to be constructed, equipped and
completed in compliance with the Approved Plans and Specifications in all
material respects and (c) until the Minimum Aladdin Facilities are completed,
correct or cause to be corrected as soon as possible any material departure or
variation from the Approved Plans and Specifications not approved in writing by
the Independent Construction Consultant, (ii) provide the expertise necessary to
supervise performance of construction of the Aladdin at no cost to the Trustee,
(iii) submit monthly requests for disbursements from the Noteholder Construction
Disbursement Account and the Bank Construction Disbursement Account at the times
and in the amounts necessary so that such amounts, together with all other
sources for the funding of the Aladdin, are sufficient to cause the Minimum
Aladdin Facilities to be completed by the Operating Deadline and (iv) until the
Minimum Aladdin Facilities are completed, maintain the "In Balance" requirements
of the Indenture.
LIMITATIONS ON USE OF PROCEEDS
The Indenture provides that Holdings will (i) contribute on the Issue Date
$115.0 million in cash to the Company in exchange for Series A Preferred
Interests with an initial liquidation preference of
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$115.0 million, and will cause the Company to deposit a portion of such proceeds
in the Note Construction Disbursement Account disbursed only in accordance with
the Disbursement Agreement and (ii) cause such amounts to be used to pay the
costs incurred in connection with developing, financing, contructuring,
equipping or opening the Aladdin.
In addition, the Indenture provides that, if the Music Project Financing
has not been consummated by February 28, 1999, Holdings will cause the Company
to expend up to $8.0 million to remodel the Theater.
LIMITATIONS ON ISSUES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED
SUBSIDIARIES
The Indenture provides that Holdings (i) will not, and will not permit any
of its Wholly Owned Restricted Subsidiaries to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of Holdings (other than the transfer of Common Membership Interests as a result
of the exercise of remedies by the Lenders in respect of the pledge of such
Common Membership Interests pursuant to the Lenders' security documents) to any
Person (other than Holdings or a Wholly Owned Restricted Subsidiary of
Holdings), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant described
above under "--Asset Sales" and (ii) will not permit any of its Wholly Owned
Restricted Subsidiaries to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' or managers', as
applicable, qualifying shares) to any Person other than to Holdings or a Wholly
Owned Restricted Subsidiary of Holdings.
RESTRICTIONS ON ACTIVITIES OF CAPITAL
The Indenture provides that Capital may not hold any material assets,
become liable for any obligations or engage in any business activities; PROVIDED
that Capital may be a co-obligor of the Notes pursuant to the terms of the
Indenture and may engage in any activities directly related thereto or necessary
in connection therewith.
SERIES A PREFERRED INTERESTS
Holdings shall not permit the Company to amend the provisions of the
Series A Preferred Interests in any manner that would be adverse to the Holders
of the Notes. In addition, Holdings shall not permit the Company to authorize,
create (by way of reclassification or otherwise) or issue any class or series
of, or any obligation or security convertible or exchangeable into or evidencing
a right to purchase shares of any class of, Capital Stock of the Company ranking
senior to or on a parity with the Series A Preferred Interests.
LIMITATIONS ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits Holdings and its Restricted Subsidiaries from
being required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended), or from otherwise becoming
subject to regulation under the Investment Company Act of 1940, as amended.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Issuers
will furnish to the Holders (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Issuers were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial
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condition and results of operations of Holdings and its consolidated
Subsidiaries (PROVIDED that, prior to the time that the Issuers file such
information with the Commission for public availability, showing in reasonable
detail, 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, the financial condition and results of operations of
Holdings and its Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of Holdings and,
subsequent to such time, showing such reasonable detail as required by the
Commission) and, with respect to the annual information only, a report thereon
by the Issuers' certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Issuers were required to file such reports, in each case within the time periods
specified in the Commission's rules and regulations. In addition, following the
consummation of the exchange offer contemplated by the Note Registration Rights
Agreement, whether or not required by the rules and regulations of the
Commission, the Issuers will file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Issuers have agreed that,
for so long as any Notes remain outstanding, they 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.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default": (i) default for 30 days or more in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes; (ii) default in
payment when due of the Accreted Value of or premium, if any, on the Notes;
(iii) failure by the Issuers to comply with the provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control," "--Asset
Sales," "--Restricted Payments," "--Limitations on Incurrence of Indebtedness
and Issuance of Preferred Stock," "--Merger, Consolidation or Sale of Assets,"
"--Limitations on Use of Proceeds" or "--Restriction on Activities of Capital";
(iv) failure by the Issuers for 30 days after written notice to comply with any
of its other agreements in the Indenture or the Notes; (v) default 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
Holdings or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by Holdings or any of its Restricted Subsidiaries), whether such
Indebtedness now exists or is created after the Issue Date, which default (a) is
caused by a failure to pay when due principal of or premium, if any, or interest
on such Indebtedness (other than the Bank Credit Facility) prior to the later of
(1) 60 days after such default and (2) the expiration of the grace period
provided in such Indebtedness (a "Payment Default") which Payment Default,
together with all other Payment Defaults, exceeds $1.0 million or (b) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, 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 or the maturity of which has been so accelerated, aggregates $15.0
million or more; (vi) failure by Holdings or any of its Restricted Subsidiaries
to pay final judgments aggregating in excess of $10.0 million, which judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days;
(vii) certain events of bankruptcy or insolvency with respect to Holdings or any
of its Significant Subsidiaries; (viii) default by each of the Trust, London
Clubs and Bazaar Holdings in the performance of their material obligations set
forth in the Keep-Well Agreement, which default remains uncured for 180 days, or
default by AHL, London Clubs and Bazaar Holdings in the performance of their
material obligations set forth in the Noteholder Completion Guaranty or
repudiation by each of them of their respective obligations under the Keep-Well
Agreement, which has not been ratified and reaffirmed within 180 days, or the
Noteholder Completion Guaranty; (ix) breach by Holdings of any material
representation or warranty set forth in either of the Pledge Agreements or
default by Holdings in the performance of any material covenant set forth in
either of such agreements or repudiation by Holdings of
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its obligations under either of such agreements or the unenforceability of
either of such agreements against Holdings for any reason; (x) the termination
of the Bank Credit Facility (other than pursuant to a refinancing thereof in
accordance with its terms and with the terms of clause (i) under the second
paragraph under the caption "Certain Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock") or the repudiation of the Lenders
obligations thereunder, including without limitation, the withdrawal of the
proceeds of the Term B Loans and Term C Loans from the Bank Construction
Disbursement Account, in each case prior to the date the Aladdin is Operating
(except for disbursements in accordance with the Disbursement Agreement); (xi)
(a) failure of the Desert Passage to be Operating on or prior to 90 days after
the date the Aladdin becomes Operating and (b) at any time thereafter and prior
to the date on which the Desert Passage becomes Operating, the Company's Fixed
Charge Coverage Ratio for its most recently ended four full fiscal quarters (or
such lesser number of quarters as have ended after the Aladdin became Operating)
for which internal financial statements are available is not at least 1.75 to
1.0; (xii) after the Aladdin becomes Operating, revocation, termination,
suspension or other cessation of effectiveness of any Gaming Approval, which
results in the cessation or suspension of gaming operations for a period of more
than 90 days at the Aladdin; (xiii) the failure of the Aladdin to be Operating
by the Operating Deadline; (xiv) the transfer of the Aladdin Site as a result of
the exercise of remedies in respect of the Deed of Trust, including a
foreclosure by the Lenders pursuant to the terms of the Deed of Trust or the
acceptance by the Lenders of a deed in lieu of foreclosure; and (xv) the
transfer of the Common Membership Interests as a result of the exercise of
remedies by the Lenders in respect of the pledge of such Common Membership
Interests pursuant to the Lender's security documents.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in Accreted Value of the then outstanding Notes may
declare the Accreted Value of the Notes (together with all other amounts
outstanding thereunder) to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuers, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, 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 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.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of any premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law.
The Holders of a majority of the aggregate Accreted Value of the then
outstanding Notes 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.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required, within
five Business Days, upon becoming aware of any Default or Event of Default or
any default under any document, instrument or agreement representing
Indebtedness of the Issuers, to deliver to the Trustee a statement specifying
such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, MANAGERS, OFFICERS, EMPLOYEES, INCORPORATORS
OR MEMBERS
No director, manager, officer, employee, incorporator or member of the
Issuers shall have any liability for any obligations of the Issuers under the
Notes 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 issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the Accreted Value of, premium, if any, interest
and Liquidated Damages, if any, on such Notes when such payments are due solely
out of the trust referred to below, (ii) the Issuers' obligations with respect
to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Issuers'
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Issuers may, at their option and at any time,
elect to have the obligations of the Issuers 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 order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers 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 firm of independent public accountants, to pay the
Accreted Value of, premium, if any, interest and Liquidated Damages, if
applicable, on the outstanding Notes on the stated maturity date or on the
applicable redemption date, as the case may be, and must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Issuers have received from, or there has been published
by, the United States Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable U.S. federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel in the
United States shall confirm that the Holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such Legal Defeasance and will be subject to U.S. 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; (iii) in the case of Covenant
Defeasance, the Issuers shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to such 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; (iv) 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) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or 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 their
Subsidiaries is a party or by which the Issuers or any of their Subsidiaries is
bound; (vi) after the passage of 91 days following the deposit (or, with respect
to any deposit
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transferred for the benefit of any person who may be deemed to be an "insider"
of the Issuers under 11 U.S.C. Section 101(31), after the passage of one year
following such transfer), such deposit will not be subject to avoidance under 11
U.S.C. Section 547 if the Issuers were subsequently to become the subject of a
case under title 11 of the United States Bankruptcy Code; (vii) the Issuers must
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 (viii) the Issuers must
have delivered to the Trustee an Officers' Certificate and an opinion of counsel
(which opinion may be subject to customary exclusions, qualifications and
assumptions) in the United States each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any Note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in Accreted Value of the then outstanding Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority of the Accreted Value of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a nonconsenting Holder): (i) reduce the
Accreted Value of Notes whose Holders must consent to an amendment, supplement
or waiver; (ii) reduce the Accreted Value of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders") or amend or modify the calculation of
the Accreted Value so as to reduce the amount of the Accreted Value of the
Notes; (iii) reduce the rate of or change the time for payment of interest on
any Note; (iv) waive a Default or Event of Default in the payment of Accreted
Value of, premium and 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 Notes and a waiver of the payment
default that resulted from such acceleration); (v) make any Note payable in
money other than that stated in the Notes; (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders to receive payments of Accreted Value of or premium and Liquidated
Damages, if any, or interest on Notes; (vii) waive a redemption payment with
respect to any Note (other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option of Holders"); or
(vii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Issuers and the Trustee may amend or supplement the Indenture or the Notes
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 Issuers' obligations to the Holders in the case of a merger or
consolidation or sale of all
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or substantially all of Holdings' assets, to make any change that would provide
any additional rights or benefits to the Holders or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Under the Indenture, the Issuers have agreed to waive the benefit and
advantage of any stay, extension or usury law that may affect the covenants or
the performance of the Indenture. The Issuers have been informed by counsel
that, in the opinion of counsel, this provision may not be enforceable.
CONCERNING THE TRUSTEE
The Indenture contains 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 is permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in Accreted Value 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 provides that in case an Event of Default
shall 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 its 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, 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 and the Notes are governed by and shall be construed in
accordance with the internal laws of the State of New York, without regard to
the choice of law rules thereof, except to the extent of the mandatory
provisions of the Nevada Gaming Control Act.
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.
"ACCRETED VALUE" means, (i) as of any date of determination prior to March
1, 2003, with respect to any Note, the sum of (a) the initial offering price
(which shall be calculated by discounting the aggregate principal amount at
maturity of such Note at a rate of 13 1/2% per annum, compounded semi-annually
on each March 1 and September 1 from March 1, 2003 to the date of issuance) of
such Note and (b) the portion of the excess of the principal amount of such Note
over such initial offering price which shall have been accreted thereon through
such date, such amount to be so accreted on a daily basis at a rate of 13 1/2%
per annum of the initial offering price of such Note, compounded semi-annually
on each March 1 and September 1 from the date of issuance of the Notes through
the date of determination, computed on the basis of a 360-day year of twelve
30-day months and (ii) as of any date of determination on or after March 1,
2003, with respect to any Note, $1,000.
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"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"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"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
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, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"AHL" means Aladdin Holdings, LLC, a Delaware limited liability company.
"ALADDIN" means the pending project to develop, construct, equip and
operate the Aladdin Hotel & Casino, as described in the Offering Memorandum.
"ALADDIN BAZAAR" means Aladdin Bazaar, LLC, a Nevada limited-liability
company.
"ALADDIN MUSIC" means Aladdin Music, LLC, a Nevada limited-liability
company and a joint venture between the Company and LCNI.
"ALADDIN MUSIC OPERATING AGREEMENT" means the Operating Agreement of
Aladdin Music, as amended from time to time.
"ALADDIN SITE" means the approximately 18-acre parcel of property located
in Las Vegas, Nevada on which the Aladdin is to be constructed.
"AMH" means Aladdin Music Holdings, LLC, a Nevada limited-liability
company.
"APPROVED PLANS AND SPECIFICATIONS" has the meaning ascribed thereto in
the Noteholder Completion Guaranty.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) (PROVIDED that the sale, lease, conveyance or other disposition of
all or substantially all of the assets of Holdings and its Restricted
Subsidiaries, taken as a whole, will be governed by the provisions of the
Indenture described above under the caption "--Repurchase 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), (ii) an Event of Loss or (iii)
the issuance or sale by Holdings or any of its Restricted Subsidiaries of Equity
Interests of any of Holdings' Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $5.0 million or (b) for net proceeds
in excess of $5.0 million. Notwithstanding the foregoing, none of the following
items shall be deemed to be an Asset Sale: (i) a transfer of assets by Holdings
to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to Holdings or to
another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Subsidiary to Holdings or to another Wholly Owned Subsidiary, (iii)
a Restricted Payment that is permitted by the covenant described above under the
caption "--Restricted Payments," (iv) the grant on or after the Issue Date by
the Company to Aladdin Bazaar of a ground lease on the Desert Passage Site and,
upon the subdivision of the Project Site, the transfer by the Company to Aladdin
Bazaar of the fee interest in the Desert Passage Site, (v) the grant on or after
the Issue Date of a ground lease on the Music Project Site by the Company to AMH
and, upon satisfaction of the Music Project Financing, an Investment not to
exceed $21.3 million plus the transfer of the Music Project Site, in each case
by the Company to AMH and by AMH to Aladdin Music, (vi) the grant on or after
the Issue Date of a ground lease relating to the Energy Plant Site by the
Company to the
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Energy Provider, (vii) the transactions contemplated by the Theater Lease in
effect on the Issue Date or as described in the Offering Memorandum, (viii) any
licensing of trade names or trademarks in the ordinary course of business by
Holdings or any of its Restricted Subsidiaries, (ix) leases of space in the
Aladdin, in the ordinary course of business, and (x) (a) the transfer of the
Aladdin Site and other assets of the Company as a result of the exercise of
remedies in respect of the Deed of Trust or the other Lender security documents,
including a foreclosure by the Lenders pursuant to the terms of the Deed of
Trust or the acceptance by the Lenders of a transfer in lieu of foreclosure or
other exercise of remedies and (b) the transfer of the Common Membership
Interests as a result of the exercise of remedies by the Lenders in respect of
the pledge of such Common Membership Interests pursuant to the Lenders' security
documents.
"BANK COMPLETION GUARANTY" means the Completion Guaranty dated as of the
Issue Date, executed by London Clubs, the Trust and Bazaar Holdings in favor of
the Administrative Agent and the Lenders.
"BANK CONSTRUCTION DISBURSEMENT ACCOUNT" means one or more accounts
established pursuant to the Disbursement Agreement into which the proceeds under
the Bank Credit Facility are funded and in which the Administrative Agent has a
security interest.
"BANK CREDIT FACILITY" means the Credit Agreement to be dated as of the
Issue Date, among the Company and the lenders named therein for which The Bank
of Nova Scotia is acting as Administrative Agent, Merrill Lynch Capital
Corporation is acting as Syndication Agent, and CIBC Oppenheimer Corp., is
acting as Documentation Agent, as such agreement may be amended, supplemented,
extended, modified, renewed, replaced or refinanced, from time to time,
including any agreement to renew, extend, refinance or replace all or any
portion of such facility.
"BAZAAR HOLDINGS" means Aladdin Bazaar Holdings, LLC, a Nevada
limited-liability company.
"BOARD OF MANAGERS" means (i) for so long as Holdings is a
limited-liability company, the Board of Managers appointed pursuant to the
Operating Agreement, or (ii) otherwise, the Board of Directors of Holdings.
"CAPITAL" means Aladdin Capital Corp., a Nevada corporation.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited-liability company,
membership interests and (v) 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 (other than the Management Fee).
"CASH EQUIVALENTS" means (i) United States Dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States Government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (i)-(v) of this definition.
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"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease or transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of transactions, of all or
substantially all of the assets of Holdings and its Subsidiaries, taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than to either of Principals, any Related Party or the IPO Entity,
(ii) the adoption of a plan relating to the liquidation or dissolution of
Holdings, (iii) the liquidation or dissolution of Holdings, (iv) prior to the
consummation of a Qualified Public Offering, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that the Trust, or the beneficiaries of the Trust (whether current or
contingent), as of the date hereof which control AHL or Sommer Enterprises, and
London Clubs cease to individually or collectively control, directly or
indirectly, a majority of the voting power of Holdings, (v) after the
consummation of a Qualified Public Offering, the IPO Entity becomes aware of (by
way of a report or any other filing pursuant to Section 13(d) of the Exchange
Act, proxy, vote, written notice or otherwise) the acquisition by any person or
group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, or any successor provision, including any group acting for the
purpose of acquiring, holding or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act) in a single transaction or in a related
series of transactions, by way of merger, consolidation or other business
combination or purchase of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act, or any successor provision) of 35% or more of the
total voting power entitled to vote in the election of the Board of Managers,
and, at such time, the Trust and London Clubs shall fail to collectively
beneficially own, directly or indirectly, securities representing greater than
the combined voting power of Holdings' Capital Stock as is beneficially owned by
such person or group, (vi) the first day on which Holdings fails to own 100% of
the issued and outstanding Equity Interests of the Company or Capital, or (vii)
the first day on which a majority of the members of the Board of Managers are
not nominees of the Trust, or the beneficiaries of the Trust (whether current or
contingent) as of the date hereof which control AHL or Sommer Enterprises, or
London Clubs or any Subsidiary of the Trust, or the beneficiaries of the Trust
(whether current or contingent) as of the date hereof which control AHL or
Sommer Enterprises, or London Clubs which is a member of Holdings.
"COMMON MEMBERSHIP INTERESTS" means the common membership interests of the
Company.
"COMPANY" means Aladdin Gaming, LLC, a Nevada limited-liability company,
or any successor thereto.
"COMPLEX" means the Complex to be constructed in Las Vegas, Nevada, as
described in the Offering Memorandum.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing Consolidated
Net Income), plus (ii) provision for taxes based upon consolidated net income or
net profits of such Person and its Restricted Subsidiaries for such period, to
the extent such provision for taxes was deducted in computing Consolidated Net
Income, plus (iii) Consolidated Interest Expense of such Person and its
Restricted Subsidiaries for such period, to the extent such expenses were
deducted in computing Consolidated Net Income plus (iv) Consolidated
Depreciation and Amortization Expense of such Person for such period, to the
extent such expenses were deducted in computing Consolidated Net Income plus (v)
any other non-cash extraordinary and nonrecurring items decreasing such
Consolidated Net Income for such period, minus (vi) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis for such Person and its Restricted Subsidiaries and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended or distributed, as applicable, to Holdings by such Subsidiary without
prior approval
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(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other non-cash expenses (excluding any non-cash expense that
represents an accrual, reserve or amortization of a cash expenditure for a past,
present or future period) of such Person and its Restricted Subsidiaries for
such period on a consolidated basis as defined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any person for any
period, the sum of (i) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued, to the extent
such expense was deducted in computing Consolidated Net Income (including
amortization of debt issuance costs and original issue discount and deferred
financing fees, non-cash interest payments, the interest component of Capital
Lease Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees), (ii) commissions, discounts
and other fees and charges paid or accrued with respect to letters of credit and
bankers' acceptance financing, (iii) the consolidated interest expense of such
person and its Restricted Subsidiaries that was capitalized during such period
and (iv) to the extent not included above, (a) the maximum amount of interest
which would have to be paid by such Person or its Restricted Subsidiaries under
a Guaranty of Indebtedness of any other Person if such Guaranty were called upon
and (b) payment to London Clubs on the Issue Date of a fee equal to 1% of the
amount of Indebtedness supported and enhanced by the Keep-Well Agreement on the
Issue Date and payment of an annual fee equal to 1.5% of the annual average
Indebtedness outstanding under the Bank Credit Facility which is supported and
enhanced by the Keep-Well Agreement, in each case as set forth in the London
Clubs Purchase Agreement as in effect on the date of the Indenture.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, that (i) the Net Income but not loss for such period of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends, if applicable, or distributions paid in cash to the referent Person
or a Wholly Owned Restricted Subsidiary thereof in respect of such period, (ii)
the Net Income of any Person acquired in a pooling of interests transaction
shall not be included for any period prior to the date of such acquisition,
(iii) the Net Income for such period of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends, if
applicable, or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained or waived in writing) or,
directly or indirectly, by the 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 equity, (iv) the
cumulative effect of a change in accounting principles shall be excluded, and
(v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to Holdings or one of its Restricted
Subsidiaries.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred equity (other than Disqualified Stock),
less (x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the Issue
Date in the book value of any asset owned by such Person or a consolidated
Restricted Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments) and (z) all unamortized debt discount and
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expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"DEED OF TRUST" means the Deed of Trust to be executed by the Company in
favor of the Administrative Agent for the benefit of the Lenders.
"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.
"DESERT PASSAGE" means the pending project by Aladdin Bazaar to develop,
construct and operate the Desert Passage, as described in the Offering
Memorandum.
"DESERT PASSAGE SITE" means the 12.42-acre portion of the Project Site on
which the Desert Passage is to be constructed.
"DISBURSEMENT AGENT" means The Bank of Nova Scotia, as disbursement agent
under the Disbursement Agreement.
"DISBURSEMENT AGREEMENT" means the Disbursement Agreement among Holdings,
the Company, The Bank of Nova Scotia, as Administrative Agent under the Bank
Credit Facility, the Disbursement Agent, the Securities Intermediary, U.S. Bank
National Association, as Servicing Agent, and the Trustee.
"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, at the option of the holder thereof), 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 thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; PROVIDED, HOWEVER, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require Holdings to repurchase or redeem such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that Holdings may
not repurchase or redeem any such Capital Stock pursuant to such provisions
prior to Holdings' compliance with the covenants described above under the
caption "--Repurchase at Option of Holders--Change of Control" or "--Repurchase
at Option of Holders--Asset Sales".
"EMPLOYMENT AGREEMENTS" means, collectively, (i) the Employment &
Consulting Agreement dated July 1, 1997, among Holdings, the Company and Richard
J. Goeglein, (ii) the Employment Agreement dated July 28, 1997, among Holdings,
the Company and James H. McKennon, (iii) the Employment Agreement dated July 28,
1997, among Holdings, the Company and Cornelius T. Klerk, (iv) the Employment
Agreement dated August 19, 1997, among Holdings, the Company and Lee A. Galati
(v) the Employment Agreement dated July 1, 1997, among Holdings, the Company and
Jose A. Rueda and (vi) the GAI Consulting Agreement.
"ENERGY PLANT" means the pending project to develop, construct and operate
an energy plant to provide electricity, chilled water and hot water to certain
parts of the Project.
"ENERGY PLANT SITE" means the 0.64-acre portion of the Project Site on
which the Energy Plant is to be constructed.
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"ENERGY PROVIDER" means Northwind Aladdin, LLC, a Nevada limited-liability
company.
"ENTERPRISES" means Aladdin Gaming Enterprises, Inc., a Nevada
corporation.
"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).
"EVENT OF LOSS" means, with respect to any property or asset (tangible or
intangible, real or personal) any of the following: (i) any loss, destruction or
damage of such property or assets; (ii) any institution of any proceedings for
the condemnation, seizure or taking of such property or asset or for the
exercise of any right of eminent domain; (iii) any actual condemnation, seizure
or taking by exercise of the power of eminent domain or otherwise of such
property or asset, or confiscation of such property or asset or the requisition
of the use of such property or asset; or (iv) any settlement in lieu of clauses
(ii) or (iii) above.
"EXISTING INDEBTEDNESS" means Indebtedness of Holdings and its Restricted
Subsidiaries in existence on the date of the Indenture, until such amounts are
repaid.
"FF&E" means any furniture, fixtures, equipment and other personal
property financed with the proceeds from the incurrence of Indebtedness pursuant
to clause (viii) of the second paragraph under the covenant described above
under the caption "Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock."
"FF&E FINANCING" means the incurrence of Indebtedness, the proceeds of
which are utilized solely to finance or refinance the acquisition of (or entry
into a capital lease by Holdings or a Subsidiary of Holdings with respect to)
FF&E.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any 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
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems Preferred Stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to 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, Guaranty or
redemption of Indebtedness, or such issuance or redemption of Preferred Stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, acquisitions,
dispositions and discontinued operations (as determined in accordance with GAAP)
that have been made by Holdings or any of its Restricted Subsidiaries, including
all mergers, consolidations and dispositions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be calculated on a pro forma basis assuming that all such
acquisitions, dispositions, discontinued operations, mergers, consolidations
(and the reduction of any associated fixed charge obligations resulting
therefrom) had occurred on the first day of the four-quarter reference period.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (i) Consolidated Interest Expense of such Person for
such period and (ii) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period and (iii) any interest
expense 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 Guaranty or Lien is
called upon) and (iv) the product of (a) to the extent such Person is not
treated as (1) a pass-through entity or (2) a separate entity, in either case
for United States federal income tax purposes, all dividend payments, whether or
not in cash, on any series of Preferred Stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable (x) solely in Equity Interests of Holdings (other than Disqualified
Stock) or (y) to Holdings or a Restricted Subsidiary of Holdings, 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 income tax
rate of such Person, expressed as a
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decimal, in each case, on a consolidated basis and in accordance with GAAP;
PROVIDED, HOWEVER, that dividends or distributions paid on the Series A
Preferred Interests shall not be counted to the extent that interest payments on
the Notes have been taken into account in determining such Fixed Charges.
"FORCE MAJEURE EVENT" has the meaning ascribed thereto in the Noteholder
Completion Guaranty.
"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 Issue Date.
"GAI, LLC" means GAI, LLC, a Nevada limited-liability company.
"GAI CONSULTING AGREEMENT" means the Consulting Agreement dated as of July
1, 1997, between GAI, LLC and the Company.
"GAMING APPROVAL" means every license, finding of suitability, permit,
authorization, registration or approval required to own, lease, operate or
otherwise conduct the gaming activities of the Company or any of its Affiliates.
"GAMING AUTHORITY" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or foreign government, any state, province or any city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including without limitation, the Nevada Gaming Commission, the Nevada
State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board
and any other agency with authority to regulate any gaming operation (or
proposed gaming operation) owned, managed or operated by Holdings or any of its
Subsidiaries.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended), as custodian with respect to any such
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.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations
of such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"HOLDINGS" means Aladdin Gaming Holdings, LLC, a Nevada limited-liability
company.
"HOLDINGS COMMON MEMBERSHIP INTEREST" means the common membership
interests of Holdings.
"HOLDINGS SERIES A PREFERRED INTERESTS" means Holdings' Series A Preferred
Membership Interests issued to London Clubs, AHL or the Trust pursuant to the
Operating Agreement in exchange for any
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payments required pursuant to the Keep-Well Agreement or the Bank Completion
Guaranty where none of such parties is responsible for a default leading to such
payment.
"HOLDINGS SERIES B PREFERRED INTERESTS" means the Holdings' Series B
Preferred Membership Interests issued to London Clubs, AHL or the Trust pursuant
to the Operating Agreement in exchange for payments required pursuant to the
Keep-Well Agreement or the Bank Completion Guaranty where one of such parties is
responsible for a default leading to such payment.
"IN BALANCE" shall have the meaning ascribed thereto in the Noteholder
Completion Guaranty.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guaranty
by such Person of any indebtedness of any other Person. Except as stated under
the penultimate paragraph under "Incurrence of Indebtedness and Issuance of
Preferred Stock," the amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"INDEPENDENT CONSTRUCTION CONSULTANT" means Rider Hunt (NV), L.L.C. or any
successor thereto acceptable to the Trustee.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP. If Holdings or any Subsidiary
of Holdings sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of Holdings such that, after giving effect to any such sale
or disposition, such Person is no longer a subsidiary of Holdings, Holdings
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Restricted
Payments."
"IPO ENTITY" means Holdings, Enterprises or another entity which controls
the Company.
"ISSUE DATE" means February 26, 1998, the date of the Indenture.
"KEEP-WELL AGREEMENT" means the Keep-Well Agreement dated the Issue Date,
executed by AHL, London Clubs and Bazaar Holdings in favor of the Administrative
Agent under the Bank Credit Facility and the Lenders.
"LCNI" means London Clubs Nevada Inc., a Nevada corporation.
"LENDERS" means the Lenders as defined in 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
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agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"LONDON CLUBS" means London Clubs International, plc, a public limited
company organized under the laws of England and Wales.
"LONDON CLUBS PURCHASE AGREEMENT" means the Purchase Agreement dated
September 24, 1997, among London Clubs, LCNI, AHL, Sommer Enterprises, the
Sommer Trust and the Company, as amended as of the date of the Indenture.
"MANAGEMENT FEE" means the fees payable by the Company to London Clubs
pursuant to the Salle Privee Management Agreement in consideration for services
to be provided by London Clubs to the Company.
"MINIMUM ALADDIN FACILITIES" means, with respect to the Aladdin, at least
2,465 operating slot machines, 91 operating table games, an operating keno
lounge, 1,870 restaurant seats, 1,750 usable parking spaces, 2,210 hotel rooms
fit to receive guests, all banking, coin, security and other ancillary equipment
and facilities necessary to operate the Aladdin on a 24 hour per day, seven days
a week basis.
"MINIMUM DESERT PASSAGE FACILITIES" means, with respect to the Desert
Passage, at least 200,000 square feet of retail space, all necessary common
areas and all appropriate points of direct access from the Desert Passage to the
Aladdin and the exterior area surrounding the Aladdin.
"MOUNTAIN SPA" means the Mountain Spa development located in Las Vegas,
Nevada.
"MUSIC PROJECT" means the pending project by Aladdin Music to develop,
construct and operate the Music Project, as described in the Offering
Memorandum.
"MUSIC PROJECT FINANCING" means the incurrence by Aladdin Music of
Indebtedness, the proceeds of which are utilized solely to finance the
development, construction and operation of the Music Project.
"MUSIC PROJECT SITE" means the 4.75-acre portion of the Project Site on
which the Music Project is to be constructed.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends or distributions, as applicable, excluding,
however, (i) 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 (including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities, by, or the
extinguishment of any Indebtedness of, such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Holdings or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting,
investment banking fees and sales commissions, 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 (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien (other than the Bank Credit Facility) on the asset or assets
that are the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"NOTE CONSTRUCTION DISBURSEMENT ACCOUNT" means the Disbursement Account to
be maintained by the Disbursement Agent and pledged to the Trustee pursuant to
the terms of the Disbursement Agreement into which a portion of the net proceeds
of the Offering will be deposited.
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"NOTEHOLDER COMPLETION GUARANTY" means the Noteholder Completion Guaranty
dated as of the Issue Date, executed by the Trust, London Clubs and Bazaar
Holdings in favor of the Trustee.
"NOTE REGISTRATION RIGHTS AGREEMENT" means the Note Registration Rights
Agreement to be dated as of the Issue Date, among the Issuers and the Initial
Purchasers.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, liquidated damages and other
liabilities payable under the documentation governing any Indebtedness.
"ON SCHEDULE CERTIFICATE" shall have the meaning ascribed thereto in the
Disbursement Agreement.
"OPERATING" means, (i) with respect to the Aladdin, the first time that
(a) all Gaming Approvals have been granted and are not then revoked or
suspended, (b) all Liens (other than Permitted Liens) related to the
development, construction, and equipping of the Aladdin have been paid or, if
payment is not yet due or if such payment is contested in good faith by
Holdings, either (1) sufficient funds remain in the Construction Disbursement
Account to discharge such Liens or (2) such Liens have been bonded, (c) the
Independent Construction Consultant, the general contractor and the architect of
the Aladdin shall have delivered one or more certificates to the Trustee each
certifying that the Aladdin is complete in all material respects in accordance
with the Approved Plans and Specifications therefor and all applicable building
laws, ordinances and regulations, (d) the Aladdin is in a condition (including
installation of furnishings, fixtures and equipment) to receive guests in the
ordinary course of business, (e) gaming and other operations in accordance with
applicable law are open to the general public and are being conducted at the
Aladdin with respect to at least the Minimum Aladdin Facilities, (f) a permanent
or temporary certificate of occupancy has been issued for the Aladdin by the
Clark County Building Department and (g) a notice of completion of the Aladdin
has been duly recorded; and (ii) with respect to the Desert Passage, the first
time that (a) the Desert Passage is in a condition (including installation of
all furnishings, fixtures and equipment) to receive customers in the ordinary
course of business, (b) retail operations in accordance with applicable law are
open to the general public and are being conducted at the Desert Passage with
respect to at least the Minimum Desert Passage Facilities, (c) a temporary
certificate of occupancy has been issued for the Desert Passage by the Clark
County Building Department and (d) a notice of completion of the Desert Passage
has been duly recorded.
"OPERATING AGREEMENT" means the Operating Agreement of Holdings, as
amended from time to time.
"OPERATING DEADLINE" means the date which is 28 months after the Issue
Date; PROVIDED that, if a Force Majeure Event occurs, the Operating Deadline
shall be extended for the amount of time that such Force Majeure Event exists
but in no event shall the Operating Deadline be extended past the date which is
40 months after the Issue Date.
"PARKING USE AGREEMENT" means the Common Parking Area Use Agreement to be
dated as of the Issue Date, between the Company and Bazaar.
"PERMITTED INVESTMENTS" means (i) any Investments in Holdings or in a
Wholly Owned Restricted Subsidiary of Holdings; (ii) any Investments in Cash
Equivalents; (iii) Investments by Holdings or any Restricted Subsidiary of
Holdings in a Person that is evidenced by Capital Stock if as a result of such
Investment (a) such Person becomes a Wholly Owned Restricted Subsidiary of
Holdings 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, Holdings or a Wholly Owned Restricted Subsidiary of Holdings; (iv) 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"; (v) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Holdings; (vi) Investments
by Holdings or any of its Restricted Subsidiaries in an amount not to exceed
$5.0 million in any Person that is engaged in a line of business permitted under
the covenant entitled "--Line of Business"; (vii) receivables owing to Holdings
or any of
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its Restricted Subsidiaries 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 Holdings or any such Restricted Subsidiary deems reasonable under the
circumstances; and (viii) 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.
"PERMITTED LIENS" means (i) Liens in favor of Holdings or any of its
Restricted Subsidiaries; (ii) Liens on property of a Person existing at the time
such Person became a Restricted Subsidiary, is merged into or consolidated with
or into Holdings or any Restricted Subsidiary of Holdings; PROVIDED, that such
Liens were in existence prior to the contemplation of such acquisition, merger
or consolidation and do not extend to any other assets other than those of the
Person acquired by, merged into or consolidated with Holdings or any Restricted
Subsidiary of Holdings; (iii) Liens on property existing at the time of
acquisition thereof by Holdings or any Restricted Subsidiary of Holdings;
PROVIDED that such Liens were in existence prior to the contemplation of such
acquisition; (iv) 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 or in the construction of the
Aladdin; PROVIDED, HOWEVER, that Holdings has obtained a title insurance
endorsement insuring against losses arising therewith or if such Lien arises
after completion of the Aladdin, Holdings has bonded within a reasonable time
after becoming aware of the existence of such Lien; (v) Liens securing
obligations in respect of the Indenture or the Notes; (vi) Liens existing on the
Issue Date; (vii) (a) Liens for taxes, assessments or governmental charges or
claims or (b) statutory Liens of landlords, and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business or in the construction of the
Aladdin, in the case of each of (a) and (b), with respect to amounts that either
(1) are not yet delinquent or (2) are being diligently contested in good faith
by appropriate proceedings, PROVIDED that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (viii) easements, rights-of-way, navigational servitudes,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances which do not interfere in any material respect with the ordinary
conduct of business of Holdings and its Restricted Subsidiaries; (ix) a
leasehold mortgage in favor of a party financing the lessee of space within the
Aladdin; PROVIDED that neither Holdings nor any of its Restricted Subsidiaries
is liable for the payment of any principal of, or interest or premium on, such
financing; (x) Liens created by the Reciprocal Easement Agreement; (xi) Liens
created by the Disbursement Agreement; (xii) Liens to secure all Obligations
under the Bank Credit Facility or the Rate Protection Agreement (as defined in
the Bank Credit Facility), as applicable, incurred pursuant to clauses (i),
(vii), (viii), (ix) and (xvi) of the second paragraph of the covenant described
above under the caption "--Limitations on Incurrence of Indebtedness and
Issuance of Preferred Stock"; (xiii) Liens to secure all Obligations under FF&E
Financing incurred pursuant to clause (viii) and (x) of the second paragraph of
the covenant described above under the caption "--Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock"; (xiv) Liens to secure
Indebtedness permitted by clause (vi) of the second paragraph of the covenant
described above under the caption "--Limitations on Incurrence of Indebtedness
and Issuance of Preferred Stock"; (xv) Liens incurred in connection with Hedging
Obligations incurred pursuant to clause (vii) of the second paragraph under the
covenant described above under the caption "--Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock"; (xvi) licenses of patents,
trademarks and other intellectual property rights granted by Holdings or any of
its Restricted Subsidiaries in the ordinary course of business; (xvii) any
judgment attachment or judgment Lien not constituting an Event of Default; and
(xviii) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of such Unrestricted Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Holdings or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Holdings or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); PROVIDED that: (i) the Accreted Value or principal
amount, as the case may be,
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of such Permitted Refinancing Indebtedness does not exceed the Accreted Value or
principal amount, as the case may be, plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith; (ii) 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
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinate 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 the Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by Holdings
or by the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"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.
"PLEDGE AGREEMENTS" means, collectively, the Pledge Agreement dated as of
the Issue Date, to be executed by Holdings in favor of the Trustee pursuant to
which Holdings will pledge all Series A Preferred Interests to the Trustee for
the benefit of the holders of the Notes and the Pledge Agreement dated as of the
Issue Date, to be executed by Holdings in favor of the Disbursement Agent, as
agent for the Trustee, pursuant to which Holdings will pledge all of the amounts
in the Note Disbursement Account to the Disbursement Agent, as agent for the
Trustee, for the benefit of the holders of the Notes.
"PREFERRED STOCK" means any Equity Interest with preferential right of
payment of dividends or distributions, as applicable, or upon liquidation,
dissolution, or winding up.
"PRINCIPALS" means the Trust, or the beneficiaries of the Trust (whether
current or contingent) as of the date hereof which control AHL or Sommer
Enterprises, and London Clubs.
"PROJECT SITE" means the approximately 35-acre parcel of property located
in Las Vegas, Nevada on which the Complex is to be constructed.
"QUALIFIED PUBLIC OFFERING" means a public offering of common stock of any
IPO Entity which is registered under the Securities Act and results in proceeds
of at least $50.0 million; PROVIDED, that immediately prior to such public
offering, London Clubs, the Trust, or the beneficiaries of the Trust (whether
current or contingent) as of the date hereof which control AHL or Sommer
Enterprises, and holders of the Warrants and Warrant Shares each hold, directly
or indirectly, their respective equity interests in the IPO Entity; PROVIDED,
FURTHER, that London Clubs, the Trust, or the beneficiaries (whether current or
contingent) of the Trust as of the date hereof which control AHL or Sommer
Enterprises, and holders of the Warrants and Warrants Shares will use their
reasonable best efforts to effect such public offering such that the holders of
the Warrants and Warrant Shares (x) will not recognize income gain or loss for
federal income tax purposes (other than as a result of a sale of their Warrant
Shares in such public offering) and (y) will be subject to federal income tax in
the same manner and at the same times as would have been the case if the
Warrants were originally issued by the IPO Entity.
"RECIPROCAL EASEMENT AGREEMENT" means the Construction, Operation and
Reciprocal Easement Agreement to be dated as of the Issue Date, among the
Company, Bazaar, Aladdin Music, as such agreement may be amended, supplemented,
restated or otherwise modified from time to time.
"RELATED PARTY" means, with respect to any Principal, any Subsidiary of
such Principal.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"SALLE PRIVEE MANAGEMENT AGREEMENT" means the Management Agreement dated
the Issue Date, between the Company and London Clubs.
"SERIES A PREFERRED INTERESTS" means the Company's Series A Preferred
Membership Interests.
"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 Issue Date.
"SITE WORK AGREEMENT" means the Site Work, Development and Construction
Agreement dated as of the Issue Date, among the Company, Aladdin Bazaar and AHL.
"SOMMER ENTERPRISES" means Sommer Enterprises, LLC, a Nevada
limited-liability company.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any 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 or principal prior to the date originally
scheduled for the payment thereto.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and (ii) any partnership
(including an entity which is not treated as a separate entity for income tax
purposes) (a) the sole general partner or the managing partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or one or more Subsidiaries of such Person (or any combination
thereof).
"TAX AMOUNT" means, with respect to any period, without duplication, the
increase in the cumulative United States federal, state and local tax liability
of holders of equity interests in Holdings or the Company (or, if such holder is
a pass-through entity for United States income tax purposes, holders of its
equity interests) in respect of their interests in Holdings or the Company for
such period plus any additional amounts payable to such holders to cover taxes
arising from ownership of such equity interests.
"THEATER LEASE" means the lease of the Theater of the Performing Arts
between the Company and Aladdin Music to be entered into prior to the opening of
the Music Project.
"TRUST" means the Trust under Article Sixth u/w/o Sigmund Sommer.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by
the Board of Managers as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with Holdings or any Restricted Subsidiary of
Holdings unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Holdings or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of Holdings; (c) is a Person with respect to which neither Holdings
nor any of its Restricted Subsidiaries has any direct or indirect obligation (x)
to subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Holdings or any of
its Restricted Subsidiaries; and (e) has at least one director on its Board of
Managers or Board of Directors that is not a director or executive officer of
Holdings or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of Holdings or any of its
Restricted Subsidiaries. Any such designation by the Board of Managers shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing
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conditions and was permitted by the covenant described above under the caption
"Certain Covenants-- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of Holdings 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 "Certain Covenants--Limitations on
Incurrence of Indebtedness and Issuance of Preferred Stock," Holdings shall be
in default of such covenant). Notwithstanding the above, each of AMH and Aladdin
Music shall be an Unrestricted Subsidiary until such time as it is designated to
be a Restricted Subsidiary pursuant to the terms of the last sentence of this
definition. The Board of Managers may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
Holdings of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is permitted
under the covenant described under the caption "Certain Covenants--Limitations
on 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 (ii) no Default or Event of Default would be
in existence following such designation.
"WARRANT REGISTRATION RIGHTS AGREEMENT" means the Warrant Registration
Rights Agreement to be dated as of the Issue Date, among Enterprises and the
Initial Purchasers.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years (calculated to the nearest
one-twelfth) obtained by dividing (i) 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, 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 (ii) the then outstanding principal amount or liquidation
preference, as applicable, of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
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 or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"WHOLLY OWNED SUBSIDIARY" of any 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 Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
"WORKING CAPITAL FACILITY" means a credit facility pursuant to any
agreement or agreements for the making of loans or advances on a revolving
basis, the issuance of letters of credit and/or the creation of bankers'
acceptances to fund the Company's general corporate requirements and any
amendment, supplement, extension, modification, renewal, replacement or
refinancing from time to time, including any agreement to renew, extend,
refinance or replace all or any portion of such facility.
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DESCRIPTION OF NOTEHOLDER COMPLETION GUARANTY
AND DISBURSEMENT AGREEMENT
NOTEHOLDER COMPLETION GUARANTY
London Clubs, the Trust and Bazaar Holdings (collectively, the
"Guarantors") have entered into a guaranty of performance and completion (the
"Noteholder Completion Guaranty") in favor of the Trustee (for the benefit of
the Noteholders). The following summary of the material terms and provisions of
the Noteholder Completion Guaranty does not purport to be a complete summary of
the Noteholder Completion Guaranty and is qualified in its entirety by reference
to the Noteholder Completion Guaranty, including definitions of certain terms
used below. The Noteholder Completion Guaranty provides that the Guarantors
jointly and severally guarantee, among other things, to the Trustee (for the
benefit of the Noteholders) and covenant and agree to make any and all payments
to or on behalf of the Company as may be necessary in order to permit and assure
that:
(i) the Company will promptly carry out the work required for the
construction of the Aladdin with due diligence and continuity, in an
expeditious and first-class workmanlike manner in accordance with the
Approved Plans and Specifications (as defined below) in all material
respects and will correct as soon as possible any material defect in
such work or material deviation from the Approved Plans and
Specifications;
(ii) the Company will punctually pay all costs, expenses and liabilities
incurred by the Company in connection with the construction of the
Aladdin in accordance with the Approved Plans and Specifications, and
all claims and demands for labor, material and services incurred by the
Company prior to completion of the work and in connection with cost
overruns of any type and all amounts which the Company may be required
to pay from time to time in order to keep the project "In Balance" as
such term is defined in the Noteholder Completion Guaranty;
(iii) the Company will complete the construction of the required Minimum
Aladdin Facilities on schedule and in accordance with the Approved
Plans and Specifications lien-free other than Permitted Liens;
(iv) the Company will provide the expertise necessary to supervise such work
at no cost to the Trustee;
(v) in the event the Guarantors fail to pay and/or perform their respective
obligations under the Noteholder Completion Guaranty, the Trustee (in
addition to any other rights and remedies afforded by applicable law)
may pay and perform the Guaranteed Obligations on behalf of the
Guarantors, in which case the Guarantors, upon demand, must reimburse
the Trustee for all costs, expenses and liabilities incurred in
connection therewith; and
(vi) the Guarantors shall pay the Trustee all reasonable out-of-pocket costs
and expenses of the Trustee in connection with the enforcement of the
Noteholders' rights and remedies under the Noteholder Completion
Guaranty.
The obligations of the Guarantors under the Noteholder Completion Guaranty
are subject to certain important qualifications. In particular, the Trustee may
not exercise any rights or declare any default under the Noteholder Completion
Guaranty and shall not pursue any remedies thereunder including, but not limited
to demanding payment or performance during any period that the Bank Completion
Guaranty is in effect and the Guarantors thereunder have not been released in
writing by the Bank Lenders. Notwithstanding the foregoing, however, the Trustee
shall be permitted to exercise any and all rights, declare a default, commence
enforcement proceedings and pursue any and all remedies under the Noteholder
Completion Guaranty:
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(i) at any time prior to the date that any funds have been advanced or
disbursed to the Company pursuant to the Bank Credit Facility;
(ii) at any time prior to Completion and from after the date on which all
indebtedness evidenced and secured by the Bank Credit Facility has been
indefeasibly paid in full and the Bank Lenders have released the
Guarantors in writing from their obligations under the Bank Completion
Guaranty; and
(iii) at any time after which all of the following events have occurred and
are continuing:
(a) an event of default under the Bank Completion Guaranty has occurred
and is continuing and such event of default has remained uncured for
the number of applicable Trigger Days (as defined herein);
(b) a Funding Cessation (as defined herein) has occurred and is
continuing for the aggregate number of applicable Trigger Days;
PROVIDED, HOWEVER, in no event shall aggregate Funding Cessations
exceed 180 days in the aggregate (which shall be extended for the
number of days during which a Force Majeure Event (as defined below)
or Insolvency Proceeding of the Company which impairs the Bank
Lenders directly or indirectly from enforcing the Bank Completion
Guaranty has occurred and is continuing which such extension shall
terminate upon the filing by the Bank Lenders of an action against
the Guarantors under the Bank Completion Guaranty to enforce the
obligations of the Guarantors thereunder which are susceptible of
performance notwithstanding the Insolvency Proceeding of the Company)
in any consecutive 365 day period; and
(c) the construction work which has been substantially completed in
accordance with the Approved Plans and Specifications (as certified
by the Construction Consultant) on the date in question has not
progressed to the stage of completion set forth for such date
(subject to any extensions based upon Force Majeure Events or an
Insolvency Proceeding of the Company which impairs the Bank Lenders,
directly or indirectly, from enforcing the Bank Completion Guaranty
has occurred and is continuing, which such extension shall terminate
upon the filing by the Bank Lenders of an action against the
Guarantors under the Bank Completion Guaranty to enforce the
obligations of the Guarantors thereunder which are susceptible of
performance notwithstanding the Insolvency Proceeding of the Company)
in the Construction Benchmark Schedule (as defined in the Noteholder
Completion Guaranty).
The Noteholder Completion Guaranty also provides that performance in all
material respects of the obligations of the Guarantors under the Bank Completion
Guaranty (as in effect on the Issue Date, or as may be amended from time to time
so long as in connection with each such amendment the Construction Consultant
certifies to the Trustee that, after giving effect to such amendment, (i) the
Minimum Aladdin Facilities are still capable of being completed by the Operating
Deadline, and (ii) the Guarantors have consented to such amendment) shall be
deemed to be performance of the corresponding obligations under the Noteholder
Completion Guaranty and performance in all material respects of the obligations
of the Guarantors under the Noteholder Completion Guaranty shall be deemed to be
performance of the corresponding obligations under the Bank Completion Guaranty.
Under the Noteholder Completion Guaranty, the Trustee covenants and agrees
that (i) the right of the Trustee to demand payment and/or performance of the
obligations under the Noteholder Completion Guaranty, to exercise any rights,
remedies and options and/or to commence enforcement proceedings under the
Noteholder Completion Guaranty shall be subject to the delivery by the Trustee
of a written notice to the Administrative Agent no later than 10 business days
prior to the making of such demand for payment and/or performance, exercise of
rights remedies and options, or commencement of enforcement proceedings, as
applicable, (ii) the Bank Lenders shall have all rights at law and equity
including, without
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limitation, the right to seek an injunction or other extraordinary remedy to
prevent or prohibit the making of any demand for payment and/or performance,
exercise of rights remedies and options, or commencement of enforcement
proceedings by the Trustee which is in contravention of the "standstill"
provisions of the Noteholder Completion Guaranty described above, and (iii) the
Noteholder Completion Guaranty shall not have been amended, modified, and/or
amended and restated without the prior written consent of the Administrative
Agent in its sole discretion; provided that the consent of the Administrative
Agent shall not be required in connection with corrective amendments required to
be made to the Noteholder Completion Guaranty as and when corresponding
amendments are made to the Bank Completion Guaranty.
In addition, the Trustee on its own behalf and on behalf of the
Noteholders has covenanted and agreed that the rights, remedies and options of
the Trustee under the Noteholder Completion Guaranty in no way restrict the
rights and remedies of the Administrative Agent and the Bank Lenders under the
Bank Credit Facility or any security therefor including, without limitation, the
right to commence and prosecute to completion enforcement of the Bank Credit
Facility and any documents evidencing or securing the obligations under the Bank
Credit Facility. The Trustee agreed on its own behalf and on behalf of the
Noteholders that no Person shall have any right whatsoever to interpose a right
of offset, defense, claim or counterclaim with respect to any enforcement of the
Bank Credit Facility documents based upon a claim that the Trustee has the right
to performance of the guaranteed obligations before such enforcement can be
commenced or prosecuted or judgment thereon can be executed by or on behalf of
the Bank Lenders.
"Approved Plans and Specifications" shall mean all plans, specifications,
design documents, schematic drawings and related items for the design,
architecture and construction of the Aladdin, as delivered to the Trustee on the
Issue Date, as the same may be (x) finalized in a manner that reflects a natural
evolution of their status on the date hereof and in a manner consistent with the
standards set forth in the Credit Agreement with respect to the Bank Credit
Facility (the "Bank Credit Agreement") and (y) amended in accordance with the
Bank Credit Agreement.
"Construction Benchmark Schedule" shall have the meaning set forth in the
Noteholder Completion Guaranty and the Bank Credit Agreement.
A "Funding Cessation" shall occur at any time that funds are unavailable
to the Company (from any source whatsoever) to fund draws under the Bank Credit
Facility in an amount equal to 75% of the draw request in question or the
Construction Consultant fails to deliver the On Schedule Certificate as
contemplated by the Engagement Letter among Rider Hunt (NV) L.L.C., the
Administrative Agent, the Disbursement Agent, the Trustee, and others.
"Force Majeure Event" shall mean any event which is defined as a "Force
Majeure" in the Design/ Build Contract and/or that causes a delay in the
construction of the Aladdin and is outside the Company's control but only to the
extent (a) such event does not arise out of (i) the negligence, willful
misconduct or inefficiencies of the Company, (ii) late performance by the
Design/Builder or ADP, (iii) any cause or circumstances resulting in delays,
stoppage or any other interference with the construction of the Aladdin caused
by the insolvency, bankruptcy or any lack of funds by the Company, any of the
other Project Parties (as defined herein), the Energy Provider, Unicom, and/or
ADP or (iv) delays, stoppage or other interference with the construction of the
Aladdin caused by the insolvency, bankruptcy or any lack of funds by Bazaar,
Aladdin Music and/or the construction contractors and project architects with
respect to the Mall Project, the Music Project and/or the Energy Project, and
(b) such event consists of an Act of God (such as tornado, flood, hurricane,
etc.), fires and other casualties; strikes, lockouts or other labor disturbances
(except to the extent taking place at the Project Site only); riots,
insurrections or civil commotions; embargoes, shortages or unavailability of
materials, supplies, labor, equipment and systems that first arise after the
Issue Date, but only to the extent caused by another act, event or condition
covered by this clause (b); sabotage; vandalism; the requirements of law,
statutes, regulations and other legal requirements enacted after the Issue Date
(unless the Company should, in the exercise of due diligence
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and prudent judgment, have anticipated such enactment); orders or judgments; or
any similar types of events, provided, that (x) the Company has sought to
mitigate the impact of the delay, (y) any delay resulting from the foregoing
shall not exceed 365 days, and (z) the period during which a Force Majeure Event
exists shall commence on the date that the Company has given the Trustee and the
Administrative Agent written notice describing in reasonable detail the event
which constitutes a Force Majeure Event and the Trustee and the Administrative
Agent have confirmed the existence of such Force Majeure Event on the date of
such notice and shall end on the date that such Force Majeure Event no longer
exists, whether or not notice is given to the Trustee and the Administrative
Agent, as determined by the Construction Consultant.
"Trigger Days" shall be defined as follows:
(i) an aggregate of 60 calendar days during any period in which the Bank
Lenders have disbursed more than $1 and up to and including $35.0
million of the Bank Credit Facility to the Company;
(ii) an aggregate of 90 calendar days during any period in which the Bank
Lenders have disbursed more than $35.0 million and up to and including
$70.0 million of the Bank Credit Facility to the Company;
(iii) an aggregate of 120 calendar days during any period in which the Bank
Lenders have disbursed more than $70.0 million and up to and including
$110.0 million of the Bank Credit Facility to the Company; and
(iv) an aggregate of 180 calendar days during any period in which the Bank
Lenders have disbursed more than $110.0 million of the Bank Credit
Facility to the Company.
DISBURSEMENT AGREEMENT
The Company, Holdings, Scotiabank, as the Administrative Agent under the
Bank Credit Facility, the Trustee, Scotiabank, as the Disbursement Agent on
behalf of the Bank Lenders and the Trustee (the "Disbursement Agent") and as
Securities Intermediary and the Servicing Agent, entered into the Disbursement
Agreement concurrently with the closing of the Offering. The following summary
of the material provisions of the Disbursement Agreement does not purport to be
a complete summary of the Disbursement Agreement and is qualified in its
entirety by reference to the Disbursement Agreement, including the definitions
therein of certain terms used below. Capitalized terms that are used hereunder
but not otherwise defined in this Prospectus have the meanings assigned to them
in the Disbursement Agreement.
Pursuant to the Disbursement Agreement, on the Issue Date approximately
$35 million of the net proceeds of the Offering were deposited into the Note
Construction Disbursement Account, which is subject to the sole dominion and
control of the Disbursement Agent on behalf of the Trustee (for the benefit of
the Noteholders) and the proceeds from the Term B Loan and the Term C Loan were
advanced to the Company and thereafter deposited by the Company into the Cash
Collateral Account, which is subject to the sole dominion and control of the
Disbursement Agent on behalf of the Bank Lenders who have made the Term B Loans
and the Term C Loans. All funds in the Note Construction Disbursement Account
are pledged to the Disbursement Agent for the benefit of the Trustee to secure
repayment of the Notes and all funds in the Cash Collateral Account are pledged
to the Disbursement Agent to secure repayment of the Term B Loans and Term C
Loans. The Disbursement Agreement establishes the conditions to, and the
sequencing of, the making of disbursements of the proceeds of the Offering, the
funds from the Term B Loan and Term C Loan and the advances of the Term A Loan
and from other sources. Pursuant to the Disbursement Agreement, (i) all of the
proceeds from the Offering must be expended before any proceeds from the Term B
Loan and Term C Loan may be disbursed; (ii) the proceeds from the Term B Loan
and the Term C Loan will be disbursed pro rata; and (iii) advances under the
Term A Loan will only be made after all of the proceeds of the Term B Loan and
Term C Loan are
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expended (other than to fund draws under Letters of Credit which are issued as
part of the Bank Credit Facility). The drawdown of funds under the FF&E
Financing will not be subject to the provisions of the Disbursement Agreement.
The Disbursement Agreement authorizes disbursement from the Note
Construction Disbursement Account and the Cash Collateral Account only upon the
satisfaction of various conditions precedent set forth in the Disbursement
Agreement. These conditions include, among other things:
(i) delivery by the Company of a disbursement request and certificate
certifying as to, among other things, (a) the application of funds to be
disbursed, (b) the substantial conformity of construction undertaken to
date with the Approved Plans and Specifications, as amended from time to
time, in accordance herewith, (c) the expectation that the Aladdin will
be completed by the Operating Deadline, (d) the accuracy of the budget
for the construction of the Aladdin, as amended from time to time in
accordance with the Bank Credit Agreement, (e) the sufficiency of
remaining funds to complete the Aladdin by the Operating Deadline, (f)
compliance with line item budget allocations, taking into account
allocations for contingencies; (g) the accuracy of the representations
and warranties contained in the Disbursement Agreement, the other Loan
Documents, the Bank Completion Guaranty, the Noteholder Completion
Guaranty, and the other material project documents (collectively, the
"Operative Documents"), as if made on such date (except those that
relate to a different date) unless the failure of the foregoing to be
the case would not have a material adverse effect on the financial
condition, business, property, prospects or the ability of the Company,
and to the Company's knowledge each of AHL, Holdings, London Clubs,
LCNI, Design/Builder and Fluor (collectively, the "Project Parties") to
perform in all material respects their respective obligations under the
Operative Documents to which they are a party; (h) the Operative
Documents continue to be in full force and effect and (i) the absence of
an event of default with respect to certain material covenants in the
Operative Documents which would be reasonably likely to cause a material
adverse effect on the financial condition, business, property, prospects
or the ability of the Company or (to the Company's knowledge) any of the
Project Parties to perform their respective obligations under the
Operative Documents to which they are a party;
(ii) the absence of any default or an event of default (each as defined in
the Bank Credit Agreement) with respect to the Operative Documents
which would be reasonably likely to cause a material adverse effect on
the financial condition, business, property or prospects of the
Company, or to the Company's knowledge of the Project Parties and their
ability to perform in all material respects their respective
obligations under the Operative Documents to which they are a party;
(iii) delivery by the Construction Manager, the Construction Consultant and
the Project Architect of certificates corroborating various matters set
forth in the Company's disbursement request and certificate;
(iv) compliance by the Guarantors under the Bank Completion Guaranty and
London Clubs and AHL, as Sponsors, of their respective obligations
under the Keep-Well Agreement;
(v) receipt by the Company of the governmental approvals required to be in
effect at such time;
(vi) delivery by the Company to the Disbursement Agent of the acknowledgment
of payment and lien releases required under the Disbursement Agreement;
(vii) the procurement of all insurance policies required under the
Disbursement Agreement, including required endorsements,
(viii) the absence of pending material litigation which materially and
adversely affects the financial condition, business, property,
prospects or ability of the Company or the Project Parties to
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perform in all material respects their respective obligations under the
Operative Documents to which they are a party;
(ix) all of the documents evidencing the Disbursement Agent's security
interest in the proceeds, if any, in the Note Construction Disbursement
Account (for the sole and exclusive benefit of the Trustee and the
Noteholders) and in the Series A Preferred Interests, and the Bank
Lenders' security interest in the collateral pledged as security under
the Bank Credit Facility being in full force and effect;
(x) the absence of any material adverse change in the financial condition,
business, property, prospects or the ability of the Company and the
Project Parties to perform in all material respects their respective
obligations under the Operative Documents to which they are a party;
(xi) delivery of title insurance endorsements which increase the amount of
title insurance coverage by the amount of such advances and which
insure the first priority of the Deed of Trust;
(xii) payment of all applicable fees and expenses; and
(xiii) delivery of amounts required in order for the Project Budget and all
contingencies and reserves to be In Balance.
The Disbursement Agreement establishes procedures for the approval by the
Bank Lenders of amendments to the Approved Plans and Specifications. Pursuant to
the Disbursement Agreement, the Approved Plans and Specifications may be amended
by the Company, the Guarantors and the Bank Lenders at any time so long as in
connection with each such amendment, the Construction Consultant certifies to
the Trustee that (i) after giving effect to the amendment, the Approved Plans
and Specifications (as so amended) continue to call for the construction of the
Aladdin Minimum Facilities; (ii) after giving effect to the amendment, the
Approved Plans and Specifications (as so amended), will continue to permit the
Aladdin Minimum Facilities to be completed on or prior to the Operating
Deadline, and (iii) the Guarantors have consented in writing to such amendment.
Pursuant to the Disbursement Agreement, with the approval of each
disbursement, the Construction Consultant (to the extent that the circumstances
factually permit the Construction Consultant to do so in good faith) has agreed
to provide the Lenders and the Trustee with a certificate which provides in
substance that as of such date the Minimum Aladdin Facilities continue to be
capable of being completed in accordance with the Approved Plans and
Specifications on or before the Operating Deadline (the "On Schedule
Certificates"). In addition, the Administrative Agent has agreed to send to the
Trustee a copy of each written notice of any default or event of default under
the Bank Credit Agreement which the Administrative Agent sends to the Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS
The following discussion summarizes the material terms of certain material
financing agreements which are either in place or are currently being negotiated
between the Company (and/or the Controlling Stockholders) and various other
parties. This summary does not purport to be complete and is qualified in its
entirety by reference to the full agreements described herein once finalized and
executed. Capitalized terms used but not otherwise defined herein shall have the
meaning ascribed to such terms in the agreement being described (unless
otherwise indicated).
BANK CREDIT FACILITY
GENERAL DESCRIPTION OF THE BANK CREDIT FACILITY. The Company has entered
into the Bank Credit Facility with a syndicate of lenders (the "Bank Lenders"),
Scotiabank, as Administrative Agent, CIBC Oppenheimer Corp. as documentation
agent (the "Documentation Agent"), and Merrill Lynch Capital Corporation
("Merrill"), as the syndication agent ("Syndication Agent"). The Bank Credit
Facility, which comprises senior secured construction/term loan facilities,
consists of three construction/term loans: (i) the $136.0 million Term A Loan
that has a stated maturity date of seven years from the closing date of the Bank
Credit Facility (the "Bank Closing Date"), (ii) the $114.0 million Term B Loan
that has a stated maturity date of eight and one half years from the Bank
Closing Date, and (iii) the $160.0 million Term C Loan that has a stated
maturity date of ten years from the Bank Closing Date (each term loan, a
"Loan"). The Loans will convert from construction loans into amortizing term
loans on a date (the "Conversion Date") which is the earlier of (x) the issuance
of a permanent certificate of occupancy for the Aladdin (which must include
appropriate parking facilities) and operating permits for the Plant or (y) the
completion of the Aladdin and the Plant as determined by the Administrative
Agent and the Construction Consultant. The proceeds of the Bank Credit Facility
shall be used by the Company to finance a portion of the main Project Costs. The
maximum amount of the Bank Credit Facility shall be $410.0 million plus, subject
to certain conditions, certain additional amounts as described under
"Description of the Notes-- Certain Covenants."
On the date on which the initial Advance was made, the Bank Lenders that had
committed to make the Term B Loan and the Term C Loan, advanced their respective
committed amounts thereof to an account (the "Cash Collateral Account") over
which the Disbursement Agent has dominion and control, and a perfected first
security interest for the benefit of the Bank Lenders which have advanced the
Term B Loan and the Term C Loan. The proceeds of the Term B Loan and the Term C
Loan were not permitted to be disbursed from the Cash Collateral Account until
all of the proceeds of the Offering had been expended. In June, 1998, the
Company began to use a portion of such proceeds in the construction of the
Aladdin. The use of the remaining proceeds of the Term B Loan and Term C Loan in
the construction of the Aladdin is subject to the satisfaction of the conditions
in the Disbursement Agreement. All the proceeds of the Term B Loan and the Term
C Loan must be fully disbursed from the Cash Collateral Account prior to any
advance of the Term A Loan (other than advances of the Term A Loan which are
made to reimburse Scotiabank (in such capacity, the "LC Issuer") for
disbursements made in respect of Letters of Credit which have been drawn upon).
Disbursements from the Cash Collateral Account (with respect to the Term B Loan
and the Term C Loan) and advances of the Term A Loan shall be made in accordance
with the Disbursement Agreement but no advances under the Bank Credit Facility
shall be made on or after the Conversion Date.
LETTERS OF CREDIT. The Bank Credit Facility provides that the Company may
from time to time (prior to a certain period preceding the Conversion Date)
request that one or more letters of credit (the "Letters of Credit") be issued
or extended if required as a deposit by suppliers and/or contractors providing
materials to the Aladdin; PROVIDED, HOWEVER, no Letter of Credit shall be issued
for the Gaming Equipment and Specified Equipment which is covered by the FF&E
Financing. The aggregate amount of such Letters of Credit shall not exceed $20.0
million.
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MATURITY DATE OF THE BANK CREDIT FACILITY. The entire outstanding principal
balance of the Loans, together with all unpaid interest thereon and other
amounts due to the respective Bank Lenders under the documents pursuant to which
the Loans were made (the "Loan Documents") is due and payable in immediately
available funds on the stated maturity date of each Loan.
The maturity dates of the Loans shall be the earlier of (a) the date upon
which the Loans become immediately due and payable by reason of the occurrence
of an event of default under the Loan Documents (beyond the expiration of
applicable grace, notice and cure periods) and (b) the above mentioned stated
maturity date for each Loan.
INTEREST RATE. At the Company's option, the Loans will bear interest at
either Scotiabank's (i) alternate base rate (the "Alternate Base Rate" or "ABR")
or (ii) reserve adjusted LIBOR plus, in each case, the applicable following
margins.
(a) In the case of the Term A Loan and prior to the date which is 6
months after the Conversion Date, the following margin applies: Alternate
Base Rate +200 bps and reserve adjusted LIBOR +300 bps.
(b) As regards the Term A Loan, from and after the date which is six
months after the Conversion Date, the applicable margin set forth in the
currently effective compliance certificate applies:
<TABLE>
<CAPTION>
ALTERNATE BASE
TOTAL DEBT TO EBITDA RATE LIBOR
- ----------------------------------------------------------- ------------------ ------------
<S> <C> <C>
greater than or equal to 4.0x.............................. +175 bps +275 bps
less than 4.0x and greater than or equal to 3.5x........... +150 bps +250 bps
less than 3.5x and greater than or equal to 3.0x........... +100 bps +200 bps
less than 3.0x and greater than or equal to 2.5x........... +75 bps +175 bps
less than 2.5x............................................. +50 bps +150 bps
</TABLE>
(c) With respect to the proceeds of the Term B Loan and the Term C Loan
which are being held in the Cash Collateral Account, the Alternate Base Rate
margin shall be +100 bps and the reserve adjusted LIBOR margin is +200 bps.
(d) With respect to all portions of the Term B Loan and the Term C Loan
which have been disbursed from the Cash Collateral Account, the Term B Loan
and Term C Loan will bear interest based at either LIBOR or the Alternate
Base Rate, in both cases, plus a certain margin.
OPTIONAL PREPAYMENTS. The Bank Credit Facility allows the Company to
prepay, at its option, certain of the Loans under certain conditions.
SCHEDULED AMORTIZATION. From and after the Conversion Date, the principal
amount of the Bank Credit Facility will be amortized (the "Scheduled
Amortization") on certain scheduled quarterly dates (ranging from 20 scheduled
quarters for the Term A Loan, 26 scheduled quarters for the Term B Loans and 32
scheduled quarters for the Term C Loan) and in certain amounts (ranging from
$4.0 million to $10.0 million per quarter for the Term A Loan, $300,000 to $20.0
million per quarter for the Term B Loan, and $400,000 to $25.5 million per
quarter for the Term C Loan).
MANDATORY PREPAYMENTS. From and after the Conversion Date, the Company
shall make mandatory prepayments of principal (the "Mandatory Prepayments") in
addition to the Scheduled Amortization on certain scheduled quarterly dates and
in certain amounts based on a percentage of the Excess Cash Flow from the
Aladdin. In addition to the foregoing payments and the Scheduled Amortization,
the entire outstanding principal balance of the Bank Credit Facility shall
become immediately due and payable (and any outstanding Letters of Credit shall
be cash collateralized) and the obligation of any Bank Lender which has
committed to make a Term A Loan or participate in the Letters of Credit shall
automatically terminate (a) upon a sale, transfer or conveyance of or borrowing
against (whether or not secured by) the
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Aladdin not otherwise permitted by the Loan Documents, (b) a change of control
(as defined in the Bank Credit Facility) or (c) if no disbursement of any
proceeds of the Term B Loan or the Term C Loan is made from the Cash Collateral
Account within twelve months after the Bank Closing Date (subject to Force
Majeure Events). Subject to certain Bank Lenders' rights to elect not to receive
a Mandatory Prepayment, Mandatory Prepayments of the Bank Credit Facility will
be applied in the inverse order against the Scheduled Amortization PRO RATA
among the Term A Loan, the Term B Loan and the Term C Loan. The Loan Documents
provide, in relevant part, that the amount of any Mandatory Prepayment of the
Term B Loan and the Term C Loan which is due from the Company with respect to a
change of control of the Company or the interests of the Sponsors (excluding a
transfer of the Sponsor interests resulting from the exercise of warrants issued
in connection with the Notes) shall be 101% of the principal amount of the Term
B Loan and the Term C Loan.
COMMITMENT FEE. From and after the Bank Closing Date and until the
Conversion Date, a non-refundable fee (the "Term A Loan Commitment Fee") in the
amount of 0.5% per annum of the unfunded portion of the Term A Loan shall accrue
on the daily average unfunded portion of the Term A Loan. The Term A Loan
Commitment Fee shall be payable to the Bank Lenders which have made a commitment
to make the Term A Loan on the last business day of each calendar quarter in
arrears in proportion to their respective unfunded commitments of the Term A
Loan.
SECURITY. As security for the Bank Credit Facility, the Company has entered
into a deed of trust in favor of the Bank Lenders securing the Notes and all
obligations of the Company under the Loan Documents, encumbering the Aladdin
(including any and all leasehold interests) as a first priority lien, subject
only to those title exceptions approved by the Administrative Agent.
The Company has assigned all present and future leases, rents, issues and
profits in favor of the Bank Lenders, assigning to the Bank Lenders such leases
pertaining to the Aladdin, including the Ground Leases and the Theater Lease
and, to the extent they are assignable, the contracts, agreements, proposals,
permits, approvals, plans and specifications pertaining to the Aladdin.
In addition, the Company has entered into security agreements granting to
the Bank Lenders a continuing first priority security interest in all accounts,
accounts receivable, all reserves, all licenses (other than liquor licenses and
those granted pursuant to Gaming Approvals to the extent they cannot be
assigned), Specified Equipment and Gaming Equipment installed in, affixed to,
placed upon and used in connection with the Aladdin which are owned or leased by
the Company (subject to the rights of the FF&E Lender under the FF&E Financing),
the Marks and all other tangible or intangible personal property owned by the
Company.
As further security for the Bank Credit Facility, (a) AHL has entered into a
pledge and security agreement pledging all of its interest in Sommer Enterprises
to the Bank Lenders; (b) Sommer Enterprises has entered into a pledge and
security agreement pledging all of its interests in Enterprises and Holdings to
the Bank Lenders; (c) Enterprises has entered into a pledge and security
agreement pledging all of its interests in Holdings (other than the interests
relating to the Warrants which have been issued by Enterprises in connection
with the Offering) to the Bank Lenders; (d) Holdings has entered into a pledge
and security agreement pledging all of its interest in the Company to the Bank
Lenders other than the Series A Preferred Interests; (e) the Company has entered
into a pledge and security agreement pledging all of its interest in AMH to the
Bank Lenders; (f) AMH has entered into a pledge and security agreement pledging
all of its interest in Aladdin Music to the Bank Lenders; (g) LCNI has entered
into a pledge and security agreement pledging all of its interest in Holdings to
the Bank Lenders; and (h) Holdings has entered into a pledge and security
agreement pledging all of its interest in Capital to the Bank Lenders. The
pledges of the equity securities of those entities registered as holding
companies or licensed by the Nevada Commission will require the approval of the
Nevada Commission in order to remain effective. In addition, if such companies
are registered and licensed (as applicable), separate approvals will be required
to foreclose on the pledges and such approvals will require the licensing of the
Bank Lenders unless such
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requirement is waived by the Nevada Gaming Authorities upon application by the
Bank Lenders. Furthermore, if the Company is licensed by the Nevada Gaming
Authorities at any time during the term of the Bank Credit Facility, the Bank
Lenders will be subject to being called forward by the Nevada Gaming
Authorities, in their descretion, for licensing or a finding of suitablility as
lenders to a Company Licensee.
IN BALANCE REQUIREMENTS. The Bank Credit Facility and the Disbursement
Agreement include loan balancing provisions requiring the Company to deposit
additional monies into the Cash Collateral Account if the Administrative Agent
and the Bank Lender's Consultant reasonably determine that the Bank Credit
Facility is not "In Balance." The Bank Credit Facility will be considered "In
Balance" when undisbursed portions of the Bank Credit Facility allocated to each
line item category in the Budget equals or exceeds such line item category,
contingency requirements have been satisfied and the guaranteed maximum price is
in effect.
AFFIRMATIVE COVENANTS. The Bank Credit Facility contains customary
affirmative covenants for the type of transaction proposed, including, without
limitation, the following: (a) the Company will construct the Aladdin and
perform all the work required under the other Loan Documents, (b) the Company
will operate the Aladdin as a first-class casino hotel, (c) the Company will
maintain adequate reserves and (d) the Company will provide the Administrative
Agent with certain financial information.
NEGATIVE COVENANTS. The Bank Credit Facility contains customary negative
covenants for the type of transaction proposed, including, without limitation,
the following: (a) restrictions on the incurrence of debt, sale leasebacks and
contingent liabilities; (b) restrictions on making dividends or similar
distributions; (c) restrictions on the incurrence of liens or other
encumbrances; (d) restrictions on the sale of assets or other similar transfers;
(e) restrictions on investments or acquisitions; (f) restrictions on mergers,
consolidations and similar combinations; (g) restrictions on transactions with
affiliates; (h) limitations on capital expenditures; (i) restrictions on
adjustments or reallocations against line items in the Budget; and (j)
restrictions on any amendment or modification of certain material agreements.
Any restrictions on the transfer of and agreements not to encumber the equity
securities of any registered holding company of the Company will require the
approval of the Nevada Commission in order to remain effective.
FINANCIAL COVENANTS. The Bank Credit Facility contains certain financial
covenants, including, without limitation, the following: minimum fixed charge
coverage; minimum interest coverage; maximum debt to EBITDA; minimum EBITDA and
minimum net worth.
EVENTS OF DEFAULT. The Bank Credit Facility contains events of default
customary for the type of transaction proposed including, without limitation, a
cross-default to other indebtedness or agreements of the Company, London Clubs,
the other Sponsors and the Guarantors under the Bank Completion Guaranty.
FF&E FINANCING
LEASE FACILITY. The Company entered into a lease facility (the "Lease
Facility") with the FF&E Lender for the purpose of acquiring approximately $60
million of new furniture and equipment (other than gaming equipment) for the
Aladdin. The Lease Facility contains provision as described herein and is
structured as a lease intended for security (the "Lease"). The Company will be
considered the owner of the Specified Equipment (as defined herein) for tax
purposes and the lease will be treated as an operating lease for accounting
purposes. The lease will commence on the date on which the Aladdin will be
completed (the "Construction Completion Date" or the "Basic Lease Term
Commencement Date") and will terminate three years from the Basic Lease Term
Commencement Date (the "Basic Lease Term"), however, the Lease may be renewed up
to two one-year renewals from the end of the Basic Lease Term (the "Renewal
Lease Term").
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Payments will be made quarterly, in arrears, calculated such that there will
be 80% amortization of principal at the end of the Basic Lease Term and the
maximum two Renewal Lease Terms. The remaining balloon payment will be twenty
percent of the principal.
A lease rental factor (the "Lease Rental Factor") will be calculated to be
5.6639% of 100% of the Company's acquisition cost of the Specified Equipment up
to $60.0 million (the "Lease Funding Amount") per quarter. The Lease Rental
Factor was calculated at an interest rate of 10.444% which represents a spread
of 478 bps over the reserve adjusted 90-day LIBOR (the "Base Index") (5.9375%).
Five days prior to the Basic Lease Term Commencement Date, the Lease Rental
Factor will be adjusted and calculated on the basis of the floating rate Base
Index plus the higher of (a) 478 bps, or (b) the weighted average spread used to
calculate the interest rate on the Bank Credit Facility plus 125 bps, and such
spread shall be maintained throughout the Basic Lease Term and any available
Renewal Lease Terms. The Lease Rental Factor will be adjusted quarterly based on
changes to the Base Index.
Subject to the satisfaction of the conditions precedent and to there being
no default, the FF&E Lender will commence funding of deliveries of the Specified
Equipment and/or the Gaming Equipment (as defined herein) beginning six months
prior to the Construction Completion Date (the "Interim Funding Date").
An interim lease funding amount (the "Interim Lease Funding Amount") of up
to $60.0 million will be available, subject to no default then having occurred
and continuing under the Company's financing, construction or other material
agreements, and satisfaction of all conditions precedent to funding. Advances of
the Interim Lease Funding Amount shall be made once per month during the Interim
Funding Period. Any Interim Lease Funding Amount advanced under the Lease
Facility shall be made under an interim schedule, which shall be converted to a
final schedule under the Lease on the Basic Lease Term Commencement Date.
The interim lease repayment terms (the "Interim Lease Repayment Terms") will
be floating rate interest-only payments due monthly in arrears during the period
from the Interim Funding Date through the Construction Completion Date (the
"Interim Funding Period") based on the Interim Lease Funding Amount. At the
Company's option, interest will be calculated at either (a) the reserve adjusted
30-day LIBOR on the date of determination ("30-day LIBOR") plus the higher of
(i) 478 bps, or (ii) the weighted average spread used to calculate the interest
rate of the Bank Credit Facility plus 125 bps, or (b) the prime rate published
in the Wall Street Journal on the date of the determination (the "Prime Rate")
plus 275 bps, and such spread shall be fixed throughout the Interim Funding
Period, and 30-day LIBOR or the Prime Rate will be adjusted monthly based on
changes thereto.
Subject to certain provisions, at the end of the Basic Lease Term or any
Renewal Lease term, the Company may (i) purchase all, but not less than all, of
the Specified Equipment at a fixed purchase price, estimated to represent the
Specified Equipment's then fair value, (ii) renew the Lease for all, but not
less than all, of the Specified Equipment for up to two additional one-year
terms, or (iii) return all, but not less than all, of the Specified Equipment to
the FF&E Lender subject to certain return conditions, including payment of a
contingent rental amount.
Upon termination of the Lease at the end of the Basic Lease Term or any
Renewal Lease term, should the Specified Equipment be returned to the FF&E
Lender by the Company, the FF&E Lender will calculate a contingent rental for
the full lease term, on a quarterly basis, based on certain factors.
TERM LOAN FACILITY. The Company has entered into a $20 million five year
term loan facility (the "Term Loan Facility") with the FF&E Lender for the
purposes of purchasing new gaming equipment for the Aladdin. The Term Loan
Facility contains terms as described herein. The term loan commencement date is
the Construction Completion Date (the "Term Loan Commencement Date").
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Payments shall be made quarterly, in arrears, calculated such that principal
will be amortized as follows:
<TABLE>
<CAPTION>
QUARTER PERCENT AMORTIZATION
- --------- ---------------------
<S> <C>
1-4 3.25
5-8 3.5
9-12 4.0
13-16 4.5
17-19 4.75
20 24.75
</TABLE>
The interest rate (the "Interest Rate") will be calculated five days prior
to the Term Loan Commencement Date on the basis of the floating rate Base Index
plus the higher of (a) 478 bps, or (b) the weighted average spread used to
calculate the interest rate on the Bank Credit Facility on such date plus 125
bps, and such spread shall be maintained throughout the five year term. The
Interest Rate will be adjusted quarterly, based on changes to the Base Index, if
applicable.
An interim term loan funding amount (the "Interim Term Loan Funding Amount")
of up to $20.0 million will be available, subject to no default then having
occurred and continuing under the Company's financing, construction or other
material agreements and satisfaction of all conditions precedent to funding.
Advances of the Interim Term Loan Funding Amount shall be made once per month
during the Interim Funding Period. An Interim Term Loan Funding Amount advanced
under the Term Loan Facility shall be evidenced by an interim promissory note,
which shall be converted to a final promissory note on the Term Loan
Commencement Date.
The interim term loan repayment terms (the "Interim Term Loan Repayment
Terms") will be floating rate interest-only payments due monthly in arrears
during the Interim Funding Period based on the Interim Term Loan Funding Amount.
At the Company's option, interest will be calculated at either (a) the 30-day
LIBOR plus the higher of (i) 478 bps, or (ii) the weighted average spread used
to calculate the interest rate of the Bank Credit Facility plus 125 bps, or (b)
the Prime Rate plus 275 bps, and such spread shall be fixed throughout the
Interim Funding Period and 30-Day LIBOR or the Prime Rate will be adjusted
monthly based on changes thereto.
SECURITY. The security interests granted by the Company will be a first
priority security interest in a pool of new furniture and equipment (other than
gaming equipment) (the "Specified Equipment"), and specified new gaming
equipment including gaming devices such as slot machines, cashless wagering
systems and associated equipment (the "Gaming Equipment"), and assignment of all
improvements and/or additions to the Specified Equipment and the Gaming
Equipment hereafter acquired. The Specified Equipment and the Gaming Equipment
will be required to be free of all junior liens or encumbrances. Any and all
existing and to be issued obligations of the Company shall acknowledge that the
Term Loan Facility and the Lease Facility have a first priority lien on the
Gaming Equipment and the Specified Equipment. During the Interim Funding Period,
the Company shall assign to the FF&E Lender its rights under the purchase
contracts for the Specified Equipment.
CONDITIONS PRECEDENT. The FF&E Financing is subject to customary conditions
precedent.
COVENANTS AND EVENTS OF DEFAULT. Except for covenants related to the
Specified Equipment or the Gaming Equipment, the covenants and events of default
in the FF&E Financing are similar to those in the Bank Credit Facility. The
disposition of collateral consisting of Gaming Equipment is subject to the
requirements of the Nevada Act, including the approval of the Nevada Board or
the licensing of the Lenders before foreclosure, taking possession or other
disposition of such Gaming Equipment.
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BANK COMPLETION GUARANTY
London Clubs, the Trust and Bazaar Holdings (collectively, the
"Guarantors") have entered into a guaranty of performance and completion (the
"Bank Completion Guaranty") in favor of each of the Administrative Agent and the
Bank Lenders. The Bank Completion Guaranty provides that the Guarantors jointly
and severally guarantee to the Bank Lenders under the Bank Credit Facility,
among other things (the "Guaranteed Obligations"), that:
(i) the Company will promptly carry out the work required for the
redevelopment of the Aladdin in accordance with the approved plans and
specifications and to correct as soon as possible any material defect in
such work or material deviation from the approved plans and
specifications;
(ii) the Company will punctually pay all costs, expenses and liabilities in
connection with the redevelopment of the Aladdin, including all
construction period interest incurred on the Bank Credit Facility,
prior to completion of the work and in connection with cost overruns of
any type;
(iii) the Company will complete the redevelopment lien-free and on schedule;
(iv) the Company will provide the expertise necessary to supervise the
redevelopment of the Aladdin at no cost to the Bank Lenders;
(v) in the event the Guarantors fail to pay their respective obligations
under the Bank Completion Guaranty, the Bank Lenders may pay and perform
the Guaranteed Obligations on behalf of the Guarantors, in which case
the Guarantors, upon demand, must reimburse the Bank Lenders all cost,
expenses and liabilities in connection with the completion of the
redevelopment of the Aladdin; and
(vi) the Guarantors shall pay the Bank Lenders all reasonable out-of-pocket
costs and expenses of the Bank Lenders in connection with the
enforcement of the Bank Lenders' rights and remedies under the Bank
Completion Guaranty.
The Bank Completion Guaranty has (i) negative covenants which, among other
things, prohibit the Guarantors from incurring certain liens and certain types
of indebtedness, and (ii) affirmative covenants which, among other things,
require that each of the Guarantors provide certain financial information and
maintain the corporate existence of each Guarantor and its subsidiaries.
Should certain London Clubs specified exceptional events (a "Specified
Event") under the Bank Completion Guaranty occur, at the option of the required
lenders, such Specified Event shall constitute an event of default under the
Bank Completion Guaranty and consequently under the Bank Credit Facility, and
the Bank Lenders, without any further notice to a Guarantor, shall be entitled
to exercise all rights and remedies available under the Bank Completion Guaranty
and any other Loan Documents.
The following is a summary of the Specified Events:
(i) any time London Clubs fails to comply with certain covenants, including
but not limited to financial covenants, in the Bank Completion Guaranty
and to the extent such non-compliance is curable, such non-compliance is
not cured within twenty-five (25) days;
(ii) any borrowed money for a sum in excess of L2,500,000 or the equivalent
in any other currency of London Clubs or any material subsidiary has by
reason of breach or default become due and payable prior to its stated
maturity or due date or if such borrowed money is not paid at the
maturity thereof or due date therefor, or if payable on demand, is not
paid on demand;
(iii) London Clubs or any material subsidiary becomes insolvent or applies
for or consents to the appointment of a liquidator, receiver or trustee
in bankruptcy or similar official or London Clubs or any material
subsidiary fails generally to pay its debts as and when they become
due;
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(iv) a petition is presented (but only if such petition remains undischarged
90 days after presentation thereof) or a meeting is convened or an
order is made or other action or proceedings are taken with a view to
the appointment of an administrator, winding-up, liquidation or
dissolution of London Clubs or any material subsidiary or London Clubs
or any material subsidiary stops or threatens to stop payments
generally or ceases or threatens to cease to carry on its business or a
substantial part thereof or London Clubs or any material subsidiary
merges, consolidates or amalgamates with any other company or entity in
a transaction not otherwise permitted under the L65,000,000 Facilities
Agreement among, London Clubs, various banks and National Westminster
PLC (the predecessor-in-interest to the The Bank of Nova Scotia) as
arranger and agent;
(v) a distress, execution or other legal process is levied against any of
the assets of London Clubs or any material subsidiary and is not
discharged or paid out within 90 days, except where such distress,
execution or legal process is in the reasonable opinion of the required
lenders being contested in good faith by London Clubs or the relevant
material subsidiary; or
(vi) an encumbrancer takes posession or a receiver or an administrative
receiver is appointed of the whole or any substantial part of the
assets or undertaking of London Clubs or any material subsidiary.
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CERTAIN MATERIAL AGREEMENTS
The following discussion summarizes the material terms of certain material
agreements which have been entered into or are currently being negotiated
between the Company (and/or the Controlling Stockholders) and various other
parties. This summary does not purport to be complete and is qualified in its
entirety by reference to the full agreements described herein once finalized and
executed. Capitalized terms used but not otherwise defined in this Prospectus
shall have the meaning ascribed to such terms in the agreement being described
(unless otherwise indicated).
AGREEMENTS WITH RESPECT TO THE ALADDIN
HOLDINGS OPERATING AGREEMENT
The Holdings Members have entered into an operating agreement (the "Holdings
Operating Agreement") setting forth their agreement as to the relationships
between Holdings and the Holdings Members and among the Holdings Members
themselves and as to the conduct of the business and internal affairs of
Holdings. The following is a summary of certain key provisions of the Holdings
Operating Agreement.
PURPOSE. Holdings was organized for the purposes of developing,
constructing, financing, owning and operating hotels and casinos and related
businesses and to engage in such other lawful enterprises as may be incidental
or appurtenant thereto.
CLASSES OF INTERESTS. Holdings is capitalized with three classes of shares
(which represent units of membership interests in Holdings): Common Shares (the
"Holdings Common Membership Interests"), Series A Preferred Shares (the
"Holdings Series A Preferred Interests") and Series B Preferred Shares (the
"Holdings Series B Preferred Interests" and together with the Holdings Common
Membership Interests and the Holdings Series A Preferred Interests, the
"Holdings Interests"). Holdings' authorized capital stock consists of 10,000,000
Holdings Common Membership Interests, 1,500,000 Holdings Series A Preferred
Interests and 1,500,000 Holdings Series B Preferred Interests.
Holdings will periodically distribute cash, to the extent available, to the
holders of Holdings Common Membership Interests (or, if any such holder is a
pass-through entity, its equity interest holders) to the extent of the increase
in their cumulative United States federal, state or local income tax liability
in respect of their interests in Holdings for such period and make any
additional distributions of cash to Holdings Members that may be necessary to
cover United States federal, state or local income taxes arising from the
ownership of an interest in Holdings. No other distributions shall be made to
any Holdings Interests until all distributions to cover tax liability in respect
of any Holdings Interests for such period have been made.
The Holdings Series A Preferred Interests will be issued to LCNI or Sommer
Enterprises in consideration for any payment required pursuant to the Bank
Completion Guaranty, the Noteholder Completion Guaranty or the Keep-Well
Agreement (or a payment to the Company to cover any EBITDA shortfall under the
Bank Credit Facility) which is made by Sommer Enterprises, LCNI or their
respective affiliates to the Company where such payment is not required to be
made to pay down the Company's bank debt pursuant to Section 13 of the Keep-Well
Agreement. Except for distributions to cover any tax liability in respect of any
Holdings Interests, the Holdings Series A Preferred Interests will have a
distribution, redemption and liquidation preference over all Holdings Common
Membership Interests and Holdings Series B Preferred Interests. To the extent of
any net profits left to be allocated after special allocations, the capital
account in respect of the Holdings Series A Preferred Interests will cumulate
and compound semi-annually at the rate of 12% per annum on the capital account
balance in respect thereof at the time of compounding and, subject to the
limitations on Restricted Payments set forth in the Indenture, will be paid when
a supermajority of the Holdings Board determines that there is sufficient cash
available to do so. Holdings Series A Preferred Interests will be automatically
redeemed when distributions have been made to the extent of the capital account
balance in respect thereof. Should Holdings liquidate at any time prior to the
redemption of the Holdings Series A Preferred Interests, the Holdings Series A
Preferred
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Interests will be entitled to a distribution of cash, to the extent available,
before any distributions are made to the Holdings Series B Preferred Interests
or Holdings Common Membership Interests, in an amount equal to the capital
account of the Holdings Series A Preferred Interests.
The Holdings Series B Preferred Interests will be issued to LCNI in the
event of and in exchange for a payment required by London Clubs to pay down the
Company's bank debt pursuant to Section 13 of the Keep-Well Agreement. Except
for distributions to cover any tax liability in respect of any Holdings
Interests, the Holdings Series B Preferred Interests will have a distribution,
redemption and liquidation preference over all Holdings Common Membership
Interests. To the extent of any net profits left to be allocated after special
allocations and allocations to Holdings Series A Preferred Interests, the
capital account in respect of Holdings Series B Preferred Interests will
cumulate and compound quarterly at a rate equal to the rate on the bank debt of
the Company which was paid down by the payment required pursuant to the
Keep-Well Agreement, such rate to be applied to the capital account balance in
respect of the Holdings Series B Preferred Interests at the time of compounding
and, subject to the limitations on Restricted Payments set forth in the
Indenture, will be paid when a supermajority of the Holdings Board determines
that there is sufficient cash available to do so after all Holdings Series A
Preferred Interests have been redeemed. Holdings Series B Preferred Interests
will be automatically redeemed when distributions have been made to the extent
of the capital account balance in respect thereof. Should Holdings liquidate at
any time prior to the redemption of the Holdings Series B Preferred Interests,
the Holdings Series B Preferred Interests will be entitled to a distribution of
cash, to the extent available, before any distributions are made to the Holdings
Common Membership Interests, in an amount equal to the capital account of the
Holdings Series B Preferred Interests.
Other than distributions to cover any tax liability in respect of any
Holdings Interests, the Holdings Common Membership Interests will be entitled to
distributions only after all discretionary and mandatory distributions have been
made to all other interests in Holdings.
The Indenture contains restrictions on the payment of distributions to the
Holdings Interests.
Distributions to all Holdings Interests are payable only out of the assets
of Holdings at the time of such distribution, and in no event shall any holder
of an interest in Holdings be obligated to make a contribution to Holdings for
the payment of distributions.
Except for matters affecting rights of the holders of Holdings Series A
Preferred Interests and Holdings Series B Preferred Interests to distributions,
including upon redemption, (which may not be diminished or affected without the
vote of the holders of at least two-thirds of the issued and outstanding shares
of the affected class) and matters affecting the anti-dilution protections,
rights to move their investment directly into Holdings in certain circumstances
and tag-along participation rights of the holders of the Warrants and the
Warrant Shares (which may not be amended without the consent of Enterprises),
all management and voting rights are vested in the Holdings Common Membership
Interests.
ADJUSTMENTS IN INTERESTS. Subject to the receipt of applicable Gaming
Approvals, the percentages of the Holdings Common Membership Interests held
directly by each Holdings Member (each, a "Holdings Percentage Interest") will
be adjusted by the issuance of additional Holdings Common Membership Interests
and/or cancellation of issued and outstanding Holdings Common Membership
Interests in the following circumstances:
(i) on the opening date of the Aladdin (the "Opening Date") LCNI's
Holdings Percentage Interest shall be decreased by 0.5% and Sommer
Enterprises' Holdings Percentage Interest shall be increased by 0.5%;
(ii) in the event of defaults in payment of a Holdings Member's or its
Affiliates' share of payments required pursuant to the Keep-Well Agreement
(or payments to the Company to cover any EBITDA shortfall under the Bank
Credit Facility), the defaulting Holdings Member's Holdings Percentage
Interest shall be reduced and the non-defaulting Holdings Member's Holdings
Percentage
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Interest shall be increased by 1, 1.5 or 2 times (depending on whether the
defaulting Holdings Member is in default for 30 days, 45 days or 60 days
from the date of such default) multiplied by a dilution fraction, the
numerator of which is the delinquent contribution and the denominator of
which is $200 million;
(iii) upon the exercise of any Warrants, the relative Holdings
Percentage Interests of all Holdings Members other than LCNI and Enterprises
will be adjusted so that all such Holdings Members share proportionately the
dilutive effect of such exercise on their directly and indirectly held
Holdings Percentage Interests (unvested Holdings Common Membership Interests
will also be adjusted thereupon);
(iv) upon any adjustment of Enterprises' Holdings Percentage Interest
pursuant to the Warrant Agreement (which may occur in the event of:
dividends or distributions by Holdings; subdivisions or combinations of
Holdings Common Membership Interests; issuance of Holdings Common Membership
Interests or any rights to purchase Holdings Common Membership Interests for
less than fair value; and similar events that typically trigger
anti-dilution protection adjustments for holders of warrants), the Holdings
Percentage Interest of the Holdings Members other than Enterprises will be
correspondingly adjusted to accommodate such adjustment in Enterprises'
Holdings Percentage Interest, so that all such Holdings Members share
proportionately the effect of such adjustment on their directly and
indirectly held Holdings Percentage Interest (unless such Holdings Members
agree to some other arrangement for sharing such effect); and
(v) upon the vesting of any Restricted Membership Interests, the
Percentage Interests of LCNI and Sommer Enterprises shall be reduced so that
LCNI bears 25% of the dilutive effect thereof (assuming that no adjustements
of the type described in (iii) above have occurred) and Sommer Enterprises
bears all of the remaining dilutive effect thereof, and their capital
accounts shall be correspondingly reduced to accommodate the capital account
of the new member.
In certain circumstances provided in the Equity Participation Agreement, the
holders of Warrants and Warrant Shares will have the right to move their
investment directly into Holdings, in which event the Percentage Interest of
Enterprises will be reduced to accommodate such interests.
SPECIAL CAPITAL ACCOUNT ADJUSTMENT. Upon the redemption of any Notes by
Holdings, upon receipt of applicable Gaming Approvals, Sommer Enterprises'
capital account in Holdings in respect of its Holdings Common Membership
Interests will be reduced by the product of LCNI's Holdings Percentage Interest
at the time of such redemption multiplied by the Accreted Value on the Issue
Date of the Notes being redeemed and LCNI's capital account shall be increased
by the same amount.
SUPERMAJORITY APPROVALS. The following actions by Holdings or the Company
will require approval of the holders of at least 80% of the Holdings Common
Membership Interests:
(i) the admission of a new Holdings Member, the acceptance of any
capital contributions not provided for in the Holdings Operating Agreement,
the Bank Completion Guaranty, the Noteholder Completion Guaranty, the
Keep-Well Agreement or the Contribution Agreement (as defined in the
Holdings Operating Agreement), or the issuance of additional shares or
securities of Holdings convertible into or exchangeable for shares or the
granting of any options or other rights to acquire from Holdings, or other
obligation of Holdings to issue, any shares or securities convertible into
or exchangeable for shares (other than in respect of the matters referred to
in item (xvi), below); (ii) other than distributions by subsidiaries of
Holdings or Priority Distributions to Holdings Common Membership Interests
or distributions to cover any tax liability in respect of any Holdings
Interests, any declaration, setting aside or payment of any distribution;
(iii) any voluntary dissolution or liquidation of Holdings or the Company or
the sale of all or substantially all of the assets of Holdings and the
Company; (iv) any merger or consolidation of Holdings with any person; (v)
any amendment to the articles of Holdings or the Holdings Operating
Agreement; (vi) (A) during the period that the
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Keep-Well Agreement is in force, the creation, incurrence, assumption or
guarantee of any indebtedness (excluding obligations under leases made in
the ordinary course of business) and (B) after the Keep-Well Agreement is no
longer in force, the creation, incurrence, assumption or guarantee of any
indebtedness (excluding obligations under leases made in the ordinary course
of business) in excess of $10 million in any individual transaction (such
threshold limit to be increased at the end of each fiscal year by an amount
determined by the Holdings Board to correspond to increases in consumer
prices in the United States for such fiscal year); (vii) the creation of any
lien, pledge or other security interest in assets of Holdings or any
subsidiary of Holdings securing indebtedness of any third party which is not
for the benefit of any business carried on by Holdings or the Company;
(viii) the commencement of a voluntary case under Title 11 of the United
States Code entitled "Bankruptcy" (the "Bankruptcy Code") or any other
voluntary proceeding under any debtor relief laws or any voluntary general
assignment for the benefit of creditors; (ix) any material transactions
(other than transactions provided for in Sections 6.7(a) or 6.9 of the
London Clubs Purchase Agreement) between Holdings or the Company, on the one
hand, and any Holdings Member or any affiliate of any Holdings Member, on
the other hand; (x) any entry into any new business opportunity unrelated to
the Aladdin; (xi) the appointment or removal of Holdings' independent
auditors; (xii) any material amendment to, or any material waiver under, the
Bazaar Lease (such consent not to be unreasonably withheld); (xiii) any
material amendment to, or any material waiver under, the Reciprocal Easement
Agreement (such consent not to be unreasonably withheld); (xiv) any
arrangement or agreement for Holdings to pay a salary to any Holdings Member
or any affiliate of any Holdings Member (other than pursuant to the
Consulting and Employment Agreements and other than in respect of the
matters referred to in (xvi), below); (xv) the employment of any member of
an Executive Management Committee (as defined herein) of Holdings or the
Company or any material amendment to the terms of employment of any such
person; (xvi) the adoption of, or any material amendment to, any employee
benefit, profit sharing, incentive, bonus, pension, retirement or employee
stock option plans (such consent not to be unreasonably withheld in the
context of industry practice); (xvii) any license of the Aladdin trademark
to any person other than a subsidiary of Holdings or in connection with the
Complex and the operations in respect thereof (such consent not to be
unreasonably withheld); (xviii) any contract (including leases) outside the
ordinary course of business or for capital expenditure not included in
Holdings' annual budgets (such consent not to be unreasonably withheld); and
(xix) the initiation or settlement of any material litigation outside the
ordinary course of business and the selection of counsel therefor (such
consent not to be unreasonably withheld).
Unless London Clubs has appointed a majority of the Holdings Board, the
above supermajority approval rights will cease in the event that London Clubs is
bankrupt or responsible for an event of default under the Keep-Well Agreement,
the Bank Completion Guaranty or the Noteholder Completion Guaranty.
London Clubs will also have broad approval and consultation rights in
respect of material contracts and decisions relating to the Redevelopment (as
defined in the Holdings Operating Agreement), including (without limitation)
relating to certain aspects of the construction phase of the Aladdin, the Mall
Project and the Music Project.
MANAGEMENT. The business and affairs of Holdings are managed by the
Holdings Board, which holds Board meetings at least quarterly. Holdings' Board
consists of three nominees of Enterprises and two nominees of London Clubs, each
of which shall serve for a 3 year term unless they resign, are removed or are
otherwise disqualified to serve at an earlier time. The members of the Holdings
Board (the "Holdings Board Members") are Jack Sommer, Ronald B. Dictrow and
Richard J. Goeglein as appointees of Enterprises and Alan L. Goodenough and G.
Barry C. Hardy as appointees of London Clubs. Jack Sommer is Chairman of the
Holdings Board. A Holdings Board Member appointed by London Clubs and a Holdings
Board Member appointed by Enterprises will have the right to be on each
committee of the Board. The Holdings Board Members may be removed at any time by
their appointing Holdings Member.
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In the event of a vacancy on the Holdings Board, the Holdings Member who
appointed the previous Holdings Board Member shall appoint the new Holdings
Board Member.
In certain circumstances related to (i) a failure to make its share of
payments under the Bank Completion Guaranty and the Keep-Well Agreement, or (ii)
the requirement to make a certain level of payments under the Keep-Well
Agreement (other than payments caused by certain losses of the Salle Privee),
whether or not London Clubs and Sommer Enterprises each pay their share of such
payments, Sommer Enterprises shall cause Enterprises to change the composition
of Holdings' Board by the appointment of new Holdings Board Members designated
by the non-defaulting Holdings Member and/or the removal of Holdings Board
Members appointed by the defaulting Holdings Member and/or the appointment of a
new independent Board Member designated by the non-defaulting Holdings Member.
If a Holdings Member holding a majority of Holdings Common Membership Interests
has defaulted in its payment obligations under the Keep-Well Agreement, the Bank
Completion Guaranty or the Noteholder Completion Guaranty, London Clubs and
Sommer Enterprises also will be required to vote all Holdings Common Membership
Interests owned or controlled by them so that they have equal voting power as
Holdings Members.
The Holdings Members will agree to take all necessary action to ensure that
each Holdings Member shall have identical rights to those they have in respect
of Holdings with respect to the board of management (or comparable bodies) and
management of the Company.
TRANSFERS OF SHARES. Except for transfers pursuant to the Loan Documents,
transfers of Holdings Common Membership Interests are only permitted:
(i) to affiliates of the transferring Holdings Member or persons approved by
all Holdings Members holding Holdings Common Membership Interests;
(ii) to persons other than certain prohibited transferees after giving other
Holdings Members holding Holdings Common Membership Interests a right of first
refusal and the right to tag-along ratably; and
(iii) in some circumstances related to estate planning by Holdings Members.
Certain transfers in ownership interests in Holdings Members holding
Holdings Common Membership Interests and in any entity owning a majority of a
Holdings Member (other than London Clubs) holding Holdings Common Membership
Interests are also prohibited without first affording the other Holdings Members
holding Holdings Common Membership Interests a right of first refusal over such
Holdings Member's Holdings Common Membership Interests. The exercise and
transfer of Warrants or the transfer of Warrant Shares will not be restricted by
this provision.
Holdings or its nominee have the right to call a Holdings Member's Holdings
Common Membership Interests (but not the Holdings Common Membership Interests
held by Enterprises) at seventy-five percent of the fair market value of such
Holdings Common Membership Interests if there is (i) a change in control of such
Holdings Member, other than a permitted transfer of an ownership interest in a
Holdings Member as described above or a change in control of London Clubs, (ii)
a transfer of Holdings Common Membership Interests by such Holdings Member in
breach of the Holdings Operating Agreement or (iii) a breach by such Holdings
Member of the non-compete covenants described below.
INITIAL PUBLIC OFFERING. The Holdings Operating Agreement provides that the
Holdings Members anticipate executing an initial public offering ("IPO") as soon
as it is commercially reasonable to do so after the Opening Date. Sommer
Enterprises and LCNI have rights to demand an IPO if one has not occurred within
3 years of the Opening Date, although Sommer Enterprises may defer such a demand
by LCNI for up to a year. The members or stockholders of the IPO entity
immediately prior to the IPO will enter into a Stockholders and Registration
Rights Agreement substantially in the form scheduled to the Holdings Operating
Agreement providing for arrangements between such members or stockholders as to
certain management matters, transfer restrictions, tag along rights and
registration rights.
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If permitted by law and market requirements, LCNI and Sommer Enterprises
have rights to acquire additional Holdings Common Membership Interests (or their
equivalents in an IPO Entity) as part of or prior to an IPO at a price based on
the IPO price discounted to reflect the absence of underwriting fees and costs.
LCNI also has rights to effect purchases from Holdings or Sommer Enterprises to
maintain a Percentage Interest of 20% or more.
LIABILITY, EXCULPATION AND INDEMNIFICATION. The Holdings Operating
Agreement contains provisions relieving members, officers, employees and the
Holdings Board Members and those of Holdings' subsidiaries from certain
liability, fiduciary duties and conflicts and will also provide for various
indemnities to such persons, payment of expenses and provision of errors and
omissions insurance.
GAMING MATTERS. Admission of new Holdings Members, transfers of Holdings
Interests and payment of distributions by Holdings will be subject to receipt of
Nevada Gaming Approvals. Holdings Members and their affiliates, directors and
employees will cooperate to obtain applicable Gaming Approvals from the Nevada
Gaming Authorities, as necessary. If Nevada gaming problems arise prior to a
finding of unsuitability by the Nevada Gaming Authorities, a Holdings Member
causing such problem (or whose director, officer or affiliate caused such
problem) shall cooperate to remedy it, and, if not remedied, may be forced to
sell its Holdings Common Membership Interests to Holdings or its nominee at fair
market value.
NON-COMPETE. LCNI and Sommer Enterprises agree that they and their
affiliates will refrain from certain competitive activities (with appropriate
geographic and temporal limitations and exceptions for certain existing
activities of their affiliates), unless Holdings (without the participation of
the Holdings Member affected or its nominee Holdings Board Members) has first
refused to pursue such activities.
TERM. Holdings shall continue until December 1, 2097, or such other time as
agreed in writing by all Holdings Members. In the event of the death or
bankruptcy of a Holdings Member, Holdings and the other Holdings Members will
have certain rights to purchase such bankrupt or deceased member's Holdings
Common Membership Interests.
COMPANY OPERATING AGREEMENT
Holdings and the Company have entered into an operating agreement (the
"Company Operating Agreement") which sets forth provisions governing the conduct
of the business and internal affairs of the Company. The following is a summary
of certain key provisions of the Company Operating Agreement.
PURPOSE. The Company was organized for the purposes of developing,
constructing, financing, owning and operating hotels and casinos and related
businesses and to engage in such other lawful enterprises as may be incidental
or appurtenant thereto.
CLASSES OF INTERESTS. The Company is capitalized with two classes of shares
(which represent units of membership interests in the Company): Common
Membership Interests and Series A Preferred Interests. The Company's authorized
capital stock will consist of 10,000,000 Common Membership Interests and
1,150,000 Series A Preferred Interests.
The Series A Preferred Interests have a distribution, redemption and
liquidation preference over the Common Membership Interests. Beginning in the
sixth year after the initial issuance of the Series A Preferred Interests,
periodic distributions of cash, to the extent available, will be made by the
Company first to the Series A Preferred Interests in an amount equal to the
interest payable on the Notes for such period and, prior to the end of the
twelfth year after the issuance of the Series A Preferred Interests, the Company
will distribute cash, to the extent available, in redemption of the Series A
Preferred Interests in an amount equal to their redemption preference. The
redemption preference of the Series A Preferred Interests will accrete so that
such preference will, at all times, equal the Accreted Value of the Notes (plus
any premium payable to the holders of the Notes). In addition, should the
Company liquidate at any time prior to the redemption of the Series A Preferred
Interests or should all or any part of the Series A
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Preferred Interests be redeemed prior to the end of the twelfth year after their
issuance as a result of the Change of Control Payment, the Series A Preferred
Interests shall be entitled to a distribution of cash, to the extent available,
before any distributions are made to any other classes of Interests, in an
amount equal to their liquidation preference which will accrete so that such
preference at all times equals the Accreted Value of the Notes (plus any premium
payable to the holders of the Notes) at such time.
After all discretionary or required distributions of cash are made to the
Series A Preferred Interests for any period, the Company will distribute cash,
to the extent available, to the holders of Common Membership Interests to the
extent of the increase in the cumulative United States federal, state or local
income tax liability of such holders of Common Membership Interests (or, if any
such holder is a pass-through entity, its equity interest holders) in respect of
their interests in the Company for such period and make any additional
distributions of cash to Members that may be necessary to cover United States
federal, state or local income taxes arising from ownership of an interest in
the Company ("Company Tax Distributions").
After distributions to the Series A Preferred Interests and Company Tax
Distributions, the Board will make a priority distribution of cash, to the
extent available, on the Common Membership Interests to permit Holdings to
satisfy any additional obligations it may have to make payments on the Notes
("Priority Distributions to Common Interests").
MANAGEMENT. The business and affairs of the Company are managed by the
Company's Board. Pursuant to the Holdings Operating Agreement, the Holdings
Members have identical rights with respect to the Company's Board and management
as they have in respect of the Holdings Board and management.
The Company's Board is responsible for establishing and overseeing all
policies and procedures in connection with the operation of the Company's
business, but shall delegate day-to-day management responsibility to an
executive management committee (the "Executive Management Committee"). The
Executive Management Committee includes the following persons: the President and
Chief Executive Officer of the Company, the Chief Financial Officer of the
Company, the Senior Vice President of the Company who is the President and Chief
Operating Officer of the Aladdin, the Senior Vice President of the Company who
is the President and Chief Operating Officer of the Music Project hotel and
casino, the Senior Vice President Human Resources of the Company, the Senior
Vice President Electronic Gaming of the Company and the Managing Director of the
Salle Privee.
LIABILITY, EXCULPATION AND INDEMNIFICATION. The Company Operating Agreement
contains provisions relieving members, officers, employees and the members of
the Company's Board ("Company Board Members") and those of the Company's
subsidiaries from certain liability, fiduciary duties and conflicts and will
also provide for various indemnities to such persons, payment of expenses and
provision of errors and omissions insurance.
TERM. The Company shall continue until January 24, 2097, or such other time
as agreed in writing by all Company Members.
EQUITY PARTICIPATION AGREEMENT
Sommer Enterprises, LCNI, Enterprises and the Warrant Agent, for and on
behalf of the holders of the Warrants and the Warrant Shares, have entered into
an agreement (the "Equity Participation Agreement") under which (a) the parties
agreed that they will not effect a public offering of common stock of any IPO
Entity unless LCNI, Sommer Enterprises and the holders of the Warrants and
Warrant Shares each are given the right to hold their respective equity
interests in the IPO Entity; (b) Enterprises agreed that prior to any such
public offering (or if Enterprises is the IPO Entity, at all times), it will not
become an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended) required to register under that Act, (c) the
parties granted the holders of the Warrant Shares certain rights to participate
in the tag along arrangements under the Holdings Operating Agreement and agree
to effect
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certain adjustments to the percentage ownership of Holdings Common Membership
Interests and certain redemptions of Warrant Shares to give effect to such tag
along rights, as described below and, (d) the Warrant holders will have the
right to convert their Warrant Shares into Common Membership Interests in the
Company in the event that Enterprises takes certain actions, including certain
mergers or consolidations, disposition of all of or substantially all of
Enterprises' assets, transfers of Enterprises' Holdings Common Membership
Interests, certain recapitalizations of Enterprises, voluntary dissolution or
liquidation of Enterprises, repurchases of Enterprises' stock which are not
pro-rata among the stockholders, and certain issuances of Enterprises stock.
Pursuant to the Equity Participation Agreement, holders of Warrant Shares
are entitled to cause Enterprises to partially exercise its rights to
participate in certain sales by Holdings Members of Holdings Common Membership
Interests to a non-affiliated party. The proceeds of any such sale of Holdings
Common Membership Interests by Enterprises will be used to redeem the Common
Stock in Enterprises of such holders who elected to exercise such rights.
Certain sales of Holdings Common Membership Interests could constitute a
change of control under the Indenture. In that event, Holdings would be required
to redeem the Notes at a redemption price equal to 101% of their Accreted Value.
See "Description of the Notes--Repurchase at the Option of Holders-- Change of
Control."
SALLE PRIVEE MANAGEMENT AGREEMENT
The Company, London Clubs and a subsidiary of London Clubs, LCNI, are
parties to the Salle Privee Management Agreement in respect of the Salle Privee.
Under such agreement, LCNI will (a) provide advice and consulting services
regarding the development and fitting out of the Salle Privee, (b) provide
certain worldwide marketing and promotional services in relation to the Salle
Privee and (c) direct the operations of the Salle Privee in accordance with
certain policies and procedures developed by LCNI in consultation with the
Company, and in accordance with the Company's budgets and marketing plans. Under
such agreement, London Clubs has agreed to guaranty the obligations of LCNI.
OPERATIONS AND MANAGEMENT. Under the Salle Privee Management Agreement,
LCNI will direct the operations of the Salle Privee in consultation with the
Executive Management Committee of the Company. LCNI will also provide worldwide
marketing and promotional services targeted at its international clientele,
including a plan for cross-marketing the Salle Privee with London Clubs' and its
affiliates' other gaming facilities throughout the world.
CREDIT MANAGEMENT/GAMING LIMITS. The Salle Privee will be subject to the
Company's financial control facilities and credit management will be
administered by the Company's central credit oversight committee, in
consultation with LCNI. Basic risk management policies regarding gaming limits
and credit facilities for the Salle Privee will be established by the Company's
Board based upon the input and recommendations of LCNI. LCNI will have the right
to permit certain clientele from time to time to exceed the normal wagering
limits. In consideration for such flexibility, LCNI has agreed to reimburse the
Company for any net losses suffered by the Company in connection with such
above-limit wagering.
LONDON CLUBS FEE. In consideration for the services to be furnished by
London Clubs under the Salle Privee Management Agreement, the Company will pay
to London Clubs an Incentive Marketing and Consulting Fee calculated as follows:
(i) 10% of the Salle Privee EBITDA (defined in the Salle Privee Management
Agreement as gross revenues attributable to the Salle Privee, less all costs and
expenses directly attributable to the Salle Privee), up to and including $15.0
million in Salle Privee EBITDA; plus (ii) 12.5% of the Salle Privee EBITDA, in
excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of
the Salle Privee EBITDA, in excess of $17.0 million, up to and including $20.0
million; plus (iv) 50% of the Salle Privee EBITDA, in excess of $20.0 million.
The foregoing thresholds will be adjusted in accordance with consumer price
index changes every five years.
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TERM. The term of the Salle Privee Management Agreement is sixty-nine (69)
years unless terminated earlier by either party after the other's default, in
connection with Nevada or United Kingdom gaming problems, by mutual agreement,
by a party upon London Clubs, LCNI's or the Company's bankruptcy or upon LCNI no
longer having an equity interest in Holdings.
LONDON CLUBS PURCHASE AGREEMENT
Pursuant to an Amended and Restated Purchase Agreement dated as of February
26, 1996 by and among London Clubs, LCNI, AHL, Sommer Enterprises, the Trust and
the Company (the "London Clubs Purchase Agreement") LCNI acquired 25.0% (subject
to adjustment pursuant to the Holdings Operating Agreement as described above)
of the Holdings Common Membership Interests for a purchase price of $50.0
million.
The Music Project is expected to be developed and owned by Aladdin Music.
Pursuant to the London Clubs Purchase Agreement, London Clubs, through its
wholly owned subsidiary LCNI, has agreed that so long as Aladdin Music obtains
financing for the Music Project on terms satisfactory to LCNI, and provided that
certain other conditions are met, Aladdin Music may develop and own the Music
Project in accordance with the terms described herein. If such conditions are
not met, LCNI has the right to select the method in which it will participate in
the Music Project, if at all. See "Risk Factors--Completion of the Mall Project
and the Music Project."
Pursuant to the London Clubs Purchase Agreement, the Company has reimbursed
the Trust on the Issue Date $3 million for certain costs relating to the
development of the Aladdin incurred by the Trust during 1996 and 1997 and has
agreed to reimburse the Trust for out-of-pocket expenses of the Trust related to
the development of the Aladdin after the Issue Date not to exceed $900,000.
In consideration for its obligations under the Keep-Well Agreement and
related arrangements, under the London Clubs Purchase Agreement, the parties
have agreed that London Clubs will receive (a) an initial fee of 1.0% of a
$265.0 million portion of the Company's bank debt which is supported and
enhanced by the Keep-Well Agreement (such fee to be payable on the closing date
of the Bank Credit Facility), and (b) an annual fee of 1.5%, payable in arrears,
of the Company's annual average indebtedness with respect to a $265.0 million
portion of the Company's bank debt which is supported and enhanced by the
Keep-Well Agreement for each relevant twelve month period ending on an
anniversary of the Closing Date, which amount shall reflect the extent, if any,
by which the obligations under the Keep-Well Agreement are reduced or eliminated
over time (such fees shall accrue from the closing date of the Bank Credit
Facility and shall be paid from available proceeds after the opening date of the
Aladdin).
DESIGN/BUILD CONTRACT
OVERVIEW. The Company and the Design/Builder have entered into the
Design/Build Contract for the design and construction of the Aladdin, the strip
facade and related retail space of the Mall Project (the "Work") for a
guaranteed maximum price ("GMP"). The GMP is guaranteed by the Design/Builder to
be a maximum of $267.0 million. The GMP includes the Design/Builder's Fee (as
defined in the Design/Build Contract), the cost of the Design/Builder's
Controlled Insurance Program ("CIP") and the Design/ Builder's costs necessarily
incurred by Design/Builder in the proper performance of its design/build
obligations under the Design/Build Contract (such costs collectively, the
"Costs"). The Design/Builder's Fee shall be the lesser of (a) the lump sum fixed
amount of $13.6 million and (b) 6.5% of the aggregate of all trade subcontracts
plus the price of any trade work performed by the Design/Builder. The Design/
Builder's General Conditions Costs shall not exceed the total sum of $22.0
million. Any costs incurred in excess of $22.0 million are nonreimbursable and
will be paid by the Design/Builder. The Costs shall not be higher than prices
and rates approved in advance by the Company, unless the Design/Builder has
received the Company's prior written consent to incur premium expenses. The
Costs include only: (i) labor costs for the Design/Builder in connection with
the Work; (ii) trade subcontract costs; (iii) costs of materials and
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equipment incorporated in the completed construction; (iv) costs of other
materials and equipment, temporary facilities and related items; (v)
miscellaneous costs, such as premiums for insurance not covered by the CIP, but
required by the Design/Build Contract, sales, use or similar taxes, fees and
assessments associated with permits, licenses and inspections that are the
responsibility of the Design/Builder; (vi) other costs incurred in the
performance of the Work and to the extent approved in advance in writing by the
Company; and (vii) costs associated with emergency repairs to damaged, defective
or nonconforming Work.
As an incentive to control costs, the Company has agreed to pay the
Design/Builder 60% of the aggregate net savings made by the Design/Builder in
incurring costs below the trade budget of $230.0 million with respect to labor,
equipment and materials from the various subcontractors and vendors performing
work under the Design/Build Contract. The Design/Builder will be liable for any
costs exceeding the GMP, unless the Company changes the scope of the Work. If
the Company requests certain changes to the scope of the Work, then pursuant to
the Bank Completion Guaranty, the Trust, Bazaar Holdings and London Clubs have
jointly and severally agreed, whenever there is a construction cost increase
caused by any such change, and subject to certain qualifications, to contribute
cash to the Company to fund such increases.
COMPENSATION FOR EARLY/LATE COMPLETION. In lieu of the Company procuring,
at the Design/Builder's cost, a liquidated damages insurance policy or a
business interruption insurance policy to compensate the Company for late
completion of the Work, the Company has paid the Design/Builder $2.0 million as
a bonus advance (the "Bonus Advance"). The Design/Builder may use the Bonus
Advance to buy liquidated damages insurance or it may choose to self-insure. In
either event, the Design/Builder can keep the Bonus Advance if the Project is
finished on or before the date set for Substantial Completion. The Substantial
Completion Date (as defined in the Design/Build Contract) is 790 calendar days
from either January 12, 1998 or the date notice to proceed is received from the
Company, whichever is later. Said period is referred to in the Design/Build
Contract as the "Contract Time" and may only be adjusted in accordance with the
Design/Build Contract. As a further bonus, the Design/Builder shall be entitled
to receive $100,000 for each day, up to but not to exceed 90 days, that the Work
is substantially completed in advance of the date of Substantial Completion.
If the Design/Builder fails to achieve Substantial Completion of the Work
within the Contract Time, the Design/Builder must pay back the $2.0 million
Bonus Advance to the Company. Furthermore, the Design/Builder must pay the
Company, as liquidated damages, $100,000 per day starting on the first day after
the Substantial Completion date and continuing up to, but not exceeding, 90 days
thereafter.
PAYMENT. The Design/Builder must make an itemized application for payment,
on or about the 25th day of each month, based on an approved schedule of values
certified by the Design/Builder and ADP and supported by such data to
substantiate the Design/Builder's right to payment. Simultaneously with each
payment the Design/Builder must and must cause all subcontractors and vendors to
waive their mechanics lien rights for the labor, equipment and materials covered
by the payments made to the Design/Builder. The Design/Builder agrees to pay
when due all bills for labor, materials, equipment or services connected with
the Work. If a person or entity who provided any service, labor, equipment or
materials to the Design/ Builder in connection with the Complex files a lien
against the Company's property, the Design/Builder shall promptly bond the lien
with a legally sufficient undertaking. The Company may also deduct the amount of
the lien from any payments due to the Design/Builder until such lien is bonded
or otherwise discharged. The Company is entitled to retain 10% of all monies due
to the Design/Builder under the monthly applications for payment (excluding the
Design/Builder's fee and General Conditions) until the Work is 50% complete. The
Design/Builder may, at its sole cost and expense, substitute an irrevocable
letter of credit for any retainage held by the Company or on the Company's
behalf.
WARRANTIES AND GUARANTEES. The Design/Builder's construction warranties
and/or guarantees extend for one year after the Substantial Completion date. The
Design/Builder guarantees that its construction
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workmanship shall conform to good construction practices applicable to projects
of this type and that the Work shall comply with the Design/Build Contract
requirements, all applicable laws, codes and regulations. The Design/Builder
also guarantees that all materials, equipment and supplies incorporated into the
Work will be new, of the best quality of the kind specified in accordance with
industry standards, and shall be fit for its intended purpose. Furthermore, the
Design/Builder warrants that: (i) the Design/Builder and its subcontractors are
experienced, qualified and, where required by law, licensed to perform their
respective portions of the Work; and (ii) the design of the Work will be in
accordance with all agreed upon requirements, and all applicable federal, state
and local codes, rules, ordinances and regulations. The Design/Builder agrees to
prosecute the enforcement of all subcontractor and vendor warranties at its sole
costs and expense during the one year period after the Substantial Completion
Date. The Design/Builder shall assign to the Company all subcontractor or vendor
warranties and/or guarantees still surviving and in effect more than one year
after the Substantial Completion Date. The Design/Builder's warranties and/or
guarantees exclude damages or defects caused by modifications to the Work
directed by the Company and not performed by the Design/Builder or its
subcontractors, if the modifications to the Work were performed without the
knowledge and written consent of the Design/Builder. The Design/Builder's
warranty shall not apply to damages or defects caused by ordinary wear and tear,
insufficient maintenance, improper operation or improper use by the Company.
INSURANCE. The Company and the Design/Builder have elected to implement the
CIP whereby the Company shall pay the Design/Builder for all associated premiums
to provide the following insurances: General Liability, Workers' Compensation,
Excess Liability, Contractual Liability and All Risk Builder's Risk for the
Company, the Design/Builder and all subcontractors of every tier. The
Design/Builder agreed that, where necessary or requested, each policy it
procures will identify the Company as either a Named Insured or an Additional
Insured and must contain full waivers of subrogation. The following is a
synopsis of the coverage for each of the required policies:
- - WORKERS' COMPENSATION. The Workers' Compensation policy covers liability
imposed by the workers' compensation and/or occupational disease statute of
the State of Nevada and any other state or governmental authority having
jurisdiction or related to the Work being performed. Employers' liability is
limited to $1.0 million bodily injury per accident per employee, $1.0
million bodily injury per disease per employee and $1.0 million policy limit
by disease. The extensions of coverage include other states, voluntary
compensation and employer's liability coverage, 60 day notice of
cancellation except 10 days for non-payment, Borrower/Servant coverage as
necessary, designated work place endorsement, alternate employer endorsement
and amendment of Notice of Occurrence.
- - COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General Liability
Insurance shall be provided with a combined single limit for bodily injury
and property damage of not less than $2.0 million per occurrence with a $2.0
million annual aggregate. Coverage includes, but is not limited to, personal
injury liability, blanket contractual liability covering contractual
liability assumed under the Design/ Build Contract, employees included as
additional insureds, broad form property damage liability, cross liability,
incidental medical malpractice coverage, excavation, collapse and
underground hazard. Extensions of coverage includes blanket waiver of
subrogation, fellow employee amendment-supervisor and above, unintentional
errors and omissions, stop gap liability for monopolistic fund states,
cancellation and non-renewal-60 days, except 10 days for non-payment,
amendment of notice of occurrence, contingent loading and unloading of
vehicles-excess, limitation of coverage to designated premises of project
and absolute asbestos exclusion.
- - EXCESS INSURANCE. Design/Builder shall provide excess insurance on a
following form basis with limits for bodily injury and property damage of
not less than $100.0 million per occurrence and annual aggregate. This
insurance policy or policies will contain three years extended coverage on
products and completed operations after that portion of the Complex is put
to its intended use or a notice of final completion of the Work has been
issued by the Company, whichever occurs last.
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- - RISK OF LOSS. The Design/Builder shall insure for all risk of loss to
property of the Company, the Design/Builder or any subcontractor on a
"completed value basis." The Design/Builder's risk of loss under the
Design/Build Contract is limited to all work in place, and all materials and
equipment not in place but stored on or off the work site and intended for
permanent use therein. Furthermore, the Design/Builder agrees to insure or
self-insure all inland or ocean transit damage losses (in excess of carrier
liability) to the property of the Company and to the property purchased for
the account of the Company for incorporation in the Work.
ADDITIONAL INSURANCE. Additionally, the Design/Builder has agreed to
procure and maintain the following, which is not included in the CIP: (i)
Automobile Liability Insurance, with limits of not less than $1.0 million
combined single limit for bodily injury and property damage; (ii) "all risk"
coverage the Design/Builder may deem necessary for protection against loss of
owned or rented capital equipment and tools, including any tools owned by
mechanics, and any tools, equipment, scaffolding, staging, towers and forms
owned or rented by it or its subcontractors; (iii) "Off-Site Work," including
Workers' Compensation and Commercial General Liability Insurance; (iv) umbrella
liability in excess of Employer's Liability, General Liability and Automobile
Liability (no more restrictive than the underlying insurance) with limits of
$5.0 million; and (v) a project-specific insurance policy for errors and
omissions in the amount of $5.0 million from ADP. The policy referred to in (v)
is subject to the Company's review and approval and covers all aspects of the
design of those parts of the Complex covered by the Work.
TERMINATION OF CIP. In the event of non-enrollment or termination of the
CIP, the Design/Builder and/or its subcontractors agree to provide, pay for, and
maintain in effect the following types of coverage with insurance companies
satisfactory to the Company: Commercial General Liability Insurance, Workers'
Compensation, Automobile Liability Insurance, Tools and Equipment Floater
Policy, Insurance for "Off-Site Work," and Umbrella Liability. For all of these
policies the Design/Builder must obtain a waiver of subrogation against the
Company and all other named insureds and their agents and employees.
INDEMNIFICATION. The Design/Builder agrees and will cause each of its
subcontractors and vendors to agree in writing to defend, indemnify and hold
harmless to the fullest extent permitted by law the Company from and against all
liability incurred by the Company in the defense, settlement or satisfaction of
any claim of third parties which arise or are alleged to arise out of any
negligence, act or omission by the Design/Builder, subcontractor, or vendor or
their employees or agents or which arise or are alleged to arise from the
performance of the Work or any warranty and/or guarantee work pursuant to the
Design/Build Contract or any subcontract or purchase order with any
subcontractor or vendor. Neither the Design/ Builder nor any of its
subcontractors or vendors agree to indemnify the Company to the extent harm
results from the Company's gross negligence or willful misconduct, or where
indemnity is precluded pursuant to the applicable provisions of the laws of the
State of Nevada.
FORCE MAJEURE. Any delays in or failure of performance by either the
Company or the Design/Builder arising from a "Force Majeure" occurrence, which
includes, but is not limited to, labor disputes, civil disturbances, riots,
fire, weather which is both severe and unusual, governmental actions, acts of
war, or acts of God, shall not constitute a default under the Design/Build
Contract. A Force Majeure occurrence shall not constitute a waiver of either
party's obligations under the Design/Build Contract; however, time adjustments
shall be made to the Contract Time.
CANCELLATION OF DESIGN/BUILD CONTRACT. The Design/Build Contract may be
canceled for convenience by the Company in whole or in part, at any time, and
due to any circumstances by written notice. After such cancellation, the
Design/Builder shall do only such work as may be necessary to preserve and
protect the Work already in progress. The Design/Builder shall make every
reasonable effort to process cancellation, upon terms least costly to the
Company, of all existing orders to vendors and subcontractors. Upon such
cancellation, the Design/Builder agrees to waive any claims for delays,
acceleration, disruptions, or consequential damages, direct or indirect,
including, but not limited to, loss of anticipated income or profits and
unabsorbed or unrealized overhead for home office or field office on account
thereof, and
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agrees that the sole remedy is to receive payment of: (i) the contract sum
earned for work completed and accepted, equivalent to the portion of the Work
partially completed, based on the percentage of the Work performed using the
approved schedule of values for the Design/Builder's monthly payment
requisition, (ii) the actual reasonable cost incurred by the Design/Builder in
securing and protecting the Work in progress against loss, damage or
deterioration, (iii) reasonable demobilization costs, (iv) standby costs, (v)
reasonable cancellation or deferment charges of suppliers, (vi) the actual cost
to the Design/Builder of materials, and equipment in possession of the Company
not sold or disposed of, and left at the Project Site, (vii) all actual costs
associated with relocation of key personnel, who were specially transferred by
the Design/Builder to Las Vegas specifically for the Work, and (viii) other
special reasonable costs and fees for terminating or suspending the Work,
preserving the Work accomplished, and turning such Work product over to the
Company.
CLAIMS AND DISPUTES. All claims arising under the Design/Build Contract
shall be directed by the Design/Builder in the first instance to the entity that
is the on-site representative of the Company promptly after the claim arises.
The decision of the Company's on-site representative may be appealed by notice
in writing directly to the Company. If the Company has not made a decision in
writing within 10 days thereafter, either party may invoke arbitration. Any
controversy, claim, or dispute arising out of or in connection with the
Design/Build Contract shall, upon the written request of either party, be
settled by arbitration in accordance with the Construction Industry Rules and
the Supplementary Procedures for Large, Complex Disputes of the American
Arbitration Association then in effect. The judgment of the award may be entered
in any court having jurisdiction thereof. All arbitration hearings shall be held
in Las Vegas, Nevada and will be administered by the Nevada Regional Office of
the American Arbitration Association.
FLUOR GUARANTY
In lieu of performance and payment bonds, Fluor has entered into the Fluor
Guaranty. Fluor has made certain guarantees regarding the performance by the
Design/Builder of all the Design/Builder's obligations under the Design/Build
Contract. The Fluor Guaranty is absolute, irrevocable and continuing. If
Design/Builder fails to perform any of its obligations under the Design/Build
Contract, or commits any breach, Fluor shall immediately take such steps as may
be necessary to have the Design/Builder perform the Design/Builder's obligations
under the Design/Build Contract, or remedy any breach or take such steps as may
be necessary itself, or through a third party other than the Design/Builder, to
perform all of the Design/Builder's obligations under the Design/Build Contract,
or to remedy any breach. The Company is not required to proceed first or at all
against the Design/Builder or any other person before enforcing the terms of the
Fluor Guaranty.
ENERGY AGREEMENTS
Pursuant to a development agreement (the "Development Agreement"), the
Energy Provider will design, engineer, procure and construct a facility (the
"Plant") capable of serving the Company's specified electricity requirements,
chilled water requirements and hot water requirements (collectively, the
"Services") of certain parts of the Complex. Pursuant to an energy services
agreement (the "ESA"), the Energy Provider will own and operate the Plant to
distribute the Services to the Aladdin and the Music Project for an initial
twenty year term. TrizecHahn will utilize the Plant for the provision of
electricity and cold water for the Mall Project.
DEVELOPMENT AGREEMENT
The Company has entered into a Development Agreement with the Energy
Provider, pursuant to which the Energy Provider will develop and construct the
Plant to serve the energy requirements of certain parts of the Complex. Once
developed and constructed in accordance with the Development Agreement, the
Plant will supply the Services to such parts of the Complex pursuant to the
Energy Service Agreement,
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described below. The design and construction of the Plant will be at the sole
cost and expense of the Energy Provider; provided, however, the Energy Provider
shall not be responsible for costs in excess of $40 million unless agreed to by
the Energy Provider. Specifically, the Energy Provider will be responsible, at
its sole cost and expense, for, among other things: (i) designing, engineering,
procuring, constructing, start-up, and performance testing of the Plant; (ii)
compliance with applicable Laws and Government Approvals; (iii) safeguards for
the protection of the Plant; (iv) obtaining all necessary construction
materials, equipment and supplies; (v) providing all necessary labor and
personnel; (vi) developing and complying with a Quality Control and Inspection
Program; and (vii) completing the Plant in accordance with the schedule set
forth in the Development Agreement. As discussed below, payments to the Energy
Provider for the Capacity Charge (as defined herein) under the Energy Service
Agreement will be based, in part, on the costs incurred by the Energy Provider
for the design and construction of the Plant.
The Energy Provider will appoint a Project Manager who will be responsible
for daily supervision of all activities relating to the design and construction
of the Plant. The Project Manager will serve as a single point of contact for
the Company with the Energy Provider. The Energy Provider also will develop a
Project Plan, which will be comprised of a schedule for the development and
construction of the Plant. The Project Plan will include a definition of the
work to be completed as well as a schedule of milestones and Critical Path
Activities. In consultation with the Company, the Energy Provider will prepare a
request for proposals for an Engineering, Procurement and Construction
Contractor ("EPC Contractor"), and will solicit bids from at least three
qualified contractors. From the bids that are received that are acceptable to
the Company, the Energy Provider will retain an EPC Contractor. The EPC
Contractor will provide a guaranteed maximum price for the design and
construction of the Plant. The Energy Provider and the EPC Contractor will then
prepare design development plans and specifications for the Plant. The Plant
will be constructed in accordance with such plans and specifications. The
Company has the right to inspect all of the work performed and to comment on all
aspects of the design and construction of the Plant.
In the event the Energy Provider has failed to achieve Critical Path
Activities when and as set forth in the Project Plan, and the Company reasonably
and in good faith believes that such failure is reasonably likely to prevent the
Energy Provider from achieving Substantial Completion by the Substantial
Completion Deadline and Final Completion by the Final Completion Deadline, the
Company may so inform the Energy Provider. If the Energy Provider does not
improve performance to the Company's satisfaction, the Company may require an
increase in the Energy Provider's labor force, number of shifts, overtime
operations, days of work per week and/or equipment, all costs of which shall be
borne by the Energy Provider. The Energy Provider also will have a Contingency
Plan in place which provides for the rental by the Energy Provider of
transportable boiler and chiller plants to ensure delivery of hot water and
chilled water in accordance with the terms of the Energy Service Agreement in
the event completion of the Plant is delayed for any reason. Unless the delay is
due to a Force Majeure Event or the fault of the Company, the Contingency Plan
will be implemented at the Energy Provider's sole cost and expense.
If the Energy Provider is in default of its obligations pursuant to the
Development Agreement and the Energy Provider either fails to cure such default
within ten days or fails to satisfy the Company that the default can be cured
within a time period reasonably satisfactory to the Company and promptly
commences and pursues remedial action, the Company may terminate the Development
Agreement. As explained below, Unicom, the Energy Provider's ultimate parent,
has guaranteed completion of the Plant in accordance with the Development
Agreement up to a maximum liability of $30.0 million. See "--Unicom Guaranty."
Upon the Company's termination of the Development Agreement, Unicom Corporation
either will complete the Plant in accordance with the terms of the Development
Agreement or will pay up to $30.0 million to have the Plant so completed.
In the event the performance of the Company or the Energy Provider is
delayed or prevented due to a Force Majeure Event (as defined in the Energy
Service Agreement) and such delay or prevention could not reasonably be avoided
or mitigated, the party claiming such delay or prevention will be excused from
performing its obligations under the Development Agreement for the period of
delay or interruption
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caused by the Force Majeure Event. Within 72 hours after a party does become or
should become aware of a Force Majeure Event, such party will notify the other.
Within seven days of such notice, the party claiming the Force Majeure Event
will deliver a notice to the other describing the anticipated impact of the
Force Majeure Event and within 10 days of the end of the Force Majeure Event
will provide a notice of extension of its obligations. If the parties disagree
as to the latter notice and are unable to resolve their dispute, the dispute
will be resolved in accordance with the dispute resolution provisions of the
Development Agreement, described below.
The Company will not be responsible for the Work or for the Energy
Provider's failure to perform the Work in accordance with the terms of the
Development Agreement. Nor will the Company be responsible for the acts or
omissions of the Energy Provider or its agents, contractors or employees. The
Company assumes no responsibility for injury or claims resulting from failure of
the Work to comply with applicable Laws or Government Approvals or from Defects
or Deficiencies.
The Company and the Energy Provider agree to cooperate and to communicate
with each other concerning the terms of the Development Agreement and other
matters relating to the Plant. If a dispute arises between the Company and the
Energy Provider, the parties jointly may request that the dispute be resolved by
arbitration in accordance with the provisions of the Commercial Arbitration
Rules of the American Arbitration Association. If the parties do not agree to
submit the dispute to arbitration, either party may bring the dispute to any
court of competent jurisdiction for resolution. The Development Agreement will
be governed by and construed in accordance with the laws of the State of Nevada.
Neither the Company nor the Energy Provider may assign its interest or
delegate its duties under the Development Agreement without the prior written
consent of the other (not to be unreasonably withheld), except that either party
may assign its interest in the Development Agreement if a concurrent assignment
of its interests in the ESA has been made pursuant to the ESA to the same
entity.
LEASE
Pursuant to a lease (the "Lease"), the Company has leased the Plant Site to
the Energy Provider for a fixed monthly base rent of $1.00. The Lease, which has
a 20-year term and provides for 5-year renewal terms, is a "net" lease, pursuant
to which the Energy Provider will pay all Impositions. The Energy Provider may
not use the Plant Site to provide services other than the Services without the
prior consent of the Company. In the event the Company gives such consent, the
fixed monthly base rent will be adjusted and other reasonable modifications will
be made to the Lease.
UNICOM GUARANTY
The obligations of the Energy Provider to complete the Plant in accordance
with the Development Agreement and in a manner capable of delivering the energy
requirements in accordance with the Energy Service Agreement are guaranteed by
the Energy Provider's ultimate parent, Unicom (the "Unicom Guaranty"). Unicom
agrees that the Unicom Guaranty shall be a continuing guaranty and that the
Company shall not be required to prosecute enforcement or other remedies against
the Energy Provider or any other guarantor of the Energy Provider's obligations
before calling on Unicom for performance. Unicom agrees that if for any reason
the Energy Provider shall fail or be unable to punctually and fully perform or
cause to be performed any of its obligations under the Development Agreement,
Unicom shall perform or cause to be performed such obligations promptly upon
demand. Unicom's obligations are limited to an amount equal to $30.0 million
dollars (or, under certain circumstances, an amount less than $30.0 million) and
shall not be reduced until Substantial Completion of the Plant. Upon Substantial
Completion, the Unicom Guaranty shall be reduced by the amount invested by the
Energy Provider, except that ten percent shall be retained to provide assurance
that Final Completion shall occur in accordance with the milestone schedule
under the Development Agreement.
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ENERGY SERVICE AGREEMENT
The Company and the Energy Provider have agreed to the form of an energy
service agreement (the "ESA"), which is currently attached as an exhibit to the
Development Agreement. The ESA is expected to contain provisions as described
herein. The ESA sets forth the rights and obligations of the Company and the
Energy Provider relating to, among other things, the development, testing,
commissioning, operation and maintenance of the Plant; the making of Capacity
and Consumption Payments; risk allocation in the event of a force majeure;
events of default; rights of early termination and the consequences thereof;
liability and indemnity obligations; and assignment and transfer of interests
thereunder. The initial term of the ESA is twenty years from the Commencement
Date, with three five-year renewal terms.
CONDITIONS PRECEDENT. The obligations of the Company and the Energy
Provider under the ESA are subject to the satisfaction of various conditions
precedent, a number of which have already been satisfied. The Company expects
that all remaining conditions precedent will be timely satisfied in the ordinary
course of business.
OPERATION, MAINTENANCE AND REPAIR. The ESA requires that the operation,
maintenance and repair of the Plant be conducted in accordance with applicable
laws and regulations and the Project Scope, as defined in the ESA. The Energy
Provider will be required to have its personnel on duty at the Plant twenty-four
hours per day, seven days per week. The ESA sets forth a scheduling procedure
for scheduled maintenance. Inspection, testing, preventive and corrective
maintenance, repairs, replacements and improvements of the Plant will be carried
out during such scheduled maintenance periods.
PAYMENTS. The ESA provides for a two-part price structure consisting of a
capital component (the "Capacity Charge") to be paid monthly whether Services
are taken or not by the Complex and an energy component (the "Consumption
Charge") to be paid monthly for Services actually taken by the Complex. The
capital component will be paid in advance. The energy component will be paid in
arrears. The Capacity Charge and the Consumption Charge are expected to be
adjusted annually by reference to the Consumer Price Index or a similar index.
FORCE MAJEURE. Each party will be excused from performance of its
respective obligations under the ESA if performance of such obligations is
materially and adversely affected by a Force Majeure Event, although each party
is obligated to take reasonable steps to restore its ability to perform. Force
Majeure Events are circumstances that, by the exercise of reasonable diligence,
the party is unable to overcome or prevent. Force Majeure Events include, but
are not limited to, acts of God, war, civil commotion, embargoes, epidemics,
fires, cyclones, droughts and emergencies other than those caused by the
negligence or wilful misconduct of the party claiming a Force Majeure Event.
DEFAULTS. The ESA divides events of default into Energy Provider events of
default and Complex events of default. A party receiving notice of certain
defaults has thirty days to cure such default. If not cured within such time
period, an uncured default may lead to the termination of the ESA.
ENERGY PROVIDER DEFAULTS. If at any time after the Commencement Date the
Energy Provider fails to provide Services in accordance with the ESA (a
"Performance Failure"), the Energy Provider is required to: (i) provide
immediate notice to the Complex and provide the Complex with a corrective action
plan consistent with a contingency plan to be developed prior to the
Commencement Date; (ii) use best efforts to correct or cure such Performance
Failure; and (iii) provide immediate access to the Complex and work together
with the Complex to identify the source of the Performance Failure. After a
Performance Failure has existed for thirty two (32) consecutive hours, or thirty
two (32) hours of any forty eight hour (48) period, the Complex will: (i) be
entitled to assume control of the Plant and maintain such control until such
Performance Failure has been cured or corrected and take any action reasonably
intended to cure or correct such failure at the Energy Provider's expense; (ii)
be entitled to an abatement of the Capacity Charge for the affected Service;
(iii) have the right to hire, at the Energy Provider's expense, an
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independent consultant to review the circumstances surrounding the Performance
Failure and make written recommendations as to a corrective action to be
implemented at the Energy Provider's sole expense; and (iv) in the event the
Energy Provider fails to promptly implement the consultant's recommendations, be
entitled to terminate the ESA and purchase the Plant from the Energy Provider.
In the event the ESA is terminated pursuant to an Energy Supplier Default, the
purchase price for the Plant shall be equal to the Energy Provider's depreciated
basis calculated on a twenty year straight line method in the Plant, less any
costs incurred for required repair and/or maintenance.
OPTION TO PURCHASE. The Company shall possess a continuing option to
purchase the Plant at any time prior to the termination of the ESA, exercisable
by written notice given to the Energy Provider not less than one year prior to
the date upon which such purchase shall close as specified in the notice. It is
a condition to the Energy Provider's obligation to consummate the sale that the
Company shall assume, indemnify and hold the Energy Provider harmless from all
obligations of the Energy Provider accruing after the closing under all
contracts and agreements with respect to the Plant under which any performance
obligations will continue following such sale. At the closing, the Energy
Provider will assign and the Company will be obligated to assume all such
contracts and agreements.
ASSIGNMENT AND TRANSFER. Neither the Company nor the Energy Provider shall
be permitted under the ESA to assign or transfer its rights under the ESA
without the prior written consent of the other. Notwithstanding this, the ESA
provides that the Company may assign its rights to any affiliate and that both
the Company and the Energy Provider may assign their respective rights under the
ESA to lenders to whom either party provides a security interest in their
respective properties in connection with financing each of the properties. In
addition, the Energy Provider is prohibited from effecting changes in its
ownership, except that it may issue ownership interests to certain specified
entities which are public utilities or affiliates thereof.
DISPUTE RESOLUTION. In the event of a dispute under the ESA, either party
may at any time refer the dispute to be settled by binding arbitration pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
CONSTRUCTION, OPERATION AND RECIPROCAL EASEMENT AGREEMENT AND RELATED AGREEMENTS
The Company, Bazaar, AMH and the Energy Provider (collectively, the "REA
Parties") have entered into (except with respect to the Energy Provider, who is
not a signatory but is bound by) the Construction, Operation and Reciprocal
Easement Agreement (the "REA"). AMH is expected to assign its rights and
obligations under the REA to Aladdin Music, and Aladdin Music is expected to
assume such rights and obligations, upon execution of the Aladdin Music
Operating Agreement. The REA sets forth agreements among the REA Parties
regarding, among other things, easements, construction standards and
requirements, encroachments, use and operating covenants, maintenance
requirements, insurance requirements, casualty and condemnation and the sharing
of certain facilities and costs relating thereto. The REA has been recorded in
the Official Records of Clark County, Nevada and the agreements therein will run
with the land, affecting subsequent owners and lessees thereof.
The Site Work Development and Construction Agreement (the "Site Work
Agreement") entered into among the Company, AHL and Bazaar provides, among other
things, that the Company and AHL will, at their cost and expense, perform
certain demolition work and certain site work including certain infrastructure
improvements and the construction of the initial building shell for the Aladdin
Improvements (as defined herein) and the Bazaar Improvements (as defined
herein). The Site Work Agreement also provides that Bazaar will contribute
approximately $14.2 million (including interest) (the "Bazaar Site Work
Contribution") to the cost of the site work. In addition, subject to the
satisfaction of certain conditions being negotiated with Scotiabank and London
Clubs, it is intended by the parties that the Company will be responsible for
costs in excess of $36 million in connection with the construction of the
Carpark. The Site Work Agreement further provides that the Company will
construct the Aladdin
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Improvements and Bazaar will construct the Bazaar Improvements in accordance
with a certain construction schedule and pursuant to good and workmanlike
standards and with first-class materials.
The Site Work Agreement and the REA provide that the Company will: (i)
construct a first-class hotel and casino facility (the "Aladdin Improvements")
on the Gaming Site (as defined in the REA); (ii) lease the Bazaar Site (as
defined in the REA) to Bazaar, which covenants to construct and operate a
first-class Retail Facility (as defined in the REA) and related improvements
(the "Bazaar Improvements"); (iii) lease the Aladdin Music Site (as defined in
the REA) to AMH, which covenants to construct and operate a first-class hotel
and casino facility (i.e., the Music Project hotel and casino); and (iv) lease
the Utility Site (as defined in the REA) to the Energy Provider, which covenants
to construct and operate a central utility plant (the "Central Utility Plant").
The Bazaar Improvements include the Carpark and additional surface-level parking
facilities beneath and adjacent to the Retail Facility for approximately 350
motor vehicles (the "Common Parking Area").
The REA also provides that Bazaar grants, as to its ownership or leasehold
interest in its tract, to the other REA Parties, as to their ownership or
leasehold interests in their tracts, a non-exclusive easement for automobile
parking in and on the Common Parking Area. The use and operation of the Common
Parking Area is also subject to the Common Parking Area Use Agreement (the
"Parking Agreement") entered into between the Company and Bazaar, pursuant to
which Bazaar covenants to maintain and operate the Common Parking Area for the
non-exclusive use of all the REA Parties. The Parking Agreement provides, among
other things, that the Company (i) will pay a fee of $3.2 million per year,
payable monthly and adjusted annually pursuant to a consumer price index-based
formula, for usage of the Common Parking Area, (ii) will pay its proportionate
share of the operating costs attributable to the Common Parking Area, and (iii)
has the right to assign a portion of its usage rights and obligations to Aladdin
Music, although such assignment may not relieve the Company of any of its
obligations in connection therewith. If and when Planet Hollywood's subsidiary
becomes a member of Aladdin Music, the Parking Agreement, by its terms, shall be
amended and restated to add Aladdin Music as a party, and the Company's
proportionate share of the operating costs attributable to the Common Parking
Area shall be reduced.
The REA contains agreements pursuant to which the REA Parties, as to their
ownership or leasehold interests in their respective tracts, grant to the other
REA Parties, as to their ownership or leasehold interests in their respective
tracts, easements for, among other things, (i) vehicular and pedestrian access,
(ii) installation and operation of utilities, (iii) construction, (iv) common
structural support, (v) installation and maintenance of exterior lights to
highlight grantees' buildings, (vi) truck loading, (vii) encroachments and the
maintenance thereof, (viii) roof space for the installation and operation of
certain telecommunication and ventilation equipment, (ix) setbacks, (x)
maintenance and construction of grantees' buildings, (xi) construction and
operation of a proposed monorail and (xii) signage.
The REA sets forth covenants among the REA Parties to, among other things,
(i) perform the construction of the Redeveloped Aladdin (as defined in the REA)
in accordance with first-class standards, (ii) cooperate with one another and
with each REA Party's architects, engineers and contractors and (iii) exchange
certain plans and specifications and other information. Certain modifications of
any REA Party's plans or specifications will be subject to certain approval
rights of certain other affected REA Parties. The REA also provides that the
Company may construct certain optional improvements, including an office tower
and/or time-share facilities.
Pursuant to the terms of the REA, the Company has covenanted that it shall
complete (subject to force majeure) the Aladdin Improvements, and Bazaar has
covenanted that it shall complete (subject to force majeure) the Bazaar
Improvements, on or before the First Scheduled Opening Date (as defined in the
Site Work Agreement). Similarly, AMH has covenanted that it shall complete the
Music Project hotel and casino on or before the Second Scheduled Opening Date
(which is currently anticipated to be six (6) months after the First Scheduled
Opening Date).
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The REA provides that, subject to certain operational requirements of the
other REA Parties, each REA Party will operate the improvements on its tract in
a first-class manner, as more particularly set forth in the REA.
The REA contains agreements among the REA Parties to maintain their
improvements in good order and in first-class condition, reasonable wear and
tear excepted. The REA also allocates responsibility among the REA Parties to
maintain the Common Area (as defined in the REA) of the Site (as defined in the
REA). Responsibility for the payment of the costs for such Common Area
maintenance is allocated proportionately; and the Company has the right to
assign a portion of its payment obligation to AMH, although such assignment may
not relieve the Company of any of its obligations in connection therewith.
The REA contains provisions requiring that in the event of any casualty or
condemnation, each REA Party shall, at its cost and expense, restore the
improvements located on its respective tract or tracts, including the Common
Area thereon, regardless of the availability of insurance proceeds or
condemnation awards; provided, however, that (a) with respect to damage or
condemnation affecting the Common Parking Area, the costs and expenses in excess
of available insurance proceeds or condemnation awards shall be shared by each
REA Party in accordance with its respective tract's proportionate share of
parking spaces required in accordance with local law, and (b) certain
restoration obligations expire 25 years (or such longer period approved by the
REA Parties) after the Second Scheduled Opening Date.
The REA contains provisions establishing self-help remedies for REA Parties
affected by an REA Party's failure to meet its maintenance or restoration
obligations set forth in the REA.
Certain disputes between the REA Parties that arise under the REA are,
pursuant to the REA, to be decided pursuant to binding arbitration, as more
particularly set forth in the REA. The REA Parties' maximum liability to one
another under the REA is limited to such REA Parties' interests in the
Redeveloped Aladdin, as more particularly set forth in the REA.
AGREEMENTS RELATING TO THE MALL PROJECT OR THE MUSIC PROJECT
BAZAAR LLC OPERATING AGREEMENT
TH Bazaar Centers Inc. ("THB"), a wholly owned subsidiary of TrizecHahn, and
Bazaar Holdings (collectively, the "Bazaar Members") are parties to the Bazaar
LLC Operating Agreement setting forth their agreement as to the relationship
between Bazaar and the Bazaar Members and among the Bazaar Members themselves as
to the conduct of the business and internal affairs of Bazaar. The Bazaar
Operating Agreement may be amended or terminated by the Bazaar Members without
the consent of any of the Issuers, London Clubs, the Company, or the holders of
the Notes.
MANAGEMENT. Pursuant to the Bazaar LLC Operating Agreement, the business
and affairs of Bazaar shall be managed by a board of managers (the "Bazaar
Board"), consisting of four members (each, a "Bazaar Board Member"). Each Bazaar
Member has designated two Bazaar Board Members and may, from time to time,
change its designated representatives on the Bazaar Board. The number of
representatives on the Bazaar Board may be increased by the Bazaar Board so long
as each Bazaar Member maintains an equal number of representatives.
Notwithstanding the foregoing, if any Bazaar Member acquires or obtains a
greater than their current interest in Bazaar, then such Bazaar Member shall
have the right to designate a majority of the representatives on the Bazaar
Board, and the number of representatives selected by the other Bazaar Member
shall be reduced proportionately.
MALL GUARANTY. Subject to certain conditions, THB's parent, TrizecHahn,
THOP, Bazaar Holdings, AHL and the Trust have agreed to jointly and severally
assume recourse liability and enter into the Mall Guaranty in favor of the Mall
Lender upon completion of the Mall Financing, until certain earnings and loan to
value targets have been met.
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TRANSFER RESTRICTIONS. The Bazaar LLC Operating Agreement contains
customary restrictions on the transfer of interests by Bazaar Members. In
particular, no Bazaar Member may transfer its interests to a Prohibited
Transferee without the prior consent of the other Bazaar Members.
The term "Prohibited Transferee" includes: (a) any owner, operator or
manager of any resort hotel located in Clark County, Nevada, (b) any shopping
center owner, manager and/or developer if THB will continue to be a Bazaar
Member following the transfer, (c) any person or entity primarily engaged in the
business of owning or operating a casino or other similar type of gambling
facility, (d) any person who has been found unsuitable or has withdrawn an
application to be found suitable by the Nevada Gaming Authorities, or (e) FOCUS
2000, Inc., a Nevada corporation, or the then current owner or lessee of the
real property located at the northeast corner of the Strip and Harmon Avenue, in
Las Vegas, Nevada.
MARKETING AND SALE OF THE MALL PROJECT. Commencing on the fifth anniversary
of the opening of the Mall Project and continuing for five years, any Bazaar
Member (the "Selling Member") holding a 50% or greater interest in Bazaar may
cause Bazaar to offer the Mall Project for sale on the open market by delivering
written notice to the other Bazaar Member (the "Non-Selling Member"). If any
offer is received that the Selling Member desires to accept, the Selling Member
must give written notice specifying all terms of the proposed sale to the
Non-Selling Member, who shall have 30 days to elect to purchase the entire
interest at the terms specified in the notice; provided however, that if THB is
the Selling Member, then Bazaar Holdings, as Non-Selling Member shall (subject
to certain conditions) have the additional option to purchase 12.5% of the
interest in Bazaar for the appropriate allocable share of the purchase price
(and other fees specified in such notice).
TERM. Bazaar will continue to operate as a limited liability company until
December 31, 2099, unless earlier dissolved or extended by unanimous agreement
of the Bazaar Members.
MALL FINANCING
Bazaar entered into a building loan agreement with the Mall Lenders and
Fleet as Administrative Agent (the "Mall Agent") for the Mall Financing, whereby
the Mall Lenders will agree to lend up to $194.0 million to Bazaar to finance
the Mall Project. The proceeds from the Mall Financing will be used for the
construction of the themed Desert Passage, expected to contain approximately
522,000 square feet of retail space, and the approximately 4,800-space Carpark.
The Mall Project is expected to open by April of the year 2000, as such date may
be extended for force majeure events. See "Description of the Notes-- Events of
Default."
TERM. The Mall Financing has a stated maturity of five years from closing.
Bazaar shall have two one-year extension options if certain conditions are
satisfied and at the end of the initial five year term, any unfunded commitment
amount will be automatically cancelled.
AMORTIZATION AND PREPAYMENT. The Mall Financing will be interest-only
during the initial term. During the extension terms, Bazaar will be required to
amortize principal based on 25-year (during the first extension term) and
24-year (during the second extension term) mortgage-style amortization and an
interest rate derived based on the then prevailing 10 year Treasury rate plus
150 bps.
FEES. Bazaar will be required to pay a fee of 10 bps per annum on the
unfunded loan amount. Such fee shall be computed on an actual/360-day basis and
shall be payable quarterly in arrears from and after the closing.
SECURITY. The loan is secured by a deed of trust, assignment of leases and
rents and security agreement which shall be a first lien on Bazaar's interest in
the premises on which the Mall Project is built and the Mall Project itself.
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COVENANTS. The Mall Financing contains a project financial covenant based
on loan to value and customary affirmative and negative covenants typical for
this type of transaction.
EVENTS OF DEFAULT. The Mall Financing provides that all customary events of
default for similar loan transactions, consistent with the following, shall
constitute events of default under the loan documents, including: (i) (a)
insolvency or bankruptcy of the Borrower, TrizecHahn or THOP (and under certain
circumstances, Bazaar Holdings), (b) breach of TrizecHahn and THOP guarantor
covenants or (c) judgements against TrizecHahn in excess of $25.0 million
individually or in the aggregate (which are not discharged or appealed within 60
days) and (ii) failure to pay debt service within five days after due.
CONDITIONS PRECEDENT. The Mall Financing provides that the Mall Agent's
obligation to make the initial advance of the Mall Financing is subject to the
satisfaction of certain conditions, including, among other things, (i) that
Scotiabank consent to an amended Site Work Agreement, that provides that the
Company will be responsible for costs in excess of $36 million in connection
with the construction of the Carpark and (ii) that the contribution of a minimum
of 25% of total project costs shall be contributed as up-front equity prior to
funding of the loan, of which at least $35.0 million of such investment shall be
in the form of cash expended in the Mall Project.
MUSIC PROJECT MEMORANDUM OF UNDERSTANDING
The Company and Planet Hollywood have entered into a Memorandum of
Understanding and Letter of Intent, dated as of September 2, 1997, as amended by
a letter agreement dated as of October 15, 1997 (as so amended, the "Music
Project Memorandum of Understanding") in connection with the formation of a
joint venture between subsidiaries of the Company and Planet Hollywood to own,
develop and operate the Music Project. The Music Project Memorandum of
Understanding is intended to be an agreement (subject to certain limited
conditions) with respect to certain matters regarding the formation and
operation of Aladdin Music, however the parties have agreed to use their best
efforts promptly to complete and execute all agreements and other documents that
may be reasonably necessary to carry out the provisions of the Music Project
Memorandum of Understanding. The Company anticipates that such agreements will
include the following-described agreements, although the terms described below
are subject to further revision and may be modified by the Company and Planet
Hollywood prior to the execution of definitive documentation. See "Risk
Factors--Completion of the Mall Project and the Music Project."
ALADDIN MUSIC OPERATING AGREEMENT. It is expected that AMH and a subsidiary
of Planet Hollywood (the "Music Project Members") will enter into an operating
agreement (the "Aladdin Music Operating Agreement") to govern the operations of
Aladdin Music. The Company has formed AMH, which it anticipates will hold (on a
fully diluted basis through shares and warrants) a 50% member interest in
Aladdin Music. Prior to the exercise of its warrants (the "Music Project
Warrants"), AMH will own a 49% preferred membership interest ("Music Preferred
Shares") and a 49% common membership interest ("Music Common Shares") in Aladdin
Music, however, exercise of the Music Project Warrants will increase AMH's
percentage interest in Aladdin Music to 50%. Planet Hollywood, through a
subsidiary (the "Planet Hollywood Member"), will initially hold the remaining
interests in Aladdin Music.
CAPITAL CONTRIBUTIONS. Through AMH, the Company is expected to contribute
to Aladdin Music (i) a ground lease, at nominal rent, of the approximately 4.75
acre parcel of land for the Music Project (including a right to acquire the fee
interest in such land upon the receipt by the Company of necessary permits and
subdivision approvals) and (ii) $21.3 million in cash. The contribution value of
the ground lease will be $20.0 million. The Planet Hollywood Member will
contribute cash to Aladdin Music in the amount of $41.3 million. Substantially
all of the contributions of the Music Project Members are expected to be made
immediately prior to, or concurrently with, the closing of construction
financing with respect to the Music Project, however certain pre-development
costs of Aladdin Music incurred with respect to the
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Music Project will be contributed to Aladdin Music prior to such date. These
predevelopment costs include design, architecture and organization costs.
SHARES. Aladdin Music is expected to have two classes of shares (which
represent units of membership interests in Aladdin Music): Music Common Shares
and Music Preferred Shares (collectively, "Music Project Shares"). The
above-described contributions of the Music Project Members will be deemed
contributions in respect of Music Preferred Shares. Except with respect to
distributions to cover tax liability of Music Project Members (or, if any Music
Project Member is a pass-through entity, its equity interest holders) arising
from their interest in Music, the Music Preferred Shares will have distribution,
redemption and liquidation preferences over all Music Common Shares. Rights to
allocations to the capital account and distributions in respect of the Music
Preferred Shares will cumulate (but not compound) quarterly at the rate of 12%
per annum on the capital account balance in respect thereof. Preferred
distributions to the Planet Hollywood Member will have priority of payment over
preferred distributions to AMH. In addition, to the extent that there is
insufficient cash available for distribution to make such preferred
distributions, the amounts which are not distributed will accrue (but not
compound) for the benefit of the party entitled thereto. Distributions of such
accrued amounts to the Planet Hollywood Member will have priority over
distributions to AMH.
MANAGEMENT AND DAY-TO-DAY OPERATIONS. Management of Aladdin Music will be
the responsibility of a board of managers (the "Music Project Board"), comprised
initially of four members designated by the Planet Hollywood Member and three
members designated by AMH, until AMH exercises its warrants for the acquisition
of additional Music Project Shares, at which time the Music Project Board will
be comprised of four representatives each of AMH and the Planet Hollywood
Member. Major decisions of the Music Project Board will require the vote of a
supermajority of the board members. All decisions other than such major
decisions will be delegated to an operating committee comprised of two
representatives each of AMH and the Planet Hollywood Member (the "Operating
Committee"). The development of the Music Project and renovation of the Theater
will be coordinated by the Company under the Music Project Development
Agreement. Day-to-day management and operation of the Music Project and the
Theater will be delegated to the Company under the Music Project Management
Agreement.
TRANSFERS OF SHARES. Transfers of Music Project Shares will only be
permitted:
(i) to affiliates of Music Project Members, LCNI, or persons approved by
a majority of the interests held by Music Project Members; and
(ii) to persons other than certain prohibited transferees after giving
other Music Project Members a right of first negotiation for the acquisition
of such Shares.
LIABILITY, EXCULPATION AND INDEMNIFICATION. The Aladdin Music Operating
Agreement will contain provisions relieving the Music Project Members, officers,
employees and Music Project Board Members and Operating Committee members from
certain liability, fiduciary duties and conflicts and will also provide for
various indemnities to such persons in respect of payment of expenses and errors
and omissions insurance.
GAMING MATTERS. Capital contributions, admission of new Music Project
Members, transfers of shares and payment of distributions by Aladdin Music will
be subject to receipt of Nevada Gaming Approvals. Music Project Members and
their affiliates, directors and employees will cooperate to obtain Gaming
Approvals from the Nevada Gaming Authorities, as necessary. If Nevada gaming
problems arise prior to a finding of unsuitability by the Nevada Gaming
Authorities, the Music Project Member causing such problem (or whose director,
officer or affiliate caused such problem) shall cooperate to remedy it and, if
not remedied, may be forced to sell its Music Project Shares to Aladdin Music or
its designee at fair market value.
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TERM. Aladdin Music shall continue until January 24, 2097, or such other
time as agreed in writing by all Members.
THE MUSIC PROJECT DEVELOPMENT AGREEMENT. Aladdin Music intends to contract
with the Company for the development of the Music Project and the Theater
renovation pursuant to a development agreement (the "Music Project Development
Agreement") on terms, and in form and substance, satisfactory to Aladdin Music
and the Company. Pursuant to the Music Project Development Agreement, the
Company will agree to provide services with respect to such development and
renovation, including (a) the selection of contractors, subcontractors and the
professional team including architects, engineers, surveyors, designers,
decorators and other technical and professional consultants; (b) the negotiation
on behalf of Aladdin Music of the agreements under which the contractors,
subcontractors and the professional team are to be retained by Aladdin Music;
(c) the supervision of the preparation of preliminary and final plans, including
landscaping, interior design and graphics; and (d) the preparation of
preliminary cost estimates and projections of cash flow requirements covering
the development costs during the Development Period, and the preparation and
updating from time to time of the development budget; subject, in each case, to
certain approval rights of Aladdin Music.
REIMBURSEMENT UNDER MUSIC PROJECT DEVELOPMENT AGREEMENT. The Company will
be reimbursed for its costs and expenses in connection with its activities under
the Music Project Development Agreement.
TERMINATION. Each of the Company and Aladdin Music are anticipated to have
certain limited termination rights with respect to the Music Project Development
Agreement. Any termination of the Music Project Development Agreement will
entitle the Company to terminate the Music Project Management Agreement.
INDEMNIFICATION. Aladdin Music shall indemnify and hold the Company
harmless from claims arising out of the performance by Company of services under
the Music Project Development Agreement. The Company shall indemnify and hold
Aladdin Music harmless from and against any and all claims arising from or in
connection with the Company's gross negligence or willful misconduct.
MUSIC PROJECT MANAGEMENT AGREEMENT. Aladdin Music intends to contract with
the Company for the day-to-day management and operations of the Music Project
and the Theater and certain promotional services, pursuant to a management
agreement in form and substance satisfactory to Aladdin Music and the Company
(the "Music Project Management Agreement"). The terms of the Music Project
Management Agreement are expected to be on terms at least as favorable as those
which would be available from an independent third party vendor.
COMPENSATION UNDER MUSIC PROJECT MANAGEMENT AGREEMENT. The Music Project
Management Agreement will provide for the provision of management services by
the Company for the Music Project and the Theater in exchange for a base
management fee (the "Base Management Fee"), payable quarterly, equal to 1.50% of
the net revenue from the Music Project and the Theater and for an additional
management fee (the "Incentive Management Fee"), payable quarterly, equal to 6%
of the Management Excess Net Revenue (which is the amount obtained by dividing
(i) the amount of quarterly Adjusted Music EBITDA in excess of the Adjusted
Management EBITDA Threshold by (ii) Profit Margin). "Adjusted Music EBITDA"
means for any period Aladdin Music's earnings before (i) deductions for
interest, taxes, depreciation and amortization, (ii) payment of the Incentive
Management Fee, the Incentive Marketing Fee, and (iii) payment of leases for
furniture, fixtures or equipment. "Profit Margin" means for any quarter,
quarterly Adjusted EBITDA divided by quarterly Net Revenue. "Incentive Marketing
Fee" means an additional marketing fee, payable quarterly from Aladdin Music to
Planet Hollywood pursuant to the Marketing and Consulting Agreement (as defined
herein) between Aladdin Music and Planet Hollywood, equal to 6% of the Marketing
and Consulting Excess Net Revenue. "Marketing and Consulting Excess Net Revenue"
means the amount obtained by dividing (i) the amount of quarterly Adjusted
EBITDA in excess of the Adjusted Marketing EBITDA Threshold by (ii) the Profit
Margin. The "Adjusted Management
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EBITDA Threshold" means quarterly Adjusted EBITDA of $10.0 million. The
"Adjusted Marketing EBITDA Threshold" means quarterly Adjusted EBITDA of $8.75
million. The Incentive Management Fee shall at all times (including, without
limitation, if the Adjusted Management EBITDA Threshold is met or if there is
sufficient cash available for distribution) be subordinate to debt service. To
the extent that the Adjusted Management EBITDA Threshold is met but there is
insufficient cash available for distribution for the payment of any or all of
such Incentive Management Fee and the payment of the Incentive Marketing Fee, or
if Aladdin Music is otherwise restricted by a lender from paying such fees, the
Incentive Management Fee shall be subordinate to the payment of the Incentive
Marketing Fee. Incentive Management Fees which are due but not paid shall accrue
(together with interest thereon) for the benefit of the Company. The Incentive
Management Fee shall not be payable to the Company for any quarter in which the
Adjusted Management EBITDA Threshold is not achieved. In addition, pursuant to
the Music Project Management Agreement, the Company shall provide certain
services to the Music Project and the Theater, including, without limitation,
accounting and financial services, MIS, general management and investor relation
services, promotional services and other agreed upon services in the ordinary
course of business by the Company for the Music Project and the Theater in
exchange for reimbursement of the fully allocated cost of such services.
TERM. The term of the Music Project Management Agreement shall be thirty
(30) years, subject to an option on the part of the Company to extend the term
for three successive ten year periods.
TERMINATION FEE. In the event that the Music Project Management Agreement
is terminated by Aladdin Music prior to the expiration of its term (including
extension options) and prior to the time that the Music Project Warrants may be
exercised, then (except under certain circumstances) the Company shall be paid a
termination fee of $50.0 million and AMH shall have the right to put its
investments in Aladdin Music to Planet Hollywood for an amount equal to such
investment's fair market value. Once AMH is able to exercise the Music Project
Warrant, all provisions relating to the termination fee and fair market purchase
option shall terminate.
THE MARKETING AND CONSULTING AGREEMENT. Aladdin Music intends to contract
with Planet Hollywood and an affiliate of Planet Hollywood for the provision of
certain marketing and consulting services to be provided to the Music Project
and for the license to Aladdin Music of all rights to the trademarks, tradenames
and related agreements which are necessary or desirable to operate and maintain
a "music-themed" hotel and restaurant on the Music Project land, pursuant to a
marketing and consulting agreement in form and substance satisfactory to Planet
Hollywood and Aladdin Music (the "Marketing and Consulting Agreement"). The
Marketing and Consulting Agreement is expected to provide for the provision of
marketing and consulting services by Planet Hollywood (and/or its affiliates)
for the Music Project in exchange for a base fee (the "Base Marketing Fee"),
payable quarterly, equal to 2.00% of the Music Project's quarterly Net Revenue
and for an additional marketing fee (the "Incentive Marketing Fee"), payable
quarterly, equal to 6% of the Marketing and Consulting Excess Net Revenue. The
Incentive Marketing Fee shall not be payable for any quarter in which the
Adjusted Marketing EBITDA Threshold is not achieved. In addition, to the extent
that the Adjusted Marketing EBITDA Threshold is met but there is insufficient
cash available for distribution for the payment of any or all of such fees, or
if Aladdin Music is otherwise restricted by a lender from paying the Incentive
Marketing Fee, the Incentive Marketing Fee shall accrue (together with interest
thereon) for the benefit of Planet Hollywood. In addition to the Base Marketing
Fee and the Incentive Marketing Fee, the Marketing and Consulting Agreement
shall provide that Planet Hollywood shall be reimbursed, on a quarterly basis,
for its costs and expenses under the Marketing and Consulting Agreement in an
amount equal to 0.5% of quarterly Net Revenue, without supporting documentation
as well as for certain other approved expenses. The Marketing and Consulting
Agreement is further expected to provide that Planet Hollywood shall be
restricted from allowing the use or operation of similar "music concept" themed
restaurants at any location in Clark County, Nevada, other than at the Music
Project.
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THE GROUND LEASE. AMH intends to assign its ground lease (the "Music
Project Lease") of the site designated for the Music Project to Aladdin Music.
The Music Project Lease is for nominal rent and includes the right of the lesee
to acquire fee title to the Music Project land upon completion of the division
of the Project Site into separate legal parcels. Pursuant to the Music Project
Lease, Aladdin Music shall be required to cooperate with such division and to
fund its pro rata share of the costs thereof, based upon the ratio that the
acreage of the Music Project land bears to the total acreage of the Project
Site.
THE THEATER LEASE. The Company is expected to enter into a lease agreement
(the "Theater Lease") with respect to the Theater pursuant to which, among other
matters, (i) Aladdin Music shall lease the Theater from the Company for a period
of at least 69 years on a "triple-net" basis, for nominal rent, (ii) the Company
shall have certain rights with respect to the lease-back of the Theater, (iii)
certain provisions shall be made relating to the promotional and security
services for the Theater, (iv) Aladdin Music shall agree to renovate the Theater
prior to the opening of the Aladdin and to maintain the Theater in a "first
class" condition during the term of the Theater Lease.
MUSIC PROJECT FINANCING
Prior to the commencement of the development of the Music Project, Aladdin
Music is expected to enter into a commitment letter for a credit facility with a
syndicate of lenders whereby the lenders will agree to finance the construction
of the Music Project. Currently, Aladdin Music is considering several proposals
for such financing. See "Risk Factors--Completion of the Mall Project and the
Music Project."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of certain material federal income tax
considerations relevant to the exchange of Old Notes for New Notes and the
acquisition, ownership and disposition of the Notes by a U.S. Holder. A "U.S.
Holder" means a holder of a Note which is (i) an individual who is a citizen or
resident of the United States for federal income tax purposes, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or any state thereof (including the District of
Columbia), (iii) an estate (other than a foreign estate) or (iv) any trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
This summary is based upon current laws, regulations, rulings and judicial
decisions some of which are not clear and all of which are subject to change,
possibly with retroactive effect. Any such change could affect the continuing
validity of this discussion. In addition, the validity of the conclusions
contained in this summary depends upon the accuracy of representations made by
officers of Holdings and projections prepared by the financial advisors to
Holdings in connection with the Offering.
This summary does not purport to consider all the possible federal income
tax consequences of the exchange of Old Notes for New Notes or the purchase,
ownership or disposition of the Notes and is not intended to reflect the
particular tax position of any beneficial owner. It addresses only U.S. Holders
who hold the Notes as capital assets and does not address beneficial owners that
may be subject to special tax rules, such as foreign holders, banks, insurance
companies, dealers in securities or currencies, purchasers that hold the Notes
as a hedge against currency risks or as part of a straddle with other
investments or as part of a "synthetic security" or other integrated investment
(including a "conversion transaction") comprised of a Note and one or more other
investments, or purchasers that have a "functional currency" other than the U.S.
dollar. In addition, the discussion does not address any aspect of state, local
or foreign taxation.
HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF EXCHANGING THE OLD NOTES FOR
NEW NOTES AND ACQUIRING, OWNING, AND DISPOSING OF THE NOTES AS WELL AS THE
APPLICATION OF STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS.
TAX TREATMENT OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes because
the New Notes will not differ materially in kind or extent from the Old Notes
and because the exchange will occur by operation of the terms of the Old Notes.
As a result, there should be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer. Tax
consequences of the ownership and disposition of a New Note should be the same
as the tax consequences of ownership and disposition of an Old Note (other than
the disposition of an Old Note pursuant to this Exchange Offer).
TAX TREATMENT OF THE NOTES
CLASSIFICATION OF THE NOTES AS DEBT FOR FEDERAL INCOME TAX
PURPOSES. Although the matter is not free from doubt, the Notes will be treated
as debt of Holdings for federal income tax purposes. Although the matter is not
free from doubt, the existence of Capital as a joint and several obligor on the
Notes should be
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disregarded for federal income tax purposes. In addition, although the matter is
not free from doubt, for federal income tax purposes, the existence of the
Company as an entity separate from Holdings will be disregarded.
The determination of whether an instrument is properly treated as debt or
equity for federal income tax purposes is inherently factual and no particular
factor is dispositive. Whether an instrument is characterized as debt or equity
for federal income tax purposes depends upon the facts and circumstances
surrounding the issuer and the terms and operation of the instrument. Several
characteristics of the instrument are relevant to the determination, but no
single factor is controlling. Some of the factors considered by the courts and
the Internal Revenue Service ("IRS") include: (1) the intent of the parties, (2)
the presence of a definite maturity date, (3) the extent of the holders' ability
to participate in management, (4) the holders' ability to force repayment in the
event of default, (5) the issuer's projected ability to make required payments
of principal and interest as they become due, (6) the identity of ownership
between the creditors and shareholders, (7) the debt to equity ratio of the
issuer and (8) the holders' participation in the profits of the issuer. Based on
the foregoing and other factors, although the matter is not free from doubt, the
Notes will be treated as debt for federal income tax purposes. There can be no
assurance, however, that the IRS would not seek to challenge this conclusion or
that such a challenge, if made, would not be upheld by a court. If the Notes
were recharacterized as equity for federal income tax purposes, certain adverse
consequences could result to Holdings and the holders, including the possibility
that Holdings could be taxable as a corporation rather than a partnership.
Holdings's qualification as a partnership for federal income tax purposes is
dependent upon certain facts and circumstances, not all of which are within the
control of Holdings, including whether the Notes qualify as debt for federal
income tax purposes. Although the matter is not free from doubt, Holdings is
expected to qualify as a partnership for federal income tax purposes. On the
Issue Date, Holdings received an opinion of Skadden, Arps, Slate, Meagher &
Flom, LLP that, as of such date, Holdings qualified as a partnership and not an
association or publicly traded partnership taxable as a corporation and the
Company would be disregarded as an entity separate from Holdings for federal
income tax purposes. This opinion of Skadden, Arps, Slate, Meagher & Flom, LLP
was conditioned upon the receipt of representations from Holdings, the Company
and others that Holdings and the Company had been operating in a manner that
allowed Holdings to qualify as a partnership and the Company to be disregarded
as an entity separate from Holdings for federal income tax purposes as of the
Issue Date. There can be no assurance however, that the IRS would not seek to
challenge Holdings' status as a partnership or the Company's status as an entity
that is not separate from Holdings or that such a challenge, if made, would not
be upheld in court. Based on the position set forth above, the following
discussion assumes that the Notes are properly characterized as debt for federal
income tax purposes.
ISSUE PRICE. On the Issue Date, the issue price of the Units was allocated
between the Notes and the Warrants based on their relative fair market values.
For purposes of computing original issue discount ("OID"), discussed below, the
issue price of the Notes is equal to the portion of the issue price of the Units
allocated to the Notes. Holders who purchased a Unit at original issue for its
issue price have an initial tax basis for the Note equal to its issue price.
With respect to the $519.40 issue price per Unit, Holdings has allocated $451.68
to the Note, which therefore represents its issue price. This allocation
reflects Holdings' judgment as to the relative value of the Note and Warrants at
the time of issuance. The allocation is binding on a U.S. Holder unless such
U.S. Holder explicitly discloses a different allocation on an attachment to its
tax return for the taxable year that includes the acquisition date of the Unit.
The allocation is not, however, binding on the IRS and there can be no assurance
that the IRS would not challenge this allocation or that such a challenge, if
made, would not be upheld in court.
ORIGINAL ISSUE DISCOUNT. The Notes were issued at an original issue
discount for federal income tax purposes. A holder of a Note will be required to
recognize such OID as ordinary income on a constant yield to maturity basis as
described below, regardless of the holder's regular method of accounting. A
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holder of a Note will be required to include the OID on the Note in its taxable
income as it accrues, in advance of the receipt of some or all of the related
cash payments.
The total amount of OID with respect to the Notes is equal to the excess of
their "stated redemption price at maturity" over their "issue price." The
"stated redemption price at maturity" of the Notes is the sum of all payments
required to be made with respect to the Notes (whether denominated as principal
or interest) other than payments of "qualified stated interest." "Qualified
stated interest" is any interest based on a fixed rate, and payable
unconditionally at fixed periodic intervals of one year or less during the
entire term of the debt instrument. Because none of the interest to be paid on
the Notes constitutes qualified stated interest, the stated redemption price at
maturity is equal to the sum of all payments to be made with respect to the
Notes. The issue price of the Notes is the portion of the issue price of the
Units, as described above, allocated to the Notes.
Except as provided below, a holder of a Note is required to include in gross
income as interest income an amount equal to the sum of the daily portions of
the OID for each day during the taxable year that such Note was held. The daily
portion of the OID on a Note is determined by allocating to each day in an
accrual period its ratable portion of the increase during such accrual period in
the adjusted issue price of the Note. The increase during an accrual period in
the "adjusted issue price" of the Note is generally an amount equal to the
product of (A) the adjusted issue price of the Note at the beginning of such
accrual period (the issue price of the Note determined as described above,
generally increased by all prior accruals of OID with respect to the Note and
reduced by all payments made with respect to the Note) and (B) the Note's "yield
to maturity". The Note's yield to maturity is the discount rate, which when
applied to all payments required to be made with respect to the Note, results in
a present value equal to the issue price. Based on the allocated issue price of
the Notes as described above, the yield to maturity of the Notes is 15.06% per
annum (computed on a semiannual bond equivalent basis).
Holdings is obligated to pay Liquidated Damages to holders of the Old Notes
under certain circumstances. If any such Liquidated Damages are paid, the amount
of such Liquidated Damages will be includible in ordinary income and, in
addition, it is possible that the Old Notes will be treated as having been
reissued at the time of such payment for purposes of applying the federal income
tax rules regarding OID. If so, to the extent the possibility that additional
payments of Liquidated Damages would be required is not a remote or incidental
contingency within the meaning of the regulations as of the time of such deemed
reissuance, a holder could be required to accrue such projected payments on the
Old Notes on a constant yield to maturity basis from the date of such reissuance
and in certain circumstances to treat as interest income (rather than capital
gain) all or a portion of any gain recognized on disposition of the Old Notes.
MARKET DISCOUNT. A holder that acquired a Note after the initial Offering
may be subject to the market discount provisions of the Code. Generally, a Note
will be deemed to have been purchased at a market discount if the holder's basis
of such Note immediately after the Note is acquired is less than the Note's
"revised issue price." The Note's "revised issue price" is its issue price plus
the aggregate amount of OID includible in income before the Note was acquired.
The amount of market discount is the excess, if any, of the Note's revised issue
price over its basis in the hands of the holder immediately after its
acquisition. However, market discount will not be considered to exist if, at the
time of the acquisition, the discount is less than 1/4 of 1% of the Note's
revised issue price multiplied by the number of complete years remaining to
maturity.
If a holder acquired a Note at a market discount, such holder will recognize
ordinary income (which is generally treated as interest income) when the Note
matures or is disposed of to the extent of the lesser of the gain or the
"accrued market discount." The "accrued market discount" is the total market
discount multiplied by a fraction, the numerator of which is the number of days
which the holder held the Note and
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the denominator of which is the number of days from the date the holder acquired
the Note up to (and including) the maturity date of the Note. As an alternative
to this ratable method, a holder of a Note acquired at a market discount may
elect to compute the accrued market discount based upon a constant yield to
maturity basis. Such election would apply only to the Note for which the
election is made.
The Notes may be redeemed, in whole or in part, before maturity. If some or
all of the Notes are redeemed, each holder who acquired a Note at a market
discount would be required to treat the principal payment as ordinary interest
income to the extent of any accrued market discount on the Notes. If a holder of
a Note with market discount makes a gift of the Note, the holder must recognize
any accrued market discount income as if the holder sold the Note for its fair
market value.
In addition, a holder of a market discount obligation generally may only
deduct net interest expense on indebtedness incurred or maintained to purchase
or carry a market discount obligation to the extent that such expense exceeds
the portion of the market discount allocable to the days during the taxable year
on which such obligation was held by the holder. Any net interest expense which
is disallowed is generally deferred and deducted in the year of disposition of
the market discount obligation.
A holder that acquired a Note at a market discount may elect to include the
market discount in income currently in the tax years to which it is
attributable. Such election, if made, will apply to all market discount
obligations acquired by the holder during or after the first taxable year to
which the election applies. If this election is made, the rules described above
requiring the recognition of ordinary interest income upon the disposition of a
Note and limiting the deduction for interest paid or accrued on indebtedness
incurred or maintained to purchase or carry market discount obligations do not
apply.
Holders of Notes should consult their tax advisors regarding the application
of the market discount rules and the advisability of making the elections
described above.
ACQUISITION PREMIUM. If a holder acquired a Note after the initial Offering
and has an adjusted basis in such Note immediately after its purchase that (i)
is greater than the adjusted issue price of the Note and (ii) is less than or
equal to the sum of all amounts payable on the Note after the purchase date,
then such holder will be deemed to have acquired the Note at an acquisition
premium. The holder of a Note acquired at an acquisition premium is permitted to
reduce the amount of OID includible in gross income by the fraction, the
numerator of which is the excess of the adjusted basis of the Note immediately
after it is purchased over the adjusted issue price of the Note (I.E., the
acquisition premium) and the denominator of which is the excess of the sum of
all amounts payable on the Note after the purchase date over the Note's adjusted
issue price. Alternatively, the holder may elect to compute OID accruals by
treating the purchase as a purchase at original issuance and applying the
mechanics of the constant yield method.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION. Gain or loss upon a sale or
other disposition of a Note will be measured by the difference between the sum
of the amount of cash and the fair market value of property received with
respect to such sale and the holder's adjusted tax basis in such Note. A
holder's adjusted tax basis in a Note generally will be equal to the portion of
the cost of the Unit allocated to the Note (i.e., in the case of an initial
purchaser in the Offering, the Note's issue price) or the purchase price of the
Note increased by the amount of OID or market discount that is included in such
holder's income prior to the date of sale or disposition and reduced by all
payments received by the holder with respect to the Note as of the date of sale
or other taxable disposition. Except as discussed below under "Market Discount,"
such gain or loss generally will be capital gain or loss, and will be long-term
capital gain or loss if the holder held the Note for more than one year. In the
case of an individual holder of a Note, the maximum federal income tax rate
applicable to net long-term capital gains is twenty-eight percent (28%) if the
Note was held for greater than one year but less than eighteen months and twenty
percent (20%) if the Note was held for more than eighteen months.
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CERTAIN UNITED STATES FEDERAL INCOME TAX ISSUES TO HOLDINGS, ENTERPRISES AND
LCNI
DEDUCTIBILITY OF ORIGINAL ISSUE DISCOUNT. In addition to the other
potential limitations on the ability of an issuer of debt to deduct interest
(including the interest capitalization rules with respect to interest incurred
to construct certain types of property, including the Aladdin) certain issuers
of "applicable high-yield discount obligations" ("AHYDOs") are not permitted to
deduct interest attributable to OID on such obligations as it accrues. An AHYDO
is a debt instrument that (i) has a maturity date that is more than five years
from the date of issue, (ii) bears a yield to maturity that exceeds the sum of
(A) the applicable federal rate (the "AFR") in effect for the calendar month in
which the obligation is issued (5.84% for instruments issued in February, 1998),
plus (B) five percent, and (iii) has "significant original issue discount." A
debt instrument is deemed to be issued with "significant original issue
discount" if the aggregate amount which would be includible in gross income of a
holder with respect to such instrument for periods before the close of any
accrual period ending after the date five years after the date of issue exceeds
the sum of (i) the aggregate amount of interest required to be paid under the
instrument before the close of such accrual period and (ii) the product of the
issue price of such instrument and its yield to maturity. Based on this
definition, it is expected that the Notes will constitute AHYDOs.
If an obligation is an AHYDO, to the extent any AHYDO limitations apply (see
below), the deduction of the "disqualified portion" of the OID is permanently
disallowed and the remainder of the OID is not deductible until it is actually
paid in cash or property (other than equity or debt of the issuer). In the case
of the Notes, the disqualified portion of the OID generally will be the yield to
maturity of the Notes minus the sum of the AFR plus six percent.
Although the AHYDO limitations generally apply only to issuers of debt
instruments that are corporations, a special rule provides that when a
partnership (including an LLC treated as a partnership for federal income tax
purposes) issues AHYDOs, each partner (or member) is treated as issuing its
share of the AHYDO for purposes of determining the deductibility of such
partner's (member's) share of the interest (OID) expense on the AHYDO.
Accordingly, the AHYDO limitations will apply to the Notes to the extent that
the deductions of OID expense are attributable to the portion of the Notes
deemed to be issued by a corporate member of Holdings. As of the filing of the
Registration Statement, Holdings will have two corporate members, Enterprises
and LCNI, owning in the aggregate 50% of Holdings. Thus, 50% of the OID on the
Notes will be subject to the limitations on deductibility imposed by the AHYDO
rules. To the extent that additional corporations become members in Holdings or
if Holdings (or a successor obligor on the Notes whether in an initial public
offering or otherwise) becomes or is deemed to be a corporation, the AHYDO
limitations could apply to a larger portion or all of the OID on the Notes.
As a result of the application of the AHYDO limitations, the corporate
members will be unable to deduct their share of the "disqualified portion" of
the OID on the Notes, and will be required to defer their deduction on their
share of the remaining OID until it is paid. The limitations on the
deductibility of the corporate members' share of the OID is expected to cause
the corporate members to have a greater tax liability during the term of the
Notes than if OID was currently deductible. Consequently, to the extent that the
corporate members have additional taxable income as a result of the AHYDO
limitations discussed above, Holdings will be required to distribute more cash
to the corporate members to pay their tax liability than if the AHYDO
limitations did not apply.
Although there is considerable uncertainty, solely for purposes of the
dividends received deduction for corporations, the disqualified portion of the
OID attributable to the corporate members should be treated as a distribution of
dividends by the corporate members, pro rata in proportion to their percentage
interests, to corporate holders rather than interest income to the extent, if
any, that similar distributions by the corporate members with respect to their
stock would have been treated as dividends. Thus, subject to otherwise
applicable limitations, a corporate holder of a Note may be entitled to a
dividends received
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deduction (generally at a 70% rate) with respect to the disqualified portion of
the accrued OID treated as a dividend.
REPORTING REQUIREMENTS. Each Certificated Note will contain a legend
stating that it was issued with OID and setting forth the issue date, the issue
price, the amount of OID and the yield to maturity. Holdings will report
annually to the Internal Revenue Service and to each holder the amount of OID
accrued with respect to such Note for that year.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under certain circumstances, the failure of a holder to provide sufficient
information to establish that such holder is exempt from the backup withholding
provisions of the Code will subject such holder to backup withholding at a rate
of 31 percent. In general, backup withholding applies if a holder fails to
furnish a correct taxpayer identification number (social security number for
individuals), fails to report interest income in full, or fails to certify that
such holder has provided a correct taxpayer identification number and that the
holder is not subject to withholding. Any amount withheld from a payment to a
holder under the backup withholding rules is allowable as a credit against such
holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS. Certain holders (including, among others,
corporations and foreign holders that comply with certain certification
requirements) generally are not subject to backup withholding. Holders should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
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PLAN OF DISTRIBUTION
Based on certain no action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Issuers believe that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holders who is an
"affiliate" of either of the Issuers within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Issuers
to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any
other available exemption) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of the holder's business and such
holders have no arrangement or understanding with any person to participate in a
distribution of such New Notes and are not participating in, and do not intend
to participate in, the distribution of such New Notes. In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the New Notes
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdiction or an exemption from registration or qualification is
available and complied with. The Issuers have agreed, pursuant to the Note
Registration Rights Agreement and subject to certain specified limitations
therein, to register to qualify the New Notes for offer of sale under the
securities or blue sky laws of such jurisdictions as are necessary to permit the
consummation of the Exchange Offer.
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 any person subject to
the Prospectus delivery requirements of the Commission, including any
participating 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. The Issuers have agreed
that they will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale as such
broker-dealer may reasonably require.
The Issuers 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 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 on any such resale of New Notes and any commission
or concessions received by 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.
The Issuers have agreed to pay certain expenses incident to the Exchange
Offer and will indemnify the holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Certain legal and tax matters in connection with the validity of the Notes
will be passed upon for the Issuers by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York. Certain legal matters with respect to Nevada law will be
passed upon for the Issuers by Schreck Morris, Las Vegas, Nevada.
EXPERTS
The balance sheets of Holdings, Capital and the Company as of December 31,
1997 and the statements of changes in equity and cash flows of each such entity
for the period from their inception to December 31, 1997, together with the
notes thereto, appearing in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their reports with
respect thereto, and are included herein on reliance upon the authority of said
firm as experts in giving said reports.
The financial statements of London Clubs as of March 29, 1998 and March 30,
1997 and for the 52 week period ended March 29, 1998, and the 53 week period
ended March 30, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse, independent accountants, given on
the authority of said firm as experts in accounting and auditing.
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INDEX TO HISTORICAL FINANCIAL INFORMATION OF
HOLDINGS, CAPITAL AND THE COMPANY
Set forth below is certain historical financial information concerning
Holdings, Capital and the Company. Potential investors should note that
Holdings, Capital and the Company are development stage companies and the
attached financial information is not indicative of future results of
operations.
<TABLE>
<CAPTION>
<S> <C>
Aladdin Gaming Holdings, LLC
Report of Independent Public Accountants................................................................. F-4
Consolidated Balance Sheet............................................................................... F-5
Consolidated Statement of Members' Equity................................................................ F-6
Consolidated Statement of Cash Flows..................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
Financial Statements as of March 31, 1998................................................................ F-11
Aladdin Capital Corp.
Report of Independent Public Accountants................................................................. F-20
Balance Sheet............................................................................................ F-21
Statement of Stockholders' Equity........................................................................ F-22
Statements of Cash Flows................................................................................. F-23
Notes to Financial Statements............................................................................ F-24
Financial Statements as of March 31, 1998................................................................ F-25
Aladdin Gaming, LLC
Report of Independent Public Accountants................................................................. F-30
Balance Sheet............................................................................................ F-31
Statement of Members' Equity............................................................................. F-32
Statement of Cash Flows.................................................................................. F-33
Notes to Financial Statements............................................................................ F-34
Financial Statements as of March 31, 1998................................................................ F-36
</TABLE>
F-1
<PAGE>
(This page intentionally left blank.)
F-2
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Members of
Aladdin Gaming Holdings, LLC and subsidiaries:
We have audited the accompanying consolidated balance sheet of ALADDIN
GAMING HOLDINGS, LLC (a Nevada Limited-Liability Company) and SUBSIDIARIES, as
of December 31, 1997, and the related consolidated statements of members' equity
and cash flows for the period from inception (December 1, 1997) through December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Gaming Holdings, LLC
and subsidiaries, as of December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 6, as to which
the date is February 26, 1998.
F-4
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 6,895
---------
Total Assets.................................................................... $ 6,895
---------
---------
LIABILITIES AND MEMBERS' EQUITY
Due to Sommer Trust................................................................. $ 1,245
Advances to purchase membership interests........................................... 2,850
Members' equity..................................................................... 2,800
---------
Total Liabilities and Members' Equity........................................... $ 6,895
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
BALANCE, December 1, 1997........................................................... $ --
Members' contribution............................................................... 2,800
---------
BALANCE, December 31, 1997.......................................................... $ 2,800
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Sommer Trust............................................................... $ 1,245
Members' contributions............................................................ 2,800
Advances to purchase membership interests......................................... 2,850
---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 6,895
CASH AND CASH EQUIVALENTS, December 1, 1997......................................... --
---------
CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 6,895
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-7
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming
Holdings"), was established on December 1, 1997. Gaming Holdings is owned by
Aladdin Gaming Enterprises, Inc. (25%), a Nevada corporation, Sommer
Enterprises, LLC (72%), a Nevada limited-liability company, and GAI, LLC (3%), a
Nevada limited-liability company. See Note 5 regarding the agreement to purchase
membership interests. Aladdin Holdings, LLC, a Delaware limited liability
company ("Holdings"), indirectly holds a majority interest in Gaming Holdings.
The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer
(the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC,
a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust
Company of the West ("TCW"), which holds a 5% interest in Holdings.
Distributions shall be made in accordance with the respective ownership
interests subject to Gaming Holdings' operating agreement.
Since the planned principal operations had not commenced as of December 31,
1997, Gaming Holdings has accounted for its operations as a development stage
company. There were no operations during the period from inception (December 1,
1997) through December 31, 1997 and hence no statement of income has been
prepared.
2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Gaming
Holdings and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Gaming Holdings' wholly owned subsidiaries are Aladdin Capital Corp., a
Nevada corporation, and Aladdin Gaming, LLC, a Nevada limited-liability company.
3. INCOME TAXES
Gaming Holdings will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
4. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of Gaming Holdings' executive management have purchased
unvested restricted membership interests in 4.75% of Gaming Holdings. These
membership interests will vest over approximately a four-year period. As of
December 31, 1997, none of these membership interests had vested.
5. COMMITMENTS
On September 24, 1997 Gaming Holdings, the Sommer Trust, Holdings, Sommer
Enterprises, London Clubs International plc, a company registered in the United
Kingdom ("London Clubs") and London Clubs Nevada Inc. ("LCNI") entered into a
purchase agreement (subsequently amended) providing for the acquisition by LCNI
of 25 percent of Gaming Holdings' common membership interests for a purchase
price of $50.0 million. LCNI's obligation to purchase such membership interests
is subject to the satisfaction or waiver of various conditions.
F-8
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. SUBSEQUENT EVENTS
Private Offering
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Exchange Act of 1933. The private offering consisted of 221,500 units
(the "Units"), each unit consisting of (i) $1,000 principal amount at maturity
of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming,
LLC. The Note Construction Disbursement Account is comprised of approximately
$35 million remaining proceeds from the Offering, after the application of the
net proceeds to repay certain previously existing indebtedness and certain fees
and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
Equity Contributions
On February 26, 1998, LCNI contributed $50.0 million ("London Clubs
Contribution") for 25% of Gaming Holdings common membership interests. Sommer
Enterprises, LLC contributed a portion of land in exchange for common membership
interests in Gaming Holdings. Aladdin Gaming Enterprises, Inc. contributed the
portion of land and $7.0 million of predevelopment costs, which were originally
received from Sommer Enterprises, Inc. and the net proceeds (approximately $15
million) allocable from the sale of the Warrants to Gaming Holdings in exchange
for 25% of the common membership interests in Gaming Holdings.
F-9
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Investments
Gaming Holdings contributed the land appraised at $150.0 million,
approximately $42 million in cash from the London Clubs Contribution and the
$7.0 million of predevelopment costs in exchange for 100% of the common
membership interests in Aladdin Gaming, LLC. Gaming Holdings also contributed
$115 million in cash, consisting of the net proceeds of the sale of the Units
and approximately $8 million from the London Clubs Contribution, to Aladdin
Gaming, LLC in exchange for 100% of the Series A Preferred Interests.
F-10
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-11
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
(UNAUDITED)
ASSETS
Cash.............................................................................................. $ 406,559
Property and equipment:
Land............................................................................................ 33,407,500
Furniture and equipment......................................................................... 546,976
Construction in progress........................................................................ 13,492,315
Capitalized interest............................................................................ 544,283
--------------
Total property and equipment................................................................ 47,991,074
--------------
Other assets:
Restricted cash................................................................................. 308,293,229
Restricted land................................................................................. 6,842,500
Other assets.................................................................................... 1,964,435
Debt issuance costs, net of accumulated amortization of $285,255 as of March 31, 1998........... 36,884,511
--------------
Total other assets.......................................................................... 353,984,675
--------------
Total assets................................................................................ $ 402,382,308
--------------
--------------
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Current maturities of long-term debt............................................................ $ 187,324
Payable to related parties...................................................................... 360,629
Obligation to transfer land..................................................................... 6,842,500
Accrued expenses................................................................................ 4,352,850
--------------
Total current liabilities................................................................... 11,743,303
--------------
Long-term debt.................................................................................... 375,749,612
Advances to purchase membership interests......................................................... 2,850
Members' equity:
Common membership interest...................................................................... 28,607,979
Accumulated Deficit............................................................................. (13,721,436)
--------------
Total members' equity....................................................................... 14,886,543
--------------
Total liabilities and members' equity....................................................... $ 402,382,308
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 1, 1997
(INCEPTION)
THROUGH
MARCH31, 1998 MARCH 31, 1998
-------------- ------------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Pre-opening costs.......................................................... $ 11,462,928 $ 11,462,928
Other (income) expense:
Interest income.......................................................... (1,584,938) (1,584,938)
Interest expense......................................................... 4,387,729 4,387,729
Less: Interest capitalized............................................... (544,283) (544,283)
-------------- ------------------
Total other (income) expense......................................... 2,258,508 2,258,508
-------------- ------------------
Net loss................................................................... $ (13,721,436) $ (13,721,436)
-------------- ------------------
-------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 1997
THROUGH MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ALADDIN GAMING
SOMMER ENTERPRISES, LONDON CLUBS
ENTERPRISES, LLC INC. NEVADA, INC. GAI, LLC TOTAL
---------------- --------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997........ $ 669 $ 331 $ -- $ 1,800 $ 2,800
Net loss.......................... $ (6,449,075) $ (3,430,359) $ (3,430,359) $ (411,643) $ (13,721,436)
Members' contributions............ (47,317,023) 28,247,202 50,000,000 -- 30,930,179
Members' equity costs............. (1,092,750) (581,250) (581,250) (69,750) (2,325,000)
---------------- --------------- ------------- ----------- --------------
BALANCE, MARCH 31, 1998........... $ (54,858,179) $ 24,235,924 $ 45,988,391 $ (479,593) $ 14,886,543
---------------- --------------- ------------- ----------- --------------
---------------- --------------- ------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE PERIOD
ENDED DECEMBER 1, 1997
MARCH 31, 1998 (INCEPTION)
-------------------- THROUGH
MARCH 31, 1998
(UNAUDITED) ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (13,721,436) $ (13,721,436)
Increase in other assets.............................................. (1,964,435) (1,964,435)
Amortization of debt costs............................................ 285,255 285,255
Amortization of original issue discount............................... 1,388,083 1,388,083
Increase in accrued expenses.......................................... 4,352,850 4,352,850
Increase in accrued fee to related party.............................. 359,384 359,384
-------------------- ------------------
Net cash used in operating activities................................... (9,300,299) (9,300,299)
-------------------- ------------------
Cash flows from investing activities:
Payments for construction in progress and capitalized interest........ (7,036,598) (7,036,598)
Increase in restricted cash........................................... (308,293,229) (308,293,229)
-------------------- ------------------
Net cash used in investing activities................................... (315,329,827) (315,329,827)
-------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of notes....................................... 100,047,100 100,047,100
Proceeds from long-term debt.......................................... 274,000,000 274,000,000
Repayment of long-term debt........................................... (45,223) (45,223)
Debt issuance costs................................................... (37,169,766) (37,169,766)
Members' contributions................................................ 65,000,000 65,002,800
Repayment of existing debt............................................ (74,477,321) (74,477,321)
Members' equity costs................................................. (2,325,000) (2,325,000)
Payable to related parties............................................ -- 1,245
Advances to purchase membership interests............................. -- 2,850
-------------------- ------------------
Net cash provided by financing activities............................... 325,029,790 325,036,685
-------------------- ------------------
Net increase in cash.................................................... 399,664 406,559
Cash at the beginning of the period..................................... 6,895 --
-------------------- ------------------
Cash at the end of the period........................................... $ 406,559 $ 406,559
-------------------- ------------------
-------------------- ------------------
Cash paid for interest, net of amount capitalized....................... $ 364,756 $ 364,756
Non-cash investing and financing activities:
Members' contributions -- book value
Land................................................................ 33,407,500 33,407,500
Construction in progress............................................ 7,000,000 7,000,000
Equipment acquired equal to assumption of debt........................ 546,976 546,976
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Holdings, LLC, a Nevada limited company ("Gaming Holdings"),
was established on December 1, 1997. Gaming Holdings was initially owned by
Aladdin Gaming Enterprises, Inc. (25%), a Nevada corporation, Sommer
Enterprises, LLC (72%), a Nevada limited-liability company, and GAI, LLC (3%), a
Nevada limited- liability company. On February 26, 1998, (a) London Clubs
Nevada, Inc., (LCNI) contributed $50.0 million for a 25% interest of Gaming
Holdings common membership interests, (b) Sommer Enterprises, LLC contributed
land for common membership interests in Gaming Holdings and (c) Aladdin Gaming
Enterprises, Inc. contributed land, $7.0 million of predevelopment costs and
$15.0 million in cash for common membership interests in Gaming Holdings. After
such contributions, Sommer Enterprises, LLC owns 47% and LCNI owns 25% of Gaming
Holdings with the remaining membership interests unchanged.
Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"),
indirectly holds a majority interest in Gaming Holdings. The members of Holdings
are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust")
which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada
limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of
the West ("TCW"), which holds a 5% interest in Holdings.
Distributions shall be made in accordance with the respective ownership
interests subject to the Company's operating agreement.
Gaming Holdings, through its subsidiaries, plans to develop, construct and
operate a new hotel and casino, the Aladdin Hotel and Casino (the "Aladdin"), as
the centerpiece of an approximately 35 acre world-class resort, casino and
entertainment complex in Las Vegas, Nevada. The resort will be located at the
center of Las Vegas Boulevard ("the Strip").
2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Aladdin Gaming
Holdings, LLC and its subsidiaries (collectively known as the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation.
Gaming Holding's wholly owned subsidiaries are Aladdin Capital Corp., a
Nevada corporation, and Aladdin Gaming, LLC, a Nevada limited-liability company.
3. PREOPENING EXPENSES
The Company expenses preopening costs in the period during which they were
incurred.
4. INCOME TAXES
The Company will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
F-16
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (CONTINUED)
5. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of Aladdin Gaming Holdings, LLC's executive management have
purchased unvested restricted membership interests in 4.75% of Gaming Holdings,
LLC. These membership interests will vest over approximately a four-year period
beginning at the opening of the Aladdin Hotel and Casino. As of March 31, 1998,
none of these membership interests had vested.
6. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Act of 1933. The private offering consisted of 221,500 units (the
"Units"), each unit consisting of (i) $1,000 principal amount of maturity of
13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes was $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of March 31, 1998, the Note Construction Disbursement Account
comprised approximately $32.9 million remaining proceeds from the Offering,
after the application of the net proceeds to repay certain previously existing
indebtedness and certain fees and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
7. LONG-TERM DEBT
On February 26, 1998, Aladdin Gaming, LLC entered into a $410.0 million
Credit Agreement with various financial institutions and the Bank of Nova Scotia
as the administrative agent for the lenders. The Credit Agreement consists of a
Term A loan of $136.0 million, a Term B loan of $114.0 million and a Term C loan
of $160.0 million. Both the Term B and Term C loans were funded by the lenders
on February 26, 1998 and the funds are held by Aladdin Gaming, LLC for the
future development of the Aladdin. Under the Credit Agreement, the funds cannot
be utilized until the proceeds from the private offering are
F-17
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
completely exhausted and certain other conditions to disbursement have been
satisfied. As of March 31, 1998, the Term A Loan has not been funded.
The Term B loan is for a maximum term of 8.5 years from the date of funding
and the Term C loan is for a maximum of 10 years. The Term B loan bears interest
at rate of 7.883% until the funds are utilized for the project at which time the
rate increases to 9.383%. The Term C loan bears interest at a rate of 8.485%
until the funds are utilized for the project at which time the rate increases to
10.485%. In addition to quarterly interest payments, each loan has various
principal payment requirements once the Aladdin is completed and operating.
Except in the case of defaults, no principal repayments are required prior to
the opening of the Aladdin.
8. RESTRICTED LAND
12.4 acres of land was deeded to Aladdin Gaming, LLC on February 26, 1998,
with an obligation to transfer such land to Aladdin Bazaar, LLC at a future
date. Aladdin Bazaar, LLC intends to construct and operate, a themed
entertainment shopping mall and a 4,800 space car parking facility (the "Mall
Project"). The Mall Project is expected to be an integral part of the Aladdin
entertainment complex.
9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
F-18
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Aladdin Capital Corp.:
We have audited the accompanying balance sheet of ALADDIN CAPITAL CORP. (a
Nevada Corporation), as of December 31, 1997, and the related statements of
stockholders' equity and cash flows for the period from inception (December 1,
1997) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Capital Corp., as of
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 3, as to which
the date is February 26, 1998
F-20
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,000
---------
Total Assets...................................................................... $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock, no par value, 2,500 shares authorized, issued and outstanding......... $ 1,000
---------
Total Liabilities and Stockholders' Equity........................................ $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-21
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
ISSUED AMOUNT TOTAL
--------- --------- ---------
<S> <C> <C> <C>
BALANCE, December 1, 1997............................................................ -- $ -- $ --
Issuance of common stock............................................................. 2,500 1,000 1,000
--------- --------- ---------
BALANCE, December 31, 1997........................................................... 2,500 $ 1,000 $ 1,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-22
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of stock............................................... $ 1,000
---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 1,000
CASH AND CASH EQUIVALENTS, December 1, 1997......................................... --
---------
CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-23
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Capital Corp., a Nevada corporation ("Capital"), was established on
December 1, 1997. Capital is wholly owned by Aladdin Gaming Holdings, LLC, a
Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a
Delaware limited liability company ("Holdings"), indirectly holds a majority
interest in Gaming Holdings. The members of Holdings are the Trust Under Article
Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in
Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly
owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest
in Holdings.
Since the planned principal operations had not commenced as of December 31,
1997, Capital has accounted for its operations as a development stage company.
There were no operations during the period from inception (December 1, 1997)
through December 31, 1997 and hence no statement of income has been prepared.
2. INCOME TAXES
Capital accounts for income taxes using the liability method as set forth in
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES. Under the liability method, deferred taxes are provided based on the
temporary differences between the financial reporting basis and the tax basis of
Capital's assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 1, 1997) through December 31, 1997 as Capital is a
development stage company and operations have not yet commenced.
3. SUBSEQUENT EVENTS
Private Offering
On February 26, 1998, Gaming Holdings, Capital (together with Gaming
Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a
private offering (the "Offering") under Rule 144A of the Securities Exchange Act
of 1933. The private offering consisted of 221,500 units (the "Units"), each
unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior
Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10
Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common
Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming,
LLC. The Note Construction Disbursement Account is comprised of approximately
$35 million remaining proceeds from the Offering, after the application of the
net proceeds to repay certain previously existing indebtedness and certain fees
and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
F-24
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-25
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,000
---------
Total Assets.................................................................. $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock, no par value, 2,500 shares authorized, issued and outstanding......... $ 1,000
---------
Total Liabilities and Stockholders' Equity.................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Capital Corp., a Nevada corporation ("Capital"), was established on
December 1, 1997. Capital is wholly owned by Aladdin Gaming Holdings, LLC, a
Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a
Delaware limited liability company ("Holdings"), indirectly holds a majority
interest in Gaming Holdings. The members of Holdings are the Trust Under Article
Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in
Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly
owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest
in Holdings.
Capital was formed for the sole purpose of being a joint issuer of the
13 1/2% Senior Discount Notes due 2010 (See "Private Offering"). There were no
operations or cash transactions during the period from December 31, 1997 through
March 31, 1998 and hence no statement of income or cash flows has been prepared.
2. INCOME TAXES
Capital accounts for income taxes using the liability method as set forth in
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES. Under the liability method, deferred taxes are provided based on the
temporary differences between the financial reporting basis and the tax basis of
Capital's assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 1, 1997) through March 31, 1998 as Capital is a development
stage company and operations have not yet commenced.
3. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Capital (together with Gaming
Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a
private offering (the "Offering") under Rule 144A of the Securities Act of 1933.
The private offering consisted of 221,500 units (the "Units"), each unit
consisting of (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount
Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants
(the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no
par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes was $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of March 31, 1998, the Note Construction Disbursement Account
comprised approximately $32.9 million remaining proceeds from the Offering,
after the application of the net proceeds to repay certain previously existing
indebtedness and certain fees and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make
F-27
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 (CONTINUED)
3. PRIVATE OFFERING (CONTINUED)
other distributions; (v) enter into mergers or consolidations; (vi) enter into
certain transactions with affiliates or (vii) enter into new lines of business.
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income.
In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
F-28
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Members of
Aladdin Gaming, LLC:
We have audited the accompanying balance sheet of ALADDIN GAMING, LLC (a
Nevada Limited-Liability Company), as of December 31, 1997, and the related
statements of members' equity and cash flows for the period from inception
(January 24, 1997) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Gaming, LLC, as of
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 4, as to which
the date is February 26, 1998.
F-30
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 5,650
---------
Total Assets...................................................................... $ 5,650
---------
---------
LIABILITIES AND MEMBERS' EQUITY
Due to Aladdin Gaming Holdings, LLC................................................. $ 4,650
Members' equity..................................................................... 1,000
---------
Total Liabilities and Members' Equity............................................. $ 5,650
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-31
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
BALANCE, January 24, 1997........................................................... $ --
Members' contribution............................................................... 1,000
---------
BALANCE, December 31, 1997.......................................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Aladdin Gaming Holdings, LLC............................................... $ 4,650
Members' contributions............................................................ 1,000
---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 5,650
CASH AND CASH EQUIVALENTS, January 24, 1997......................................... --
<CAPTION>
---------
<S> <C>
CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 5,650
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-33
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Gaming, LLC, a Nevada limited-liability company (the "Company"), was
established on January 24, 1997. The Company is wholly owned by Aladdin Gaming
Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin
Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly
holds a majority interest in Gaming Holdings. The members of Holdings are the
Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds
a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability
company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"),
which holds a 5% interest in Holdings.
The Company term is 100 years. Distributions shall be made in accordance
with the respective ownership interests subject to the Company's operating
agreement.
Since the planned principal operations had not commenced as of December 31,
1997, the Company has accounted for its operations as a development stage
company. There were no operations during the period from inception (January 24,
1997) through December 31, 1997 and hence no statement of income has been
prepared.
2. INCOME TAXES
The Company will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
3. COMMITMENTS
The Company has entered into a consulting agreement with GAI, LLC to render
consulting services as are reasonably requested by the Board of the Company
until June 30, 2002.
The Company has entered into a commitment letter with an equipment finance
company for provision of approximately $80.0 million of financing to obtain
gaming and other specified equipment. The financing will be comprised of $60.0
million of operating leases and $20.0 million in loans.
The Company has entered into a commitment letter with certain bank lenders
for the provision of a bank credit facility. The facility will consist of three
separate term loans (Term Loan A, B and C) of $136.0 million, $114.0 million and
$160.0 million, respectively. Term A, B and C Loans will mature seven, eight and
one-half and ten years after their respective borrowing dates, respectively.
4. SUBSEQUENT EVENTS
Private Offering
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Exchange Act of 1933. The private offering consisted of 221,500 units
(the "Units"), each unit consisting of (i) $1,000 principal amount at maturity
of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the 'Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will
F-34
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. SUBSEQUENT EVENTS (Continued)
accrue at the rate of 13 1/2% per annum based on the accreted value at maturity
of the Notes and will be payable semi-annually in arrears on March 1 and
September 1 of each year, commencing on September 1, 2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in the Company. The
Note Construction Disbursement Account is comprised of approximately $35 million
remaining proceeds from the Offering, after the application of the net proceeds
to repay certain previously existing indebtedness and certain fees and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability if the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
Equity Contributions
Gaming Holdings contributed land appraised at $150.0 million, approximately
$42 million in cash from a contribution from London Clubs Nevada Inc. ("LCNI")
and $7.0 million of predevelopment costs in exchange for 100% of the common
membership interests in the Company. Gaming Holdings also contributed $115
million in cash consisting of the net proceeds of the sale of the Units and
approximately $8 million from LCNI to the Company in exchange for 100% of the
Series A Preferred Interests.
Bank Indebtedness
On February 26, 1998, the Company entered into the bank credit facility for
$410 million as discussed above in Note 3.
F-35
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-36
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
(UNAUDITED)
ASSETS
Cash.............................................................................................. $ 405,314
Property and equipment:
Land............................................................................................ 33,407,500
Furniture and equipment......................................................................... 546,976
Construction in progress........................................................................ 13,492,315
Capitalized interest............................................................................ 398,160
--------------
Total property and equipment................................................................ 47,844,951
--------------
Other assets:
Due from Parent (Aladdin Gaming Holdings, LLC).................................................. 32,882,836
Restricted cash................................................................................. 275,405,744
Restricted land................................................................................. 6,842,500
Other assets.................................................................................... 1,964,434
Debt issuance costs, net of accumulated amortization of $167,849 as of March 31, 1998........... 26,004,300
--------------
Total other assets.......................................................................... 343,099,814
--------------
Total assets...................................................................................... $ 391,350,079
--------------
--------------
<CAPTION>
LIABILITIES AND MEMBER'S EQUITY
<S> <C>
Current liabilities:
Current maturities of long-term debt............................................................ $ 187,324
Payable to related parties...................................................................... 359,384
Obligation to transfer land..................................................................... 6,842,500
Accrued expenses................................................................................ 3,627,849
--------------
Total current liabilities................................................................... 11,017,057
--------------
Long-term debt.................................................................................... 274,314,429
Members' equity:
Preferred membership interest................................................................... 115,047,100
Common membership interest...................................................................... 3,333,563
Accumulated Deficit............................................................................. (12,362,070)
--------------
Total members' equity....................................................................... 106,018,593
--------------
Total liabilities and members' equity....................................................... $ 391,350,079
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (JANUARY 24, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998 FOR THE PERIOD
-------------- JANUARY 24, 1997
(INCEPTION)
(UNAUDITED) THROUGH
MARCH 31, 1998
------------------
(UNAUDITED)
<S> <C> <C>
Pre-opening costs............................................................. $ 11,462,928 $ 11,462,928
Other (income) expense:
Interest income............................................................. (1,584,938) (1,584,938)
Interest expense............................................................ 2,882,240 2,882,240
Less: Interest capitalized.................................................. (398,160) (398,160)
-------------- ------------------
Total other (income) expense.............................................. 899,142 899,142
-------------- ------------------
Net loss...................................................................... $(12,362,070) $ (12,362,070)
-------------- ------------------
-------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 1997
THROUGH MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1997.................................................... $ 1,000
Net loss...................................................................... (12,362,070)
Member's contribution -- preferred interest................................... 115,047,100
Member's contribution -- common interest...................................... 3,332,563
-----------
BALANCE, MARCH 31, 1998....................................................... 106,018,593
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (JANUARY 24, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD JANUARY
FOR THE THREE MONTHS 24,
ENDED 1997 (INCEPTION) THROUGH
MARCH 31, 1998 MARCH 31, 1998
(UNAUDITED) (UNAUDITED)
-------------------- ------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (12,362,070) $ (12,362,070)
Increase in other assets....................................... (1,964,434) (1,964,434)
Amortization of debt costs..................................... 167,849 167,849
Increase in accrued expenses................................... 3,627,849 3,627,849
Increase in accrued fee to related party....................... 359,384 359,384
-------------------- -------------
Net cash used in operating activities............................ (10,171,422) (10,171,422)
-------------------- -------------
Cash flows from investing activities:
Payments for construction in progress and capitalized
interest..................................................... (6,890,475) (6,890,475)
Increase in restricted cash.................................... (275,405,744) (275,405,744)
-------------------- -------------
Net cash used in investing activities............................ (282,296,219) (282,296,219)
-------------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt................................... 274,000,000 274,000,000
Repayment of long-term debt.................................... (45,223) (45,223)
Debt issuance costs............................................ (26,172,149) (26,172,149)
Member's contributions......................................... 77,972,163 77,973,163
Payable/(Receivable) from/to parent (Aladdin Gaming Holdings,
LLC)......................................................... (33,887,486) (33,882,836)
-------------------- -------------
Net cash provided by financing activities........................ 292,867,305 292,872,955
-------------------- -------------
Net increase in cash............................................. 399,664 405,314
Cash at the beginning of the period.............................. 5,650 --
-------------------- -------------
Cash at the end of the period.................................... $ 405,314 $ 405,314
-------------------- -------------
-------------------- -------------
Cash paid for interest, net of amount capitalized................ $ 364,756 $ 364,756
Non-cash investing and financing activities:
Member's contributions -- book value
Land......................................................... 33,407,500 33,407,500
Construction in progress..................................... 7,000,000 7,000,000
Equipment acquired equal to assumption of debt................. 546,976 546,976
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming, LLC, a Nevada limited company (the "Company"), was
established on January 24, 1997. The Company is wholly owned by Aladdin Gaming
Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin
Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly
holds a majority interest in Gaming Holdings. The members of Holdings are the
Trust under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds
a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability
company ("GW), a wholly owned subsidiary of Trust Company of the West ("TCW),
which holds a 5% interest in Holdings.
The Company term is 100 years. Distributions shall be made in accordance
with the respective ownership interest subject to the Company's operating
agreement.
The Company plans to develop, construct and operate a new hotel and casino,
the Aladdin Hotel and Casino (the "Aladdin"), as the centerpiece of an
approximately 35 acre world-class resort, casino and entertainment complex in
Las Vegas, Nevada. The resort will be located at the center of Las Vegas
Boulevard ("the strip").
2. PRE-OPENING EXPENSES
The Company expenses pre-opening costs in the period during which they were
incurred.
3. INCOME TAXES
The Company will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
4. COMMITMENTS
The Company has entered into a consulting agreement with GAI, LLC to render
consulting services as are reasonably requested by the Board of the Company
until June 30, 2002.
The Company has entered into a commitment letter with an equipment finance
company for provision of approximately $80.0 million of financing to obtain
gaming and other specified equipment. The financing will be comprised of $60.0
million of operating leases and $20.0 million in loans.
5. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Act of 1933. The private offering consisted of 221,500 units (the
"Units"), each unit consisting of (i) $1,000 principal amount of maturity of
13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes was $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
F-41
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
5. PRIVATE OFFERING (CONTINUED)
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of March 31, 1998, the Note Construction Disbursement Account
comprised approximately $32.9 million remaining proceeds from the Offering,
after the application of the net proceeds to repay certain previously existing
indebtedness and certain fees and expenses. This amount is reflected on the
Company's balance sheet as Due from Parent (Aladdin Gaming Holdings, LLC) as the
funds are held by the Parent company until disbursed.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
6. LONG-TERM DEBT
On February 26, 1998, Aladdin Gaming, LLC entered into a $410.0 million
Credit Agreement with various financial institutions and the Bank of Nova Scotia
as the administrative agent for the lenders. The Credit Agreement consists of a
Term A loan of $136.0 million, a Term B loan of $114.0 million and a Term C loan
of $160.0 million. Both the Term B and Term C loans were funded by the lenders
on February 26, 1998 and the funds are held by Aladdin Gaming, LLC for the
future development of the Aladdin. Under the Credit Agreement, the funds cannot
be utilized until the proceeds from the private offering are completely
exhausted and certain other conditions to disbursement have been satisfied. As
of March 31, 1998, the Term A Loan has not been funded.
The Term B loan is for a maximum term of 8.5 years from the date of funding
and the Term C loan is for a maximum of 10 years. The Term B loan bears interest
at rate of 7.883% until the funds are utilized for the project at which time the
rate increases to 9.383%. The Term C loan bears interest at a rate of 8.485%
until the funds are utilized for the project at which time the rate increases to
10.485%. In addition to quarterly interest payments, each loan has various
principal payment requirements once the Aladdin is completed and operating.
Except in the case of defaults, no principal repayments are required prior to
the opening of the Aladdin.
7. RESTRICTED LAND
Approximately 12.4 acres of land was deeded to the Company on February 26,
1998, with an obligation to transfer such land to Aladdin Bazaar, LLC at a
future date. Aladdin Bazaar, LLC intends to construct and operate a themed
entertainment shopping mall and a 4,800-space car parking facility (the "Mall
Project"). The Mall Project is expected to be an integral part of the Aladdin
entertainment complex.
F-42
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
8. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
F-43
<PAGE>
ANNEX A
CERTAIN HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LONDON CLUBS
London Clubs owns 25% of Holdings and, as described on pages 23 and 24, has
entered into the Bank Completion Guaranty, the Noteholder Completion Guaranty
and the Keep-Well Agreement in connection with the construction of the Aladdin.
Following is certain historical consolidated financial information of London
Clubs. The Registrant does not intend to provide this information in its
periodic filings following this registration statement. The 1996, 1997 and 1998
full year financial information for London Clubs set forth herein has been
extracted from the 1998 London Clubs' financial statements included on pages A-2
to A-35 and from the 1997 London Clubs' financial statements. Potential
investors should note that such information has been calculated and presented in
accordance with United Kingdom generally accepted accounting principles, which
are not consistent with, and materially differ from, United States generally
accepted accounting principles. Such information is expressed in thousands of
United Kingdom pounds sterling (L'000).
INDEX TO HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LONDON CLUBS
INTERNATIONAL, PLC
<TABLE>
<S> <C>
Consolidated Profit and Loss Data for the 52 weeks ended March 24, 1996, the 53 weeks
ended March 30, 1997 and the 52 weeks ended March 29, 1998......................... A-2
Consolidated Balance Sheet Data at March 24, 1996, March 30, 1997 and March 29,
1998............................................................................... A-3
Directors' Report and Accounts for the 52 weeks ended March 29, 1998................. A-4
</TABLE>
A-1
<PAGE>
LONDON CLUBS INTERNATIONAL, PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(IN THOUSANDS OF POUNDS STERLING)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
MARCH 24, 1996 MARCH 30, 1997 MARCH 29, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Turnover......................................................... L167,357 L179,489 L167,947
Operating Costs.................................................. (133,078) (143,092) (140,314)
-------------- -------------- --------------
Operating profit................................................. 34,279 36,397 27,633
Net interest payable............................................. (1,007) (1,154) (513)
-------------- -------------- --------------
Profit on ordinary activities before taxation.................... 33,272 35,243 27,120
Tax on ordinary activities....................................... (11,985) (12,588) (7,251)
-------------- -------------- --------------
Profit on ordinary activities after taxation..................... 21,287 22,655 19,869
Dividends paid and proposed...................................... (10,970) (11,679) (10,173)
-------------- -------------- --------------
Transfer to reserves............................................. L10,317 L10,976 L9,696
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
A-2
<PAGE>
LONDON CLUBS INTERNATIONAL, PLC
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF POUNDS STERLING)
<TABLE>
<CAPTION>
AT MARCH 24, AT MARCH 30, AT MARCH 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Fixed assets........................................................... L160,191 L224,312 L248,146
Current assets:
Stocks............................................................... 1,158 1,353 1,228
Debtors.............................................................. 8,523 11,818 15,023
Cash at bank and in hand............................................. 29,886 34,872 14,413
------------ ------------ ------------
Total Current Assets............................................... 39,567 48,043 30,664
Creditors (amounts falling due within one year)........................ (51,369) (62,287) (41,420)
------------ ------------ ------------
Net current liabilities.............................................. (11,802) (14,244) (10,756)
Total assets less current liabilities................................ 148,389 210,068 237,390
------------ ------------ ------------
Creditors (amounts falling due after one year)......................... (32,722) (24,816) (58,881)
Provision for liabilities and charges.................................. (517) (317) (966)
------------ ------------ ------------
L115,150 L184,935 L177,543
------------ ------------ ------------
------------ ------------ ------------
Capital and reserves:
Called up share capital.............................................. 3,539 7,078 7,345
Share premium........................................................ 78,067 74,528 80,103
Other reserves....................................................... 30,337 91,088 75,088
Profit and loss account.............................................. 3,207 12,241 15,007
------------ ------------ ------------
L115,150 L184,935 L177,543
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A-3
<PAGE>
LONDON CLUBS INTERNATIONAL PLC
DIRECTORS' REPORT AND ACCOUNTS
for the
52 weeks ended 29 March 1998
Registered number: 2862479
A-4
<PAGE>
DIRECTORS' REPORT
The directors have pleasure in presenting their report and the audited
financial statements of London Clubs International plc and its subsidiary and
associated undertakings for the 52 weeks ended 29 March 1998. The financial
statements, which were approved by the directors on 19 June 1998, are shown on
pages A-14 to A-35.
ACTIVITIES
The Group's principal activity is the operation of casinos.
The Group operates seven casinos in London, one in Beirut, Lebanon and three
in Egypt.
On 1 May 1997, the Company completed the purchase of the freehold of 50 St
James's Street, London W1, for a total consideration of L13.6 million. The
premises, which are currently being refurbished as a casino, will re-open as '50
St James' on 1 July 1998. The casino currently operated by the Group as The Ritz
Club will be closed upon the expiry of the Group's lease on 30 June 1998.
The Group's concessions to operate casinos on three cruise liners were
discontinued in January 1998.
On 25 February 1998 the Group was awarded a licence to operate a casino in
the Gauteng Province of South Africa.
On 26 February 1998 the Company and the Aladdin Gaming Corporation entered
into an agreement under which the Company invested US$50 million for a 25 per
cent equity interest in the Aladdin hotel and casino complex in Las Vegas which
is currently being redeveloped. The Company has a management contract to operate
the premium player facilities within the complex. The redeveloped casino will
re-open during the year 2000. The Company has issued a number of guarantees to
the providers of loan finance for the project. These include a Completion and
Performance Guarantee and a Keep Well Agreement.
On 28 April 1998, the Rendezvous Casino transferred its business to newly
refurbished larger premises at 14 Old Park Lane, London W1 upon the expiry of
the Group's lease of premises at the Hilton Hotel, London.
On 12 June 1998 the Group sold LCL (France) S.A. et Cie, the company which
owns and operates the Carlton Casino in Cannes, France.
A review of the business of the Company and its subsidiary and associated
undertakings and an indication of likely future developments are contained in
the Chairman's Statement on pages 2 and 3 and the Chief Executive's Review on
pages 4 and 5.
RESULTS AND DIVIDENDS
The Group's profit on ordinary activities after taxation was L19,869,000
(1997: L22,655,000). The directors propose a final dividend of 4.3 pence (1997:
5.625 pence) net per ordinary share amounting to L6,317,000. This, together with
the interim dividend of 2.625 pence (1997: 2.625 pence) net per ordinary share
paid on 30 January 1998, makes a total of 6.925 pence (1997: 8.25 pence) net per
ordinary share for the year. The final dividend, if approved, will be paid on 31
July 1998 to shareholders on the register at the close of business on 26 June
1998.
The retained profit transferred to reserves amounted to L9,696,000 (1997:
L10,976,000).
DIRECTORS
The directors who have served since 31 March 1997 are as follows:
Sir Timothy Kitson
A L Goodenough
A-5
<PAGE>
DIRECTOR'S REPORT (CONTINUED)
P Byrne
G B C Hardy
R R C Hobbs
T Hodgson (retired 6 June 1997)
R A Wood
R A C Ramm (appointed 8 June 1998)
At the forthcoming annual general meeting Mr R R C Hobbs and Sir Timothy
Kitson retire by rotation pursuant to the Articles of Association and, being
eligible, offer themselves for re-election. Having been appointed since the
previous annual general meeting, Mr R A C Ramm will also retire at the annual
general meeting and, being eligible, offer himself for election.
The interests of the directors in the share capital of the Company are set
out in note 6 to the financial statements.
During their period in office, no director has had a material interest,
directly or indirectly, at any time during the year in any contract significant
to the business of the Group.
SUBSTANTIAL INTERESTS
As at 12 June 1998 the Company had received notification of the following
interests exceeding 3 per cent of the Company's share capital:
<TABLE>
<S> <C>
Merrill Lynch & Co., Inc.............. 19.62%
Schroder Investment Management
Limited............................... 18.08%
Jupiter Asset Management.............. 7.68%
Lloyds TSB Group plc.................. 3.70%
</TABLE>
SHARE CAPITAL
Changes to the share capital of the Company are set out in note 17 to the
financial statements.
Approval will be sought at the annual general meeting to renew the authority
granted to the directors to allot unissued ordinary shares in the capital of the
Company and to obtain authority to allot shares for cash otherwise than to
existing shareholders pro-rata to their holdings.
Resolution 7 will renew the directors' authority to allot relevant
securities up to an aggregate nominal amount of L2,423,927 representing 33 per
cent of the current issued share capital (being 48,478,551 ordinary shares).
Resolution 8 is a Special Resolution to renew the directors' authority under
Section 95 of the Companies Act 1985 to allot a limited number of shares for
cash up to an aggregate nominal amount of L367,261 representing 5 per cent of
the current issued ordinary share capital of the Company (being 7,345,235
ordinary shares).
The proposed authorities conform with the guidelines issued by the
institutional investment protection bodies to ensure that existing shareholders'
interests are safeguarded and, if granted, will expire at the earlier of the
conclusion of the annual general meeting in 1999 and the date 15 months from the
date the requisite authorities are granted.
LONG TERM PERFORMANCE PLAN
The Board proposes that a resolution be put to the annual general meeting to
approve the introduction of a share based long term performance plan for
executive directors and senior management of the Group. Full details are set out
in a circular to shareholders which accompanies this annual report.
A-6
<PAGE>
DIRECTOR'S REPORT (CONTINUED)
SUPPLIER PAYMENT TERMS
It is the Group's policy and practice to agree appropriate payment terms and
conditions individually with its suppliers, having regard to the spirit of the
CBI's Prompt Payers Code.
The average number of days outstanding for trade creditors at 29 March 1998
was 34 (1997: 32). This figure takes into account the overseas operations, but
excludes the effect of certain demand payments.
EMPLOYMENT OF DISABLED PERSONS
The Group recognises its obligations towards disabled persons and endeavours
to provide as much employment as the demands of the Group's operations and the
abilities of disabled persons allow.
Applications for employment from disabled persons are studied with care and
every effort is made to find them, and any existing employees who become
disabled, appropriate work and training where it is needed.
EMPLOYEE INVOLVEMENT
The Group is committed wherever possible to employee consultation and
thereby to their involvement in the development of the Group's operations.
In January 1998 the Company introduced a Savings Related Share Option
Scheme. 828 employees participated in the scheme representing approximately 46
per cent of those eligible.
YEAR 2000
The Group has conducted an assessment of the principal software in use
within the business to identify modifications required to ensure "year 2000"
compliance. All business critical systems have been found to be compliant. The
modification or replacement of non compliant systems will be continued during
1998/99.
CHARITABLE DONATIONS
Charitable donations amounting to L33,000 (1997: L48,000) were paid during
the year.
TAXATION STATUS
The Company is not a close company for taxation purposes.
AUDITORS
Price Waterhouse have expressed their willingness to continue as auditors
and a resolution concerning their re-appointment will be proposed at the
forthcoming annual general meeting.
It has been announced that Price Waterhouse plans to merge with Coopers &
Lybrand on 1 July 1998. Assuming that merger takes place, your directors intend
that, should Price Waterhouse be re-appointed at the annual general meeting, the
new firm, PricewaterhouseCoopers, will succeed to their appointment.
BY ORDER OF THE BOARD
R I Talbot,
SECRETARY
19 June 1998
A-7
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE
TERMS OF REFERENCE
The remuneration committee comprises all the non-executive directors of the
Company and is chaired by Mr R R C Hobbs. It is responsible for deciding on all
elements of the remuneration of the executive directors, including base
salaries, performance related bonuses, share based incentive schemes and other
benefits.
COMPENSATION POLICY
The compensation of the executive directors is set by the remuneration
committee of the Board. It is the policy of the committee to provide an overall
remuneration and benefits package to enable it to attract and retain a high
calibre group of senior management who hold the necessary White Certificates'
required under the Gaming Act and who are capable of delivering the strategic
objectives of the Group on behalf of the shareholders.
The Company has complied throughout the year with Section A of the Best
Practice Provisions annexed to the London Stock Exchange Listing Rules. In
framing its compensation policy, the committee has given full consideration to
Section B of the best practice provisions annexed to the Listing Rules of the
London Stock Exchange.
The remuneration of the directors is shown in note 5 to the financial
statements.
SALARIES
These reflect the executives' experience, responsibility and commitment.
Basic salary levels are measured against those paid in comparable gaming
companies.
The executive directors' current salaries were agreed on 1 October 1994 and
are not subject to review until September 1998.
BONUS AND INCENTIVE SCHEMES
The Group is committed to the principle of relating a substantial proportion
of the total remuneration of senior management to the Group's financial
performance and has established various annual incentive bonus schemes covering
both executive directors and senior management.
As notified in the circular accompanying this annual report, there is
submitted for shareholder approval a long term performance plan, which applies
from 1998 onwards to all of the executive directors, as well as to certain other
senior management. This new plan will replace grants under the Company's
executive share option scheme for those participants.
The new plan is designed to align the interests of executive directors and
senior management with those of shareholders, to encourage increased
shareholding to assist with the attraction and retention of individuals who will
be crucial to the Group's success in the coming years and to reward sustained
good performance over a period of time.
In January 1998, the Company's savings related share scheme was introduced
for all UK employees in which the executive directors also participate.
Details of the options granted to executive directors under the executive
share option scheme and savings related option scheme and the options exercised
during the year are shown in note 6 to the financial statements.
A-8
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE (CONTINUED)
PENSIONS
Mr A L Goodenough, Mr G B C Hardy and Mr R A C Ramm have personal pension
arrangements to which the Group makes an annual contribution.
Mr P Byrne is an executive member of the main London Clubs contributory
pension scheme.
None of the non-executive directors participate in the Company pension
arrangements nor do they receive any contribution towards pension provision.
SERVICE CONTRACTS
Mr A L Goodenough, Mr P Byrne and Mr G B C Hardy have service contracts
which may be terminated on two years' notice.
Mr R A C Ramm has a service contract for a fixed initial term until 29
December 2000. The contract may be terminated thereafter on one year's notice.
In establishing the notice periods prescribed within the directors' service
contracts, the committee were mindful of the need to protect shareholders'
interests by ensuring continuity of appropriately experienced and licensed
management. In view of the competitive environment and the need to attract and
retain executives of the highest calibre, the committee continues to consider
the relevant contract periods to be appropriate.
OTHER BENEFITS
Each executive director is provided with a fully expensed car, permanent
health insurance, life assurance and family medical insurance.
R R C Hobbs,
CHAIRMAN OF THE REMUNERATION COMMITTEE
19 June 1998
A-9
<PAGE>
CORPORATE GOVERNANCE
The Board complies with the recommendations of the Code of Best Practice
("the Code") issued in 1992 by the Committee on the Financial Aspects of
Corporate Governance (the Cadbury Committee). The Group complies, and has fully
complied throughout the accounting period, with all the current requirements of
the Code and the annual report includes all the disclosures currently required
by the Code.
GOING CONCERN
The directors have a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for the foreseeable
future. For this reason, they continue to adopt the going concern basis in
preparing the financial statements.
INTERNAL FINANCIAL CONTROLS
The directors are required to ensure that the Group's systems of internal
control are appropriate given the scale and type of risk being managed, the
likelihood of the risk materialising and the cost of implementing the controls
necessary to manage the risk. The existence of appropriate internal controls
provides reasonable assurance that the Group's operations are efficiently and
effectively managed, that internal financial controls are in place and that the
Group complies with its legal and regulatory obligations. However, any such
system can only provide reasonable, and not absolute, assurance against
misstatement or loss.
The Company's internal financial control and monitoring procedures include:
- clear responsibilities on the part of management for the maintenance of
appropriate financial controls and the production of accurate and timely
financial management information;
- the control of key financial risks through authorisation levels,
segregation of duties and written procedures manuals where relevant;
- the preparation of detailed monthly budgets and the comparison by
management of trading results and cash flows against budget on a regular
basis; and
- the review of internal financial controls by the audit committee in
consultation with the external auditors.
The Group operates in a highly regulated environment and an independent
compliance function reporting to the compliance committee has been developed to
ensure adherence with all local and national requirements and the Group's own
gaming procedures. Audits of all gaming operations take place at regular
intervals and their recommendations are presented to the compliance committee.
The Board has reviewed the effectiveness of the Group system of internal
financial controls for the period covered by the financial statements. In
addition, the gaming activities of the Group are also subject to review by the
Gaming Board in the UK and by the relevant government authorities for the
overseas operations.
The Group has a well defined operational/management hierarchy and
organisational structure. Terms of reference exist for all principal committees
within the Group and the roles and responsibilities of senior executives and key
members of staff are clearly defined.
THE BOARD
The Board currently comprises four executive directors and three
non-executive directors. The Board meets regularly throughout the year and has a
formal schedule of matters reserved for its decision and approval including
responsibility for the overall Group strategy, approval of major capital
expenditure,
A-10
<PAGE>
financing arrangements, the establishing and monitoring of internal controls and
compliance with gaming regulations.
The Board has also established separate audit, compliance, remuneration and
nominations committees, the membership and main responsibilities of which are
set out below:
AUDIT COMMITTEE
The members of this committee are Mr R R C Hobbs (Chairman), Sir Timothy
Kitson and Mr R A Wood. The audit committee meets as required but not less than
twice a year. Its responsibilities include a critical view of the annual and
interim financial statements (including the Board's statement on internal
control in the Group's Annual Report) prior to their submission to the Board for
approval.
COMPLIANCE COMMITTEE
The members of this committee are Mr W A Galston OBE (Chairman and non-Board
member), Mr R R C Hobbs, Sir Timothy Kitson, Mr R A Wood and Mr R A C Ramm. The
compliance committee meets as required but not less than four times per year.
The committee's principal responsibility is to satisfy itself, through the
Group's compliance function, that appropriate and effective procedures exist
within the Group to ensure compliance with all gaming laws, regulations and
guidelines.
REMUNERATION COMMITTEE
Details of the remuneration committee, including membership are set out in
its report on pages 20 and 21.
NOMINATIONS COMMITTEE
The members of this committee are Sir Timothy Kitson (Chairman), Mr A L
Goodenough, Mr R R C Hobbs and Mr R A Wood. The committee's role is to identify
and nominate candidates for future Board appointments for consideration by the
whole Board.
A-11
<PAGE>
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company and the Group as at the end of the financial year and
of the profit or loss for the financial year.
The directors have prepared the financial statements on pages A-14 to A-35
on a going concern basis and consider that the Group has used appropriate
accounting policies, consistently applied and supported by reasonable and
prudent judgements and estimates and that all accounting standards which they
consider to be applicable have been followed.
The directors have responsibility for ensuring that the Group keeps
accounting records which disclose with reasonable accuracy the financial
position of the Group and which enable them to ensure that the financial
statements comply with the Companies Act 1985.
The directors have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
REPORT BY THE AUDITORS TO THE DIRECTORS OF LONDON CLUBS INTERNATIONAL PLC ON
CORPORATE GOVERNANCE MATTERS
In addition to our audit of the financial statements we have reviewed your
statement on pages A-10 and A-11 concerning the Group's compliance with the
paragraphs of the Cadbury Code of Best Practice specified for our review by the
London Stock Exchange and the adoption of the going concern basis in preparing
the financial statements. The objective of our review is to draw attention to
non-compliance with Listing Rules 12.43(j) and 12.43(v), if not otherwise
disclosed.
BASIS OF OPINION
We carried out our review having regard to guidance issued by the Auditing
Practices Board. That guidance does not require us to perform the additional
work necessary to, and we do not, express any opinion on the effectiveness of
either the Group's system of internal financial control or corporate governance
procedures nor on the ability of the Group to continue in operational existence.
OPINION
In our opinion, your statements on internal financial control and on going
concern on page A-10, have provided the disclosures required by the Listing
Rules referred to above and are consistent with the information which came to
our attention as a result of our audit work on the financial statements.
In our opinion, based on enquiry of certain directors and officers of the
Company and examination of relevant documents, your statement on pages A-10 and
A-11 appropriately reflects the Group's compliance with the other aspects of the
Code specified for our review by Listing Rule 12.43(j).
Price Waterhouse
CHARTERED ACCOUNTANTS
London
19 June 1998
A-12
<PAGE>
The following represents the statutory audit report of Price Waterhouse,
London, whose audit was performed in accordance with generally accepted auditing
standards in the United Kingdom (UK). The accompanying financial statements have
been prepared in accordance with UK generally accepted accounting principles.
REPORT OF THE AUDITORS TO THE MEMBERS OF LONDON CLUBS INTERNATIONAL PLC
We have audited the financial statements on pages A-14 to A-35 which have
been prepared under the historical cost convention, as modified by the
revaluation of certain fixed assets, and the accounting policies set out on
pages A-19 and A-20.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page A-12, the Company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination on a test basis of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company and of the Group as at 29 March 1998 and of the
profit and cash flows of the Group for the period then ended and have been
properly prepared in accordance with the Companies Act 1985.
PRICE WATERHOUSE
CHARTERED ACCOUNTANTS
AND REGISTERED AUDITORS
London
19 June 1998
A-13
<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------------- ---------------------
NOTES L'000 L'000 L'000 L'000
-----
<S> <C> <C> <C> <C> <C>
Turnover..................................................... 2 167,947 179,489
Operating costs
Gaming taxation............................................ (47,418) (51,708)
Other...................................................... (75,218) (74,134)
--------- ---------
(122,636) (125,842)
---------- ----------
Gross profit................................................. 45,311 53,647
Administrative expenses
Exceptional bid costs...................................... (202) (1,080)
Other...................................................... (17,476) (16,170)
--------- ---------
(17,678) (17,250)
---------- ----------
Operating profit............................................. 3 27,633 36,397
Net interest payable......................................... 7 (513) (1,154)
---------- ----------
Profit on ordinary activities before taxation................ 2 27,120 35,243
Tax on ordinary activities................................... 8 (7,251) (12,588)
---------- ----------
Profit on ordinary activities after taxation................. 19,869 22,655
Dividends paid and proposed.................................. 9 (10,173) (11,679)
---------- ----------
Transfer to reserves......................................... 18 9,696 10,976
---------- ----------
Earnings per share........................................... 10 13.6p 16.0p
---------- ----------
Earnings per share before exceptional bid costs.............. 10 13.8p 16.8p
---------- ----------
</TABLE>
The notes on pages A-19 to A-35 form part of these financial statements.
A-14
<PAGE>
\
CONSOLIDATED BALANCE SHEET
AS AT 29 MARCH 1998
<TABLE>
<CAPTION>
NOTES 29 MARCH 1998 30 MARCH 1997
----- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
Fixed assets
Tangible assets............................................. 11 217,651 219,646
Investments................................................. 12 30,495 4,666
--------- --------- --------- ---------
248,146 224,312
Current assets
Stocks...................................................... 1,228 1,353
Debtors..................................................... 13 15,023 11,818
Cash at bank and in hand.................................... 14,413 34,872
--------- ---------
30,664 48,043
Creditors (amounts falling due within one year)............... 14 (41,420) (62,287)
--------- --------- --------- ---------
Net current liabilities....................................... (10,756) (14,244)
--------- ---------
Total assets less current liabilities......................... 237,390 210,068
Creditors (amounts falling due after one year)................ 15 (58,881) (24,816)
Provision for liabilities and charges......................... 16 (966) (317)
--------- ---------
177,543 184,935
--------- ---------
--------- ---------
Capital and reserves
Called up share capital..................................... 17 7,345 7,078
Share premium............................................... 18 80,103 74,528
Merger reserve.............................................. 5,352 5,352
Revaluation reserve......................................... 18 69,736 85,736
Profit and loss account..................................... 18 15,007 12,241
--------- ---------
177,543 184,935
--------- ---------
--------- ---------
</TABLE>
Approved on behalf of the Board on 19 June 1998.
Sir Timothy Kitson
G B C Hardy
DIRECTORS
The notes on pages A-19 to A-35 form part of these financial statements.
A-15
<PAGE>
COMPANY BALANCE SHEET
AS AT 29 MARCH 1998
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
NOTES L000 L000 L000 L000
-----
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets.............................................. 11 22,493 2,807
Investments.................................................. 12 27,457 27,457
--------- --------- --------- ---------
49,950 30,264
Current assets
Debtors...................................................... 13 123,985 73,069
Cash at bank and in hand..................................... 1,266 15,368
--------- ---------
125,251 88,437
Creditors (amounts falling due within one year)................ 14 (47,210) (24,447)
--------- --------- --------- ---------
Net current assets............................................. 78,041 63,990
--------- ---------
Total assets less current liabilities.......................... 127,991 94,254
Provision for liabilities and charges.......................... 16 (29,648) --
--------- ---------
98,343 94,254
--------- ---------
--------- ---------
Capital and reserves
Called up share capital...................................... 17 7,345 7,078
Share premium................................................ 18 80,103 74,528
Profit and loss account...................................... 18 10,895 12,648
--------- ---------
98,343 94,254
--------- ---------
--------- ---------
</TABLE>
Approved on behalf of the Board on 19 June 1998
Sir Timothy Kitson
G B C Hardy
DIRECTORS
The notes on pages A-19 to A-35 form part of these financial statements.
A-16
<PAGE>
CONSOLIDATED CASH FLOW STATEMENT
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
NOTES L'000 L'000 L'000 L'000
-----------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES............................. 21 23,286 44,806
Return on investments and servicing of finance.................. 22 (543) (1,165)
Taxation........................................................ (12,979) (11,791)
Capital expenditure and financial investment.................... 22 (22,650) (8,645)
Acquisitions and disposals...................................... 22 (32,228) --
Equity dividends paid........................................... (11,820) (11,148)
--------- ---------
CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND
FINANCING...................................................... (56,934) 12,057
Management of liquid resources.................................. 22 1,220 18
Financing--Issue of shares...................................... 5,842 --
--Increase/(Decrease) in debt........................... 29,747 (6,200)
--------- ---------
35,589 (6,200)
--------- ---------
(DECREASE)/INCREASE IN CASH IN THE PERIOD....................... (20,125) 5,875
--------- ---------
</TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
ENDED 29 ENDED 30
MARCH MARCH
1998 1997
--------- ---------
L'000 L'000
<S> <C> <C>
(DECREASE)/INCREASE IN CASH IN THE PERIOD.................................................... (20,125) 5,875
Cash (inflow)/outflow from movement in debt.................................................. (29,747) 6,200
Cash inflow from decrease in liquid resources................................................ (1,220) (18)
Other non cash changes....................................................................... 3,598 (379)
Translation differences...................................................................... 886 (871)
--------- ---------
MOVEMENT IN NET DEBT IN THE PERIOD........................................................... (46,608) 10,807
NET FUNDS/(DEBT) AT BEGINNING OF PERIOD...................................................... 2,140 (8,667)
--------- ---------
NET (DEBT)/FUNDS AT END OF PERIOD............................................................ (44,468) 2,140
--------- ---------
</TABLE>
The notes on pages A-19 to A-35 form part of these financial statements.
A-17
<PAGE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- ---------------
<S> <C> <C>
L'000 L'000
Profit on ordinary activities after taxation..................................... 19,869 22,655
Unrealised (deficit)/surplus on revaluation of properties........................ (16,000) 60,751
Exchange difference on a re-translation of net assets of subsidiary and
associated undertakings........................................................ (1,454) (1,942)
Exchange gain on foreign currency loans.......................................... 415 --
------- ------
Total recognised gains and losses for the period............................. 2,830 81,464
------- ------
------- ------
</TABLE>
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- --------------
<S> <C> <C>
L'000 L'000
Profit on ordinary activities after taxation..................................... 19,869 22,655
Dividends........................................................................ (10,173) (11,679)
------- -------
9,696 10,976
Unrealised (deficit)/surplus on revaluation of properties........................ (16,000) 60,751
Goodwill arising on acquisition of associated undertaking........................ (5,891) --
Exchange difference on re-translation of net assets of subsidiary and associated
undertakings................................................................... (1,454) (1,942)
Exchange gain on foreign currency loans.......................................... 415 --
Issue of share capital........................................................... 5,842 --
------- -------
Net (decrease)/addition to shareholders' funds................................... (7,392) 69,785
Opening shareholders' funds...................................................... 184,935 115,150
------- -------
Closing shareholders' funds.................................................. 177,543 184,935
------- -------
------- -------
</TABLE>
The notes on pages A-19 to A-35 form part of these financial statements.
A-18
<PAGE>
Notes to the Financial Statements
1 ACCOUNTING POLICIES
A ACCOUNTING CONVENTION
The financial statements have been prepared under the historical cost
convention as modified by the revaluation of short leasehold properties and in
accordance with applicable accounting standards.
B CONSOLIDATION
The consolidated accounts include the results and net assets of the Company
and its subsidiary and associated undertakings. Undertakings acquired are
consolidated from the effective date of acquisition. Goodwill arising on the
acquisition of subsidiary or associated undertakings is set off directly against
reserves.
C TURNOVER
Turnover represents gaming income and also includes management contract
income, membership subscriptions and catering revenues.
D FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost or valuation.
The short leasehold properties from which the Group conducts its casino
operations are carried at open market value on an existing use and fully
operational basis, including the benefit of casino licences. Formal professional
revaluations of the UK casinos are undertaken on at least a triennial basis and
the resultant valuation is included in the balance sheet unless the surplus or
deficit is immaterial.
The directors review the valuations each year and if, in their opinion,
there is any diminution in value, it is charged either to the revaluation
reserve or the profit and loss account as appropriate. In the directors'
opinion, on the basis of this review, the residual disposal value of the
properties and the benefit of casino licences attaching to those properties is
at least equal to their book value.
All leases have an unexpired term of less than 20 years and the values of
the leaseholds excluding the benefit of the casino licences are depreciated over
the remaining term of the lease. Other assets are depreciated over their
estimated useful lives on the following bases:
Fixtures and fittings--10 per cent to 20 per cent straight line.
Motor vehicles--25 per cent reducing balance.
E CAPITALISATION OF INTEREST ON PROPERTY DEVELOPMENT
Interest expenses associated with the construction of a casino over an
extended period, prior to the commencement of business, are capitalised within
fixed assets. Currently only the interest costs associated with the construction
of the Aladdin hotel and casino complex qualify under this policy. No interest
is capitalised in respect of either ongoing refurbishment or the transfer of
business premises.
F INVESTMENTS
Investments, including investments in subsidiary and associated
undertakings, are valued individually at the lower of cost and directors'
valuation.
A-19
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1 ACCOUNTING POLICIES (CONTINUED)
G TAXATION
The charge for taxation is based on the profit for the period and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes, unless there is reasonable
probability that the deferred tax will not crystallise in the foreseeable
future.
H STOCKS
Stocks, which comprise consumables, are valued at the lower of cost and
estimated net realisable value.
I TRADE DEBTORS
Trade debtors include debtors of the overseas casino operations (where
deferred payment is permitted) net of provisions raised for any amounts
considered unlikely to be recoverable.
In the UK, full provision is charged to the profit and loss account for all
unpaid gaming cheques net of any amounts recovered up to the date of approval of
the accounts.
J EXCHANGE RATES
Transactions in foreign currencies are translated into sterling at the rates
ruling at the date of transaction. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are translated at the year end
exchange rate. The results of overseas operations are translated at average
exchange rates.
Exchange differences arising from the translation of the opening net assets
of overseas subsidiaries and any foreign currency borrowings used to acquire
overseas assets are dealt with as a movement in reserves. All other exchange
differences are taken to the profit and loss account.
K LEASES
The rental charges in respect of operating leases are taken to the profit
and loss account on a straight line basis over the life of the lease.
L PENSION COSTS
The Group operates a pension scheme covering the majority of employees.
Pension costs are assessed in accordance with the advice of independent
actuaries. Variations from the regular pensions cost are spread on a systematic
basis over the estimated average remaining service lives of employees. The
scheme is funded by payments to trustee administered funds completely
independent of the Group's finances.
A-20
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 SEGMENTAL ANALYSIS
Operations by geographical segment:
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- --------------
<S> <C> <C>
L'000 L'000
TURNOVER
Europe....................................................................... 144,972 157,471
Middle East.................................................................. 22,975 22,018
------- -------
167,947 179,489
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Europe....................................................................... 25,077 34,712
Middle East.................................................................. 2,556 1,685
------ ------
Operating profit............................................................. 27,633 36,397
Interest receivable.......................................................... 4,181 1,663
Interest payable............................................................. (4,694) (2,817)
------ ------
Profit on ordinary activities before taxation................................ 27,120 35,243
------ ------
------ ------
</TABLE>
For the purposes of the segmental analysis all head office costs have been
allocated to Europe.
With the exception of the investment in the associated undertaking, Aladdin
Gaming Holdings LLC (which is based in the United States), substantially all
of the net assets of the Group are located in Europe. Substantially all of
the Group's turnover, operating profit and net assets relate to the
operation of casinos.
A-21
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3 OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Employee costs (see note 4).................................................. 43,965 44,594
Operating lease rentals on properties........................................ 8,626 8,395
Operating lease rentals on equipment......................................... 704 620
Depreciation................................................................. 3,796 3,418
Auditors' remuneration
-- Audit services............................................................ 197 198
Exceptional bid costs........................................................ 202 1,080
Other........................................................................ 35,406 33,079
------ ------
92,896 91,384
------ ------
------ ------
Shown as:
Operating costs.............................................................. 75,218 74,134
Administrative expenses...................................................... 17,678 17,250
------ ------
92,896 91,384
------ ------
------ ------
</TABLE>
Audit fees for the Company were L15,000 (1997: L15,000). Non-audit fees for
the Group and Company were L269,000 (1997: L489,000) and L238,000 (1997:
L300,000) respectively. The non-audit fees for the current year primarily relate
to tax advice and compliance services and work in respect of review of the
interim report. The fees for the prior year additionally include amounts in
respect of the bid for Capital Corporation plc.
The exceptional bid costs represent professional and other costs incurred in
respect of the bid for Capital Corporation plc which lapsed on 7 April 1997
following referral to the Monopolies and Mergers Commission (MMC) and
professional fees and other costs in respect of subsequent submissions presented
to the MMC.
Other costs include catering costs, the net movement in provisions for
gaming cheques, marketing expenditure, irrecoverable VAT, other establishment
costs and professional fees.
4 EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Employee costs (including directors):
Wages and salaries........................................................... 38,336 38,963
Social security costs........................................................ 4,303 4,403
Other pension costs.......................................................... 1,326 1,228
------ ------
43,965 44,594
------ ------
Average number of employees by geographic location:
Europe....................................................................... 1,939 1,865
Middle East.................................................................. 370 380
------ ------
2,309 2,245
------ ------
------ ------
</TABLE>
A-22
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
----------------- ---------------
<S> <C> <C>
L'000 L'000
Payments to non-executive directors.............................................. 110 128
Salaries, allowances and taxable benefits........................................ 703 824
Bonuses--payment on account under long term
bonus scheme........................................................ -- 405
--payment on discontinuance of long term bonus scheme..................... -- 1,076
Pension contributions............................................................ 83 100
--- -----
896 2,533
--- -----
--- -----
</TABLE>
The remuneration figures for the 53 weeks ended 30 March 1997 include the
final payments of accrued bonus entitlement under the executive directors' long
term bonus scheme which was discontinued as at 30 March 1997.
The value of all the elements of remuneration received by each director in
respect of the 52 weeks to 29 March 1998 was as follows:
<TABLE>
<CAPTION>
FEES AND BENEFITS TOTAL
SALARY IN KIND PENSION 1998
----------- ------------- ------------- -----
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
EXECUTIVE
A L Goodenough......................................................... 240 21 43 304
(CHIEF EXECUTIVE)
P Byrne................................................................ 170 12 8 190
(GROUP OPERATIONS DIRECTOR)
G B C Hardy............................................................ 170 15 31 216
(FINANCE DIRECTOR)
T Hodgson.............................................................. 43 32 1 76
(COMPLIANCE AND SECURITY DIRECTOR) (I)
NON-EXECUTIVE
Sir Timothy Kitson..................................................... 60 -- -- 60
(CHAIRMAN)
Sir Gordon Booth (ii).................................................. -- -- -- --
R R C Hobbs............................................................ 25 -- -- 25
R A Wood............................................................... 25 -- -- 25
<CAPTION>
TOTAL
1997
-----
<S> <C>
L'000
EXECUTIVE
A L Goodenough......................................................... 851
(CHIEF EXECUTIVE)
P Byrne................................................................ 507
(GROUP OPERATIONS DIRECTOR)
G B C Hardy............................................................ 536
(FINANCE DIRECTOR)
T Hodgson.............................................................. 511
(COMPLIANCE AND SECURITY DIRECTOR) (I)
NON-EXECUTIVE
Sir Timothy Kitson..................................................... 61
(CHAIRMAN)
Sir Gordon Booth (ii).................................................. 17
R R C Hobbs............................................................ 25
R A Wood............................................................... 25
</TABLE>
- ------------------------
(i) retired 6 June 1997
(ii) retired 5 December 1996
RETIREMENT BENEFITS
Mr A L Goodenough and Mr G B C Hardy have personal pension arrangements to
which the Company makes annual contributions.
A-23
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION (CONTINUED)
Mr P Byrne is an executive member of the London Clubs contributory pension
scheme. The increase in value of Mr Byrne's retirement benefits during the 52
weeks to 29 March 1998 is given below:
<TABLE>
<CAPTION>
INCREASE IN ACCRUED
PENSION DURING ACCRUED PENSION INCREASE IN
1997/98 AT 29 MARCH 1998 TRANSFER VALUE
----------------------- --------------------- -------------------
<S> <C> <C> <C>
L'000 L'000 L'000
P Byrne..................................................... 2 15 18
</TABLE>
The increase in Transfer Value has been provided by an independent actuary
appointed by the Trustee of the London Clubs Pension Scheme. The Transfer Value
represents a liability to the Company but not a sum paid or due to the
individual.
6. DIRECTORS' INTERESTS
The interests of the directors and their immediate families in the share
capital of the Company at the end of the year and at the beginning of the year
were as follows:
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
---------------------------------------- -----------------------
EXECUTIVE EXECUTIVE
ORDINARY SHARE SAVINGS ORDINARY SHARE
SHARES OPTIONS RELATED OPTIONS SHARES OPTIONS
--------- ------------ --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
P Byrne................... 280,000 -- 3,995 280,000 512,400
A L Goodenough............ 202,228 -- 3,995 202,228 622,400
G B C Hardy............... 901,048 512,400 3,995 901,048 512,400
R R C Hobbs............... 98,800 -- -- 98,800 --
Sir Timothy Kitson........ 50,800 -- -- 40,800 --
NON-BENEFICIAL.......... 2,000 -- -- -- --
R A Wood.................. 10,000 -- -- 10,000 --
</TABLE>
The interests represent ordinary shares of 5 pence each and options over
ordinary shares.
There were no savings related options in existence at 30 March 1997.
All the executive options were granted on 6 June 1994, under the London
Clubs International plc executive share option scheme, and adjusted for the one
for one bonus issue in July 1996. The executive options are exercisable at a
price of 109.25 pence between June 1997 and June 2004.
Certain directors exercised executive options during the year at a market
price of 385 pence per share. The resulting gains were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- -----
<S> <C> <C>
L'000 L'000
P Byrne....................................................................... 1,413 --
A L Goodenough................................................................ 1,716 --
T Hodgson..................................................................... 1,413 --
--
---------
4,542 --
--
--
---------
---------
</TABLE>
The savings related options were granted on 10 February 1998 and are
exercisable at a price of 244 pence per share between 1 March 2000 and 31 August
2000.
A-24
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. DIRECTORS' INTERESTS (CONTINUED)
The mid market price of the Company's shares as at 29 March 1998 was 205.5
pence. The range of share prices during the 52 weeks to 29 March 1998 was 417
pence to 205 pence per share.
Other than as stated above, none of the directors nor any member of their
immediate families at 29 March 1998 had any interest in the share capital of the
Company. No changes in details have occurred between 29 March 1998 and 19 June
1998.
The Company' Register of Directors' Interests contains full details of
directors' shareholdings and options to subscribe for ordinary shares.
7. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Interest payable on bank loans................................................... 2,999 2,817
Interest payable on Guaranteed Senior Notes...................................... 1,695 --
Interest receivable and similar income
- --on fixed asset investment...................................................... (397) (303)
- --other.......................................................................... (3,784) (1,360)
------ ------
Net interest payable............................................................. 513 1,154
------ ------
------ ------
</TABLE>
8. TAXATION
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
UK corporation tax at 31 per cent (1997: 33 per cent) on the taxable profit for
the period...................................................................... 9,171 12,341
Deferred taxation................................................................ 649 (200)
Overseas taxation................................................................ 447 618
Prior year adjustments........................................................... (3,016) (171)
------ ------
7,251 12,588
------ ------
------ ------
</TABLE>
There is no taxation charge or credit in respect of the associated
undertaking.
Movements in deferred taxation are explained in note 16.
9. DIVIDENDS
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Dividends on equity shares
Interim 2.625 pence per share (1997: 2.625 pence) paid on 30 January 1998...... 3,856 3,716
Final 4.30 pence per share (1997: 5.625 pence) proposed to be paid on 31 July
1998......................................................................... 6,317 7,963
------ ------
10,173 11,679
------ ------
------ ------
</TABLE>
A-25
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. EARNINGS PER SHARE
Earnings per ordinary share for each year have been calculated on profit on
ordinary activities after taxation divided by the weighted average number of
ordinary shares in issue during the year.
Fully diluted earnings per share, taking into account all options over the
Company's shares, is not materially different to basic earnings per share.
The earnings and weighted average number of shares used in the calculation
of earnings per share were as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- --------------
<S> <C> <C>
L'000 L'000
Earnings per ordinary share (pence).............................................. 13.6 16.0
Earnings ('000).................................................................. 19,869 22,655
Weighted average number of shares ('000)......................................... 145,845 141,557
------- -------
------- -------
</TABLE>
Earnings per share before exceptional bid costs have been calculated as 13.8
pence per share (1997: 16.8 pence per share). This figure is based upon the
profit after taxation but before exceptional bid costs, of L20,071,000 (1997:
L23,735,000) and on 145,845,000 (1997: 141,557,000) ordinary shares. The
exceptional bid costs, amounting to L202,000 (1997: L1,080,000), represent fees
and other expenses incurred in respect of the bid for Capital Corporation plc.
No tax credit is assumed to arise on the bid costs.
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
FITTINGS
SHORT AND ASSETS IN
FREEHOLD LEASEHOLD MOTOR COURSE OF
GROUP PROPERTY PROPERTIES VEHICLES CONSTRUCTION TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000
COST OR VALUATION
At 30 March 1997........................... -- 217,649 19,704 2,977 240,330
Revaluation................................ -- (16,000) -- -- (16,000)
Additions.................................. 12,150 1,515 2,131 6,972 22,768
Disposals.................................. -- (138) (2,228) -- (2,366)
Adjustment (see note 15)................... -- (4,000) -- -- (4,000)
Transfers.................................. 1,485 -- -- (1,485) --
Exchange movement.......................... -- (701) (347) -- (1,048)
----------- ----------- ----------- ----------- ---------
At 29 March 1998........................... 13,635 198,325 19,260 8,464 239,684
----------- ----------- ----------- ----------- ---------
DEPRECIATION
At 30 March 1997........................... -- 10,029 10,655 -- 20,684
Charge for year............................ -- 1,432 2,364 -- 3,796
Disposals.................................. -- (138) (2,159) -- (2,297)
Exchange movement.......................... -- (36) (114) -- (150)
----------- ----------- ----------- ----------- ---------
At 29 March 1998........................... -- 11,287 10,746 -- 22,033
----------- ----------- ----------- ----------- ---------
NET BOOK VALUE
At 29 March 1998........................... 13,635 187,038 8,514 8,464 217,651
----------- ----------- ----------- ----------- ---------
At 30 March 1997........................... -- 207,620 9,049 2,977 219,646
----------- ----------- ----------- ----------- ---------
</TABLE>
A-26
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. TANGIBLE FIXED ASSETS (CONTINUED)
The short leasehold properties from which the Group conducts its casino
operations are carried at open market value on an existing use and fully
operational basis, including the benefit of casino licences.
The directors included the Group's UK short leasehold properties as at 30
March 1997 at the amount determined by G L Hearn (Chartered Surveyors). However,
consequent to the proposed changes in the rates of gaming duty outlined in the
Chancellor's Budget Statement, the directors have reassessed the carrying value
and reduced the overall valuation as at 29 March 1998 by L20.0 million. This
includes an adjustment of L4.0 million to the original cost of the London Park
Tower leasehold property due to the fact that the deferred consideration thereon
is no longer assumed to be payable. The next independent valuation of the
properties will be in March 2000.
The value of short leasehold properties on an historical cost basis
comprises assets with a cost of L128.6 million (1997: L131.9 million) and
accumulated depreciation of L11.3 million (1997: L10.0 million). The net book
value of the short leasehold properties, on an historical cost basis, is L117.3
million (1997: L121.9 million). Assets in the course of construction relate to
the cost of the development of 14 Old Park Lane and 50 St James's Street. When
construction is complete, these costs will be transferred to the appropriate
asset categories. No depreciation is charged during the period of construction.
No provision has been made for the potential liability to taxation on
capital gains which could arise if the short leasehold properties held as fixed
assets were sold at the amounts at which they have been revalued and included in
these accounts as the directors have no current intentions of selling these
assets with gaming licences attached.
<TABLE>
<CAPTION>
FIXTURES,
SHORT FITTINGS AND ASSETS IN
FREEHOLD LEASEHOLD MOTOR COURSE OF
COMPANY PROPERTY PROPERTIES VEHICLES CONSTRUCTION TOTAL
----------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000
COST
At 30 March 1997............................ -- -- 31 2,776 2,807
Additions................................... 12,150 597 581 6,415 19,743
Transfers................................... 1,485 -- -- (1,485) --
----------- --- --- ----------- ---------
At 29 March 1998............................ 13,635 597 612 7,706 22,550
----------- --- --- ----------- ---------
DEPRECIATION
At 30 March 1997............................ -- -- -- -- --
Charge for year............................. -- 15 42 -- 57
----------- --- --- ----------- ---------
At 29 March 1998............................ -- 15 42 -- 57
----------- --- --- ----------- ---------
NET BOOK VALUE
At 29 March 1998............................ 13,635 582 570 7,706 22,493
----------- --- --- ----------- ---------
At 30 March 1997............................ -- -- 31 2,776 2,807
----------- --- --- ----------- ---------
</TABLE>
A-27
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS
GROUP
<TABLE>
<CAPTION>
INTEREST IN
ASSOCIATED FLOATING RATE OTHER
UNDERTAKING NOTES INVESTMENT TOTAL
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
At 30 March 1997................................................ -- 3,676 990 4,666
Additions....................................................... 31,065 -- 1,163 32,228
Goodwill written off............................................ (5,891) -- -- (5,891)
Exchange movement............................................... (415) (93) -- (508)
----------- ----- ----- ---------
At 29 March 1998................................................ 24,759 3,583 2,153 30,495
----------- ----- ----- ---------
</TABLE>
(a) On 26 February 1998, London Clubs Nevada Inc (a 100 per cent subsidiary
undertaking of the Group) acquired 25 per cent of the issued share capital of
Aladdin Gaming Holdings LLC ("Aladdin"). Aladdin is incorporated in the United
States and owns a site for a hotel and casino complex in Las Vegas. The complex
is presently being redeveloped and is scheduled to open in 2000. Aladdin has
been classified as an associated undertaking in the financial statements in view
of the proportion of shares held by the Group and its representation on the
Board of that company.
The Group's investment in the share capital of Aladdin represents L31.1
million in respect of the cost of the shares less goodwill of L5.9 million which
has been set against reserves and foreign exchange adjustments of L0.4 million.
The Group's share of the net assets of Aladdin at 26 February 1998 comprised
fixed assets (comprising land and construction in progress) with a fair value of
L29.2 million, cash of L46.9 million, sundry debtors of L0.3 million and long
term debt with a value of L51.2 million.
The Company received a commitment fee amounting to L1.8 million from Aladdin
in relation to assistance with the loan finance and recharged a further L1.8
million of legal and professional fees incurred by the Company on behalf of
Aladdin.
During the period from 26 February 1998 to 30 March 1998, the Group's share
of interest capitalised in respect of borrowings to finance the construction of
the Aladdin hotel and casino complex amounted to L0.3 million.
There was no profit or loss in the period in relation to the operating
results of Aladdin. The last audited accounts were as at 31 December 1997 which
indicated that the business had no distributable reserves.
(b) The Group has an investment in Abela Tourism and Development Company SAL
("ATDC"). ATDC is incorporated in Lebanon and has a management concession for
the Casino du Liban complex in Beirut. The Group also holds floating rate notes
issued by Casino du Liban which have a nominal value of US$6.0 million.
(c) The Group has an investment in Tortello Investments (No. 15) Pty Limited
("Tortello"). Tortello is incorporated in South Africa and holds the gaming
licence for the Emerald Safari Resort in Gauteng Province. The Group has a
management contract for the operation of the casino which is currently under
development.
A-28
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS (CONTINUED)
COMPANY
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Shares in Group undertakings...................................................... 27,457 27,457
------ ------
</TABLE>
Principal subsidiary undertakings of the Company are noted below:
<TABLE>
<CAPTION>
COUNTRY OF
INCORPORATION PERCENTAGE
OR COUNTRY OF PRINCIPAL OF VOTING
REGISTRATION OPERATION ACTIVITY SHARES HELD
------------- ---------- -------------------------- -----------
<S> <C> <C> <C> <C>
London Club Holdings Limited*............... England England Holding company 100%
London Clubs Management Limited............. England England Management company 100%
Ritz Club (London) Limited.................. England England Gaming casino 100%
Les Ambassadeurs Club Limited............... England England Gaming casino 100%
Rendezvous Club (London) Limited............ England England Gaming casino 100%
Zealcastle Limited.......................... England England Gaming casino 100%
Palm Beach Club Limited..................... England England Gaming casino 100%
The Sportsman Club Limited.................. England England Gaming casino 100%
Golden Nugget Club Limited.................. England England Gaming casino 100%
London Clubs (Overseas) Limited............. England England Holding company 100%
Inter Casino Management (Egypt) Limited..... Isle of Man Egypt Gaming casino 100%
Six Hamilton Place Limited.................. England England Banqueting operation 100%
London Clubs Nevada Inc..................... USA USA Holding company 100%
</TABLE>
- ------------------------
(All companies owned indirectly except *)
13. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY GROUP COMPANY
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
29 MARCH 1998 30 MARCH 1997
---------------------- ----------------------
L'000 L'000 L'000 L'000
Trade debtors........................................................... 3,216 239 2,137 3
Amounts due from group companies........................................ -- 117,471 -- 68,663
Amounts due from associated company..................................... 1,856 1,856 -- --
Other debtors........................................................... 5,189 1,483 5,211 2,333
Prepayments and accrued income.......................................... 3,183 1,357 2,479 79
ACT recoverable......................................................... 1,579 1,579 1,991 1,991
--------- ----------- --------- -----------
15,023 123,985 11,818 73,069
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
The ACT recoverable is receivable after more than one year.
A-29
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14 CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
GROUP COMPANY GROUP COMPANY
--------- ----------- --------- -----------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Short term element of bank loan......................................... -- -- 5,916 --
Loan notes.............................................................. -- -- 2,000 --
Trade creditors......................................................... 3,537 767 1,715 255
Amounts due to group companies.......................................... -- 36,484 -- 12,320
Corporation tax......................................................... 7,152 -- 15,622 --
ACT payable............................................................. 2,543 2,543 2,920 2,920
Gaming taxation payable................................................. 7,396 -- 10,528 --
Other tax including social security..................................... 1,131 -- 194 --
Interest payable........................................................ 804 600 16 --
Other creditors and accruals............................................ 12,540 499 15,413 989
Proposed dividend....................................................... 6,317 6,317 7,963 7,963
--------- ----------- --------- -----------
41,420 47,210 62,287 24,447
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
15 CREDITORS (AMOUNTS FALLING DUE AFTER ONE YEAR)
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
GROUP COMPANY GROUP COMPANY
--------- ----------- --------- -------------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Bank loan
- --Repayable between one and two years................................... -- -- 6,031 --
- --Repayable between two and five years.................................. 29,233 -- 14,785 --
Guaranteed Senior Notes
- --Repayable after five years............................................ 29,648 29,648 -- --
Deferred consideration.................................................. -- -- 4,000 --
--
--------- ----------- ---------
58,881 29,648 24,816 --
--
--
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
The bank loan is secured by a fixed charge over the freehold at 50 St
James's Street together with a floating charge over all assets of the Company
and all its present and future UK subsidiaries.
On 11 April 1997, the Company completed a supplemental agreement, whereby
all outstanding facilities were replaced by a Revolving Credit Facility. This
facility is available until 11 April 2002. Interest is payable at LIBOR plus
0.65 per cent with a small variable adjustment. Advances are available in
foreign currencies which may be used to finance overseas investments. Until 29
September 1998, a certain proportion of the loan is subject to an interest rate
cap based on a LIBOR rate of 9 per cent.
Under an agreement dated 30 June 1997 the Guaranteed Senior Notes were
issued to fund the Group's investment in Aladdin Gaming Holdings LLC. The
nominal value of the notes is US$50 million on which interest is payable at 7.74
per cent.
Deferred consideration is payable based upon the cumulative results of
Zealcastle Limited for the three years ending 1 October 1998 consequent to the
purchase agreement for that company dated
A-30
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15 CREDITORS (AMOUNTS FALLING DUE AFTER ONE YEAR) (CONTINUED)
2 October 1995. Full provision was made as at 30 March 1997 for the maximum
amount payable. However, based upon the results of the London Park Tower casino
and taking into account the likely impact of the proposed change in the rates
and bandings for gaming duty (as outlined in the Chancellor's Budget Statement),
the targets are unlikely to be met. The provision has been written back and
offset against the cost of the London Park Tower leasehold property (which was
the main asset acquired as part of the Zealcastle acquisition).
16 PROVISIONS FOR LIABILITIES AND CHARGES
The amount of deferred taxation which has been provided in the financial
statements is as follows:
<TABLE>
<CAPTION>
GROUP COMPANY
----------- -------------
<S> <C> <C>
L'000 L'000
Deferred tax liability at 30 March 1997........................................................ 317 --
Charge for the period.......................................................................... 649 --
--
---
Deferred tax liability at 29 March 1998........................................................ 966 --
--
--
---
---
</TABLE>
Comprising:
GROUP
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
PROVIDED UNPROVIDED PROVIDED UNPROVIDED
----------- ----------------- ----------- -----------------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Accelerated capital allowances............................... 966 (120) 607 (23)
Short term timing differences................................ -- -- (290) --
--
--- --- ---
966 (120) 317 (23)
--
--- --- ---
</TABLE>
COMPANY
There are no unprovided deferred tax liabilities.
17 SHARE CAPITAL
The following information relates to the share capital of the Company during
the period.
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
NUMBER L'000 NUMBER L'000
------------- --------- ------------- ---------
Authorised
Ordinary shares of 5 pence each................................. 233,565,100 11,678 233,565,100 11,678
Issued, allotted and fully paid
Ordinary shares of 5 pence each................................. 146,904,702 7,345 141,557,502 7,078
</TABLE>
At 29 March 1998 there were outstanding options to subscribe for 1,622,400
ordinary shares (1997: 6,989,600 ordinary shares) under the London Clubs
International plc executive share option scheme, which are exercisable between
June 1997 and March 2006. In addition, there were outstanding options to
A-31
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17 SHARE CAPITAL (CONTINUED)
subscribe for 2,484,699 ordinary shares (1997: Nil) under the savings related
option scheme, which are exercisable between 1 March 2000 and 31 August 2000.
During the year 5,347,200 ordinary shares were allotted at L1.0925 each upon
the exercise of options under the executive share option scheme.
18 RESERVES
<TABLE>
<CAPTION>
GROUP AND
COMPANY
-----------
<S> <C>
L'000
SHARE PREMIUM ACCOUNT
At 30 March 1997...................................................................................... 74,528
Exercise of share options............................................................................. 5,575
-----------
Balance at 29 March 1998.............................................................................. 80,103
-----------
-----------
<CAPTION>
GROUP
-----------
L'000
<S> <C>
REVALUATION RESERVE
At 30 March 1997...................................................................................... 85,736
Revaluation during the period......................................................................... (16,000)
-----------
Balance at 29 March 1998.............................................................................. 69,736
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
--------- -----------
<S> <C> <C>
L'000 L'000
PROFIT AND LOSS ACCOUNT
At 30 March 1997............................................................................. 12,241 12,648
Retained profit/(loss) for the period........................................................ 9,696 (1,753)
Goodwill arising on acquisition of associated undertaking.................................... (5,891) --
Exchange difference on re-translation of net assets of subsidiary and associated
undertakings............................................................................... (1,454) --
Exchange gain on foreign currency loans...................................................... 415 --
--------- -----------
Balance at 29 March 1998..................................................................... 15,007 10,895
--------- -----------
--------- -----------
</TABLE>
As permitted by Section 230 of the Companies Act 1985, the Company's profit
and loss account is not separately presented. The amount of the Company's
retained loss for the period is L1,753,000 (1997: L6,995,000 profit).
19 CAPITAL COMMITMENTS
At 29 March 1998 the Group had capital commitments contracted for but not
provided of L4,468,610 (1997: L396,260).
A-32
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20 OPERATING LEASE COMMITMENTS
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
GROUP COMPANY GROUP COMPANY
--------- ------------- --------- -------------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Operating lease commitments on land and buildings payable within one year
for leases expiring:
- --within one year.......................................................... 344 -- 1,381 --
- --between one and five years............................................... 3,093 -- 4,337 --
- --after five years......................................................... 3,906 723 3,453 723
--------- --- --------- ---
7,343 723 9,171 723
--------- --- --------- ---
--------- --- --------- ---
Operating lease commitments on plant and equipment payable within one year
for leases expiring:
- --within one year.......................................................... 181 -- 131 --
- --between one and five years............................................... 369 -- 302 --
--------- --- --------- ---
550 -- 433 --
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
21 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Operating profit................................................................. 27,633 36,397
Depreciation charges............................................................. 3,796 3,418
(Profit)/loss on sale of fixed assets............................................ (49) 75
Exchange movement................................................................ 94 305
Decrease/(increase) in stock..................................................... 125 (195)
Increase in debtors.............................................................. (5,067) (784)
(Decrease)/increase in creditors................................................. (3,246) 5,590
------ ------
Net cash inflow from operating activities........................................ 23,286 44,806
------ ------
</TABLE>
A-33
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22 ANALYSIS OF CASH FLOWS FOR HEADINGS SUMMARISED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
--------- --------- --------- ---------
Returns on investments and servicing of finance
Interest received......................................................... 2,961 1,360
Interest paid............................................................. (3,504) (2,525)
--------- --------- --------- ---------
Net cash outflow for returns on investments and servicing of finance...... (543) (1,165)
--------- --------- --------- ---------
Capital expenditure and financial investments
Purchase of tangible fixed assets......................................... (22,768) (4,379)
Purchase of loan notes.................................................... -- (4,276)
Proceeds of tangible fixed asset sales.................................... 118 10
--------- --------- --------- ---------
Net cash outflow for capital expenditure and financial investment......... (22,650) (8,645)
--------- --------- --------- ---------
Acquisitions and disposals
Investment in associated undertaking...................................... (31,065) --
Purchase of fixed asset investment........................................ (1,163) --
--------- --------- --------- ---------
Net cash outflow for acquisitions and disposals........................... (32,228) --
--------- --------- --------- ---------
Net cash management of liquid resources Inflow from purchase and sale of
securities.............................................................. 1,220 18
--------- --------- --------- ---------
Net cash inflow from management of liquid resources....................... 1,220 18
--------- --------- --------- ---------
Financing
Issue of ordinary share capital........................................... 5,842 --
Debt due within a year
- --repayment of loan notes................................................. (2,000) (6,200)
- --loan finance raised..................................................... 31,747 --
--------- --------- --------- ---------
Net cash inflow/(outflow) from financing.................................. 35,589 (6,200)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
23 ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
EXCHANGE
AT OTHER NON MOVEMENT AT
30 MARCH CASH AND CHANGES IN 29 MARCH
1997 CASH FLOW CHANGES MARKET VALUE 1998
----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000
Cash in hand and at bank............................ 34,872 (20,125) -- (334) 14,413
Debt due after one year............................. (24,816) (31,747) (2,318) -- (58,881)
Debt due within one year............................ (7,916) 2,000 5,916 -- --
(29,747)
Current asset investment............................ -- (1,220) -- 1,220 --
----------- ----------- ----------- ----- -----------
Total............................................... 2,140 (51,092) 3,598 886 (44,468)
----------- ----------- ----------- ----- -----------
----------- ----------- ----------- ----- -----------
</TABLE>
The cash flows in respect of the management of liquid resources represent
gains arising on the purchase and sale of units in an institutional cash fund.
Cash in hand and at bank includes L901,000 (1997: L999,000) held on deposit
pursuant to overseas gaming reserve requirements.
A-34
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
24 PENSIONS
The principal pension scheme operated by the Group is a defined benefits
scheme, providing benefits based on final pensionable salary. The assets of this
scheme are held in a separate trustee administered fund.
The latest formal actuarial valuation of the fund was at 31 March 1996 using
the projected unit method. The assumptions which have the most significant
effect on the results of the valuation are the relative rates of return on the
investments of the fund compared with increases in pay and pensions. It was
assumed for this purpose that, on average, the annual return on investments
would exceed increases in pay by 4 per cent until 31 March 1997 and by 2 per
cent thereafter and would exceed increases in pensions by 4 per cent.
At the date of the latest formal actuarial valuation, the market value of
the assets of the fund was L31.3 million. The valuation showed that the assets
represented 111 per cent of the benefits that have accrued to members. Taking
this surplus into account, the actuary has recommended a future contribution
rate for the Group as follows: from 1 April 1996 to 31 March 1999 10.0 per cent
of pensionable pay; from 1 April 1999 to 31 March 2005 11.9 per cent of
pensionable pay and from 1 April 2005 15.0 per cent of pensionable pay. Death in
service benefits, professional fees and other expenses are paid by the pension
scheme.
The pension charge for the year was L1,199,000 (1997: L1,122,000) which was
paid to the fund.
In addition the Company makes contributions in respect of individual
personal pension schemes. The annual contribution for the year was L126,000
(1997: L106,000).
25 GUARANTEES AND FINANCIAL COMMITMENTS
As part of the financing arrangements in connection with the development of
the Aladdin Hotel and Casino, the Company and the Sommer Family Trust have
jointly and severally given a Completion and Performance Guarantee which applies
during the construction period. In addition, through a Keep Well Agreement, the
Company and Aladdin Holdings LLC will have a joint and several contingent
obligation to provide further equity and/or to make accelerated payments of up
to US$150.0 million should certain financial covenants be breached.
Although the obligations under the Completion and Performance Guarantee and
Keep Well Agreement are joint and several, it is agreed under the terms of a
Contribution Agreement that each partys liability will be pro-rata to its
initial shareholding in Aladdin Gaming Holdings LLC which is 75 per cent for the
Sommer Family Trust (through Aladdin Holdings LLC and other entities controlled
by the Trust) and 25 per cent for the Company. The Company has certain remedies
should the Sommer Family Trust or Aladdin Holdings LLC default in its
obligations, including rights over the Sommer Family Trust's equity interest in
Aladdin Gaming Holdings LLC.
The construction risk has been mitigated through a fixed price construction
contract guaranteed as to timing and price by the architect and general
contractor. Aladdin Gaming LLC, a wholly owned subsidiary of Aladdin Gaming
Holdings LLC, has access to secured senior credit facilities of up to US$410.0
million.
26 SUBSEQUENT EVENT
On 12 June 1998 the Group announced the sale of LCL (France) S.A. et Cie,
which owns and operates the Carlton Casino in Cannes, to Groupe Partouche.
A-35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY THE NEW NOTES IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN AFFAIRS OF THE ISSUERS SINCE THE
DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 20
Use of Proceeds................................. 40
Capitalization.................................. 42
The Exhange Offer............................... 43
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 52
Business........................................ 55
Regulation and Licensing........................ 82
Management...................................... 87
Controlling Stockholders........................ 94
Certain Transactions............................ 98
Security Ownership of Certain Beneficial
Owners........................................ 100
Description of the Notes........................ 103
Description of Noteholder Completion Guaranty
and Disbursement Agreement.................... 141
Description of Certain Indebtedness and Other
Obligations................................... 147
Certain Material Agreements..................... 155
Certain United States Federal Income Tax
Considerations................................ 180
Plan of Distribution............................ 186
Legal Matters................................... 187
Experts......................................... 187
Index to Historical Financial Information of the
Aladdin Parties and the Company............... F-1
Annex A
Certain Historical Consolidated Financial
Information of London Clubs................. A-1
</TABLE>
$221,500,000
[LOGO]
OFFER FOR ALL OUTSTANDING
13 1/2% SERIES A SENIOR DISCOUNT NOTES
DUE 2010
IN EXCHANGE FOR
13 1/2% SERIES B SENIOR DISCOUNT NOTES
DUE 2010,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OF
ALADDIN GAMING HOLDINGS, LLC
ALADDIN CAPITAL CORP.
---------------------
PROSPECTUS
----------------------------
July 23, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Organization of Aladdin Gaming Holdings, LLC ("Holdings")
limit the liability of its members and managers to the fullest extent permitted
by Nevada law and further provide that the expenses of members and managers
incurred in defending a civil or criminal action, suit or proceeding, involving
alleged acts or omissions of such member or manager of the company, must be paid
by the company as they are incurred and in advance of the final disposition of
the action, suit or proceeding, upon receipt of an unsecured undertaking by or
on behalf of the member or manager to repay the amount if it is ultimately
determined by a court that he is not entitled to be indemnified by the company.
Nevada law permits limited-liability companies to indemnify any person 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 (except in an action by or in the right of the company) by reason
of the fact that he is or was a manager, member employee or agent of the
company, or is or was serving at the request of the company as a manager,
member, employee or agent of another limited-liability company, partnership,
joint venture, trust or other enterprise, against expenses, including attorney's
fees, judgments fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. This
same permissible indemnification is not allowed as to any action or suit by or
in the right of the company if the person has been adjudged by a court (after
exhaustion of all appeals) to be liable to the company or for amounts paid in
settlement to the company, unless and only to the extent that a court determines
upon application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses, as the court
deems proper. To the extent that a manager, member, employee or agent of the
company has been successful on the merits or otherwise in defense of any action,
suit or proceeding described above, or in the defense of any claim, issue or
matter therein, Nevada law requires that he must be indemnified by the company
against expenses, including attorney's fees, actually and reasonably incurred by
him in connection with that defense.
The Articles of Incorporation of Aladdin Capital Corp. ("Capital") provide
that no officer or director will be personally liable to Capital or any
stockholder for damages for breach of fiduciary duty as a director or officer,
except for (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of the law, or (ii) the payment of distributions in
violation of Nevada Revised Statutes Section78.300.
Additionally, Capital's Bylaws limit the liability of its directors and
officers (and, by action of the board of directors, its employees and other
persons) to the fullest extent permitted by Nevada law. If the Nevada law is
subsequently amended to permit further limitation of personal liability of
directors and officers the liability of Capital's directors and officers will be
eliminated or limited to the fullest extent permitted by Nevada law, as amended.
Nevada law permits corporations to indemnify any person 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
(except in 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 attorney's fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted 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 no reasonable cause to believe his conduct was unlawful. This
same
II-1
<PAGE>
permissible indemnification is not allowed as to any action or suit by or in the
right of the corporation if the person has been adjudged by a court (after
exhaustion of all appeals) to be liable to the corporation or for amounts paid
in settlement to the corporation, unless and only to the extent that a court
determines upon application that in view of all the circumstances of the case,
the person if fairly and reasonably entitled to indemnity for such expenses, as
the court deems proper. To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in the defense or
any claim, issue or matter, therein, Nevada law requires that he must be
indemnified by the corporation against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with that defense.
Capital's Bylaws further provide that Capital may purchase and maintain
insurance or make other financial arrangements for such indemnification and that
such indemnification shall continue as to any indemnitee who has ceased to be a
director or officer and shall inure to the benefit of his heirs, executors and
administrators.
The inclusion of the permissive indemnification provision in Capital's
Bylaws may have the effect or reducing likelihood of derivative litigation
against directors and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited Capital and
its stockholders.
Insofar as imdemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the registrants pursuant to the foregoing
provisions, the Issuers have been informed that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Pursuant to the registration rights agreement (the "Registration Rights
Agreement") relating to the 13 1/2% Senior Discount Notes due 2010, the holders
of such securities and certain underwriters, broker dealers and the Initial
Purchasers (as defined herein) have agreed to indemnify the directors, officers
and controlling persons of the registrants against certain liabilities, costs
and expenses that may be incurred in connection with the registration of such
securities, to the extent that such liabilities, costs and expense that may be
incurred in connection with the registration of such securities arise from an
omission or untrue statement contained in information provided to the
registrants by the holders of such securities, underwriters, broker dealers or
Initial Purchasers.
The Purchase Agreement, dated as of February 18, 1998 among Holdings,
Capital and Aladdin Gaming Enterprises Inc. (collectively, the "Unit Issuers")
and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Credit Suisse First
Boston Corporation, CIBC Oppenheiner Corp. and Scotia Capital Markets (USA) Inc.
(the "Initial Purchasers"), contains provisions by which the Initial Purchasers
agree to indemnify the Unit Issuers (including their respective officers,
directors, employees, agents and controlling persons) against certain
liabilities.
II-2
<PAGE>
ITEM 21. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Articles of Organization of Holdings.
*3.2 Articles of Incorporation of Capital.
*3.3 Articles of Organization of Aladdin Gaming, LLC (the "Company").
*3.4 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises").
*3.5 Amendment No. 1 to Articles of Incorporation of Enterprises.
*3.6 Operating Agreement of Holdings.
*3.7 Bylaws of Capital.
*3.8 Operating Agreement of the Company.
*3.9 Bylaws of Enterprises.
*4.1 Indenture, dated February 26, 1998, among Holdings, Capital and State Street Bank and Trust Company,
as trustee (the "Trustee").
*4.2 Note Registration Rights Agreement, dated February 26, 1998, among Holdings, Capital and Merrill
Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer
Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers").
*4.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o
Sigmund Sommer, London Clubs International plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the
Trustee.
*4.4 Disbursement Agreement, dated February 26, 1998, among Holdings, the Company, the Bank of Nova
Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities
Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee.
*4.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Holdings and the
Trustee.
*4.6 The Holdings Collateral Account Agreement, dated February 26, 1998, between Holdings and the Trustee.
*4.7 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises,
London Clubs Nevada, Inc. ("LCNI") and the Trustee.
*4.8 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee.
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of the securities being
registered.
+5.2 Opinion of Schreck Morris regarding legality of the securities being registered
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain tax matters.
*10.1 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London
Clubs, Holdings, Aladdin Holdings LLC, the Company, Sommer Enterprises, LLC and the Trust Under
Article Sixth u/w/o Sigmund Sommer.
*10.2 Closing Schedules to Amended and Restated London Clubs Purchase Agreement.
*10.3 Contribution Agreement, dated February 26, 1998, among the Trust Under Article Sixth u/ w/o Sigmund
Sommer, Aladdin Holdings, LLC, Sommer Enterprises, LLC, London Clubs and LCNI.
*10.4 Salle Privee Agreement, dated February 26, 1998, among the Company, LCNI and London Clubs.
10.5 [RESERVED]
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.6 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust
Company, as Warrant Agent (the "Warrant Agent").
*10.7 Warrant Registration Rights Agreement dated February 26, 1998, among Enterprises and the Initial
Purchasers.
*10.8 Credit Agreement, dated February 26, 1998, among the Company, a syndicate of lenders (the "Bank
Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as
Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent.
*10.9 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund
Sommer, London Clubs, Aladdin Bazar Holdings, LLC and the Bank Lenders.
*10.10 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin
Bazaar Holdings, LLC.
*10.11 Design/Build Contract, dated December 4, 1997, between the Company and Fluor Daniel Inc.
*10.12 Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between the Company and Fluor
Daniel, Inc.
*10.13 Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between the Company and Fluor
Daniel, Inc.
*10.14 Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation.
*10.15 Site Work, Development and Construction Agreement, dated February 26, 1998, among the Company,
Aladdin Bazaar, LLC and Aladdin Holdings, LLC.
*10.16 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among the
Company, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC.
*10.17 Common Parking Area Use Agreement, dated February 26, 1998 between the Company and Aladdin Bazaar,
LLC.
*10.18 Music Project Lease, dated February 26, 1998, between the Company and Aladdin Music Holdings, LLC.
*10.19 Mall Project Lease, dated February 26, 1998, between the Company and Aladdin Bazaar, LLC.
*10.20 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February
26, 1998, made by the Company to Stewart Title of Nevada, as trustee for the benefit of the Bank of
Nova Scotia.
*10.21 Development Agreement, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
10.22 [RESERVED]
*10.23 Energy Lease, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
*10.24 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and the Company.
*10.25 Operating Agreement of Aladdin Bazaar LLC, dated September 3, 1997, between TH Bazaar Centers Inc.
and Aladdin Bazaar Holdings, LLC.
*10.26 First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16,
1997.
*10.27 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between the
Company and Planet Hollywood International, Inc.
*10.28 Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997,
between the Company and Planet Hollywood International, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.29 GAI Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
GAI, LLC.
*10.30 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and Richard J. Goeglein.
*10.31 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and James H. McKennon.
*10.32 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Cornelius T. Klerk.
*10.33 Galati Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings,
and Lee A. Galati.
*10.34 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Jose A. Rueda.
*10.35 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and the Company as amended as of
January 1998.
*10.36 Employment and Consulting Agreement, dated July 1, 1997, between the Company and Richard J. Goeglein
as amended as of January 1998.
*10.37 Employment Agreement, dated July 28, 1997, between the Company and James H. McKennon.
*10.38 Employment Agreement, dated July 26, 1997, between the Company and Cornelius T. Klerk.
*10.39 Employment Agreement, dated August 19, 1997, between the Company and Lee A.
Galati.
*10.40 Employment Agreement, dated July 1, 1997, between the Company and Jose A. Rueda.
*10.41 FF&E Commitment Letter, dated January 23, 1998 between the Company and General Electric Capital
Corporation.
*10.42 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank,
as Administrative Agent.
*10.43 Purchase Agreement, dated February 18, 1998, among Holdings, Capital, Enterprises, Aladdin Holdings,
LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs International plc ("London
Clubs") and the Initial Purchasers.
*10.44 Guaranteed Land Appraisal prepared by HVS International.
*10.45 Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998.
*23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in exhibits 5.1 and 8.1).
+23.2 Consent of Schreck Morris (included in exhibit 5.2).
*23.3 Consent of Arthur Andersen LLP.
*23.4 Consent of Price Waterhouse.
*23.5 Awareness Letter from Price Waterhouse.
*25.1 Statement of Eligibility and Qualification of State Street Bank and Trust Company.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Clients.
*99.4 Form of Letter to Broker Dealers, Trust Companies and other Nominees.
</TABLE>
- ------------------------
+ Filed herewith.
* Previously filed.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake:
(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 Statement (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
the securities offered would not exceed that which was registered) and
any deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent 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 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.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X at
the start of any delayed offering or throughout a continuous offering.
(b) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The registrants hereby undertake to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11 or 13 of Form S-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of responding to
the request.
(d) The registrants hereby undertake to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Las Vegas, state
of Nevada, on the 23rd day of July, 1998.
<TABLE>
<S> <C> <C>
ALADDIN GAMING HOLDINGS, LLC
By: /s/ CORNELIUS T. KLERK
-----------------------------------------
Cornelius T. Klerk
SENIOR VICE PRESIDENT/CHIEF FINANCIAL
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Chairman of the Board July 23, 1998
Jack Sommer
*
- ------------------------------ Chief Executive Officer, July 23, 1998
Richard J. Goeglein Manager
* Executive Vice
- ------------------------------ President/Secretary, July 23, 1998
Ronald Dictrow Manager
/s/ CORNELIUS T. KLERK Senior Vice
- ------------------------------ President/Chief July 23, 1998
Cornelius T. Klerk Financial Officer
<TABLE>
<S> <C> <C> <C>
*By power of attorney
By: /s/ CORNELIUS T. KLERK
-------------------------
Cornelius T. Klerk
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Las Vegas, state
of Nevada, on the 23rd day of July, 1998.
<TABLE>
<S> <C> <C>
ALADDIN CAPITAL CORP.
By: /s/ CORNELIUS T. KLERK
-----------------------------------------
Cornelius T. Klerk
SENIOR VICE PRESIDENT/CHIEF FINANCIAL
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Chairman of the Board July 23, 1998
Jack Sommer
*
- ------------------------------ Chief Executive Officer, July 23, 1998
Richard J. Goeglein Director
* Executive Vice
- ------------------------------ President/Secretary, July 23, 1998
Ronald Dictrow Director
/s/ CORNELIUS T. KLERK Senior Vice
- ------------------------------ President/Chief July 23, 1998
Cornelius T. Klerk Financial Officer
<TABLE>
<S> <C> <C> <C>
*By power of attorney
By: /s/ CORNELIUS T. KLERK
-------------------------
Cornelius T. Klerk
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Articles of Organization of Holdings.
*3.2 Articles of Incorporation of Capital.
*3.3 Articles of Organization of Aladdin Gaming, LLC (the "Company").
*3.4 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises").
*3.5 Amendment No. 1 to Articles of Incorporation of Enterprises.
*3.6 Operating Agreement of Holdings.
*3.7 Bylaws of Capital.
*3.8 Operating Agreement of the Company.
*3.9 Bylaws of Enterprises.
*4.1 Indenture, dated February 26, 1998, among Holdings, Capital and State Street Bank and Trust Company,
as trustee (the "Trustee").
*4.2 Note Registration Rights Agreement, dated February 26, 1998, among Holdings, Capital and Merrill
Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer
Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers").
*4.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o
Sigmund Sommer, London Clubs International plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the
Trustee.
*4.4 Disbursement Agreement, dated February 26, 1998, among Holdings, the Company, the Bank of Nova
Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities
Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee.
*4.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Holdings and the
Trustee.
*4.6 The Holdings Collateral Account Agreement, dated February 26, 1998, between Holdings and the Trustee.
*4.7 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises,
London Clubs Nevada, Inc. ("LCNI") and the Trustee.
*4.8 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee.
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of the securities being
registered.
+5.2 Opinion of Schreck Morris regarding legality of the securities being registered
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain tax matters.
*10.1 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London
Clubs, Holdings, Aladdin Holdings LLC, the Company, Sommer Enterprises, LLC and the Trust Under
Article Sixth u/w/o Sigmund Sommer.
*10.2 Closing Schedules to Amended and Restated London Clubs Purchase Agreement.
*10.3 Contribution Agreement, dated February 26, 1998, among the Trust Under Article Sixth u/ w/o Sigmund
Sommer, Aladdin Holdings, LLC, Sommer Enterprises, LLC, London Clubs and LCNI.
*10.4 Salle Privee Agreement, dated February 26, 1998, among the Company, LCNI and London Clubs.
10.5 [RESERVED]
*10.6 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust
Company, as Warrant Agent (the "Warrant Agent").
*10.7 Warrant Registration Rights Agreement dated February 26, 1998, among Enterprises and the Initial
Purchasers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.8 Credit Agreement, dated February 26, 1998, among the Company, a syndicate of lenders (the "Bank
Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as
Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent.
*10.9 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund
Sommer, London Clubs, Aladdin Bazar Holdings, LLC and the Bank Lenders.
*10.10 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin
Bazaar Holdings, LLC.
*10.11 Design/Build Contract, dated December 4, 1997, between the Company and Fluor Daniel Inc.
*10.12 Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between the Company and Fluor
Daniel, Inc.
*10.13 Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between the Company and Fluor
Daniel, Inc.
*10.14 Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation.
*10.15 Site Work, Development and Construction Agreement, dated February 26, 1998, among the Company,
Aladdin Bazaar, LLC and Aladdin Holdings, LLC.
*10.16 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among the
Company, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC.
*10.17 Common Parking Area Use Agreement, dated February 26, 1998 between the Company and Aladdin Bazaar,
LLC.
*10.18 Music Project Lease, dated February 26, 1998, between the Company and Aladdin Music Holdings, LLC.
*10.19 Mall Project Lease, dated February 26, 1998, between the Company and Aladdin Bazaar, LLC.
*10.20 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February
26, 1998, made by the Company to Stewart Title of Nevada, as trustee for the benefit of the Bank of
Nova Scotia.
*10.21 Development Agreement, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
10.22 [RESERVED]
*10.23 Energy Lease, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
*10.24 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and the Company.
*10.25 Operating Agreement of Aladdin Bazaar LLC, dated September 3, 1997, between TH Bazaar Centers Inc.
and Aladdin Bazaar Holdings, LLC.
*10.26 First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16,
1997.
*10.27 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between the
Company and Planet Hollywood International, Inc.
*10.28 Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997,
between the Company and Planet Hollywood International, Inc.
*10.29 GAI Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
GAI, LLC.
*10.30 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and Richard J. Goeglein.
*10.31 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and James H. McKennon.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.32 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Cornelius T. Klerk.
*10.33 Galati Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings,
and Lee A. Galati.
*10.34 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Jose A. Rueda.
*10.35 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and the Company as amended as of
January 1998.
*10.36 Employment and Consulting Agreement, dated July 1, 1997, between the Company and Richard J. Goeglein
as amended as of January 1998.
*10.37 Employment Agreement, dated July 28, 1997, between the Company and James H. McKennon.
*10.38 Employment Agreement, dated July 26, 1997, between the Company and Cornelius T. Klerk.
+10.39 Employment Agreement, dated August 19, 1997, between the Company and Lee A. Galati.
*10.40 Employment Agreement, dated July 1, 1997, between the Company and Jose A. Rueda.
*10.41 FF&E Commitment Letter, dated January 23, 1998 between the Company and General Electric Capital
Corporation.
*10.42 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank,
as Administrative Agent.
*10.43 Purchase Agreement, dated February 18, 1998, among Holdings, Capital, Enterprises, Aladdin Holdings,
LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs International plc ("London
Clubs") and the Initial Purchasers.
*10.44 Guaranteed Land Appraisal prepared by HVS International.
*10.45 Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998.
*23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in exhibits 5.1 and 8.1).
+23.2 Consent of Schreck Morris (included in exhibit 5.2).
*23.3 Consent of Arthur Andersen LLP.
*23.4 Consent of Price Waterhouse.
*23.5 Awareness Letter from Price Waterhouse.
*25.1 Statement of Eligibility and Qualification of State Street Bank and Trust Company.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Clients.
*99.4 Form of Letter to Broker Dealers, Trust Companies and other Nominees.
</TABLE>
- ------------------------
+ Filed herewith.
* Previously filed.
<PAGE>
SCHRECK MORRIS
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
July 23, 1998
Aladdin Gaming Holdings, LLC
Aladdin Capital Corp.
c/o Aladdin Gaming Holdings, LLC
831 Pilot Road
Las Vegas, Nevada 89119
Ladies and Gentlemen:
We have acted as special Nevada counsel to Aladdin Gaming Holdings, LLC,
a Nevada limited-liability company ("Holdings") and Aladdin Capital Corp., a
Nevada corporation ("Capital" and, together with Holdings, the "Note
Issuers") in connection with the issuance of $221,500,000 aggregate principal
amount at maturity of Series B 13 1/2% Senior Discount Notes due March 1,
2010 (the "New Notes") of the Note Issuers to be issued pursuant to an
Indenture (the "Indenture") dated as of February 26, 1998 among the Note
Issuers and State Street Bank and Trust Company, as trustee for the benefit
of the holders of the Notes (in such capacity, the "Trustee"), in exchange
for $221,500,000 aggregate principal amount at maturity of Series A 13 1/2%
Senior Discount Notes due March 1, 2010 (the "Old Notes") of the Note Issuers.
For the purpose of rendering this opinion, we have examined originals,
or copies certified or otherwise identified to our satisfaction as being true
copies of such records, documents, instruments and certificates as, in our
judgment, are necessary or appropriate to enable us to render the opinions
set forth below, including but not limited to the following:
(i) the Registration Statement on Form S-4 (File No. 333-49717) as
filed with the Securities and Exchange Commission (the "Commission") on April
9, 1998 under the Securities Act of 1933, as amended (the "Act"), Amendment
No. 1 thereto filed on June 11, 1998, and Amendment No. 2 thereto filed on
July 22, 1998, and Amendment No. 3 thereto with which this opinion is being
filed (such Registration Statement, as so amended, being hereinafter referred
to as the "Registration Statement");
(ii) the Indenture;
<PAGE>
Aladdin Gaming Holdings, LLC
Aladdin Capital Corp.
July 22, 1998
Page 2
(iii) the form of the New Notes, included as an exhibit to the Indenture;
(iv) the Articles of Organization and Operating Agreement of Holdings
and the Articles of Incorporation and Bylaws of Capital, each as amended to
date; and
(v) certain resolutions of the Board of Managers of Holdings and the
Board of Directors of Capital authorizing their respective execution and
delivery and the performance of their respective obligations under the
Indenture and the transactions contemplated thereby.
The documents described in clauses (ii) and (iii) above are referred to
as the "Operative Documents."
We have made such legal and factual examinations and inquiries as we
have deemed necessary or appropriate for purposes of this opinion. We have
been furnished with, and with your consent have relied upon, certificates and
assurances of officers and other representatives of the Note Issuers and of
public officials as we have deemed necessary for the purpose of rendering the
opinions set forth herein. As to questions of fact material to our opinions,
we have also relied upon the statements of fact and the representations and
warranties as to factual matters contained in the documents we have examined,
however, except as otherwise expressly indicated, we have not been requested
to conduct, nor have we undertaken, any independent investigation to verify
the content or veracity thereof or to determine the accuracy of any
statement, and no inference as to our knowledge of any matters should be
drawn from the fact of our representation of the Note Issuers.
Without limiting the generality of the foregoing, in our examination of
documents, we have assumed without independent verification, that (i) each
natural person executing any such document has sufficient legal capacity to
do so, (ii) all documents submitted to us as originals are authentic, the
signatures on all documents that we examined are genuine, and all documents
submitted to us as certified, conformed, photostatic or facsimile copies
conform to the original document, (iii) all limited-liability company records
made available to us by Holdings, all corporate records made available to us
by Capital and all public records we have reviewed are accurate and complete,
and (iv) the obligations of each party set forth in the documents we have
examined are its legal, valid and binding obligations, enforceable in
accordance with their respective terms.
Based upon the foregoing, and subject to the qualifications, exceptions
and assumptions set forth herein, and having regard to legal considerations
and other information that we deem relevant, we are of the opinion that:
1. The New Notes have been duly authorized by the Note Issuers.
2. The Indenture has been duly authorized, executed and delivered by
the Note Issuers.
3. The authorization, execution and delivery by the Note Issuers of
the Operative Documents and the performance by the Note Issuers of their
respective obligations thereunder, do not and will not violate or constitute
a breach of or default under (i) the Articles of Organization or Operating
Agreement of Holdings, the Articles of Incorporation or Bylaws of Capital, or
(ii) any law, rule or regulation of the State of Nevada (based upon a review
of those statutes, rules and regulations which, in or experience, are
normally applicable and to transactions of the type contemplated by the
Operative Documents (other than securities or anti-fraud laws).
4. Based solely upon discussions with officers of the Note Issuers
responsible for such matters and our review of material documents identified
to us by, and certificates of, such officers, there are no (i) judicial or
regulatory orders or decrees of any governmental authority of the State of
Nevada which are binding upon either of the Note Issuers or to which either
of the Note Issuers is subject, or (ii) consents, approvals, licenses,
authorizations, or validations of, or filings, recordings or registrations,
known to us, with any governmental authority of the State of Nevada, in any
such case, with which or under which, the authorization, execution and
delivery by each Note Issuer of the Operative Documents or the performance by
either Note Issuer of its obligations thereunder, conflicts or constitutes a
default or which is violated thereby. Based on our due diligence
investigation, we do not know of any other such violations, conflicts or
defaults.
We are qualified to practice law in the State of Nevada. The opinions
set forth herein are expressly limited to the laws of the State of Nevada and
we do not purport to be experts on, or to express any opinion herein
concerning, or to assume any responsibility as to the applicability to or the
<PAGE>
Aladdin Gaming Holdings, LLC
Aladdin Capital Corp.
July 22, 1998
Page 3
effect on any of the matters covered herein of, the laws of any other
jurisdiction. We express no opinion concerning, and we assume no
responsibility as to laws or judicial decisions related to, or any orders,
consents or other authorizations or approvals as may be required by, any
federal law, including any federal securities law, or any state securities or
Blue Sky laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm therein and in the
related Prospectus as the same appears under the caption "Legal Matters". In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Yours very truly,
/s/ Schreck Morris
SCHRECK MORRIS
