<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
(MARK ONE)
<S> <C>
/X/ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
/ / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 333-49717 333-49717-01
</TABLE>
ALADDIN GAMING HOLDINGS, LLC
ALADDIN CAPITAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0379607
Nevada 88-0379606
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
831 Pilot Road, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip code)
</TABLE>
(702) 736-7114
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / / Not applicable.
Indicate the number of shares outstanding of each of the registrants'
classes of common stock, as of March 16, 1999: Aladdin Gaming Holdings, LLC: Not
applicable; Aladdin Capital Corp.: 2,500 shares of common stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming
Holdings"), was established on December 1, 1997. Gaming Holdings was initially
owned by Aladdin Gaming Enterprises, Inc., a Nevada corporation (25%), Sommer
Enterprises, LLC, a Nevada limited liability company (72%) ("Sommer
Enterprises"), and GAI, LLC, a Nevada limited liability company (3%). On
February 26, 1998, London Clubs International, plc ("London Clubs"), through its
subsidiary London Clubs Nevada, Inc. ("LCNI"), contributed $50 million for a 25%
interest in Gaming Holdings common membership interests ("Holdings Common
Membership Interests"). Sommer Enterprises contributed a portion of land for
Holdings Common Membership Interests. Aladdin Gaming Enterprises, Inc. ("Gaming
Enterprises"), which is owned 100% by Sommer Enterprises, contributed a portion
of land, $7 million of predevelopment costs and $15 million in cash for Holdings
Common Membership Interests. After the additional contributions, Sommer
Enterprises, LLC owns 47% of Gaming Holdings, LCNI owns 25% of Gaming Holdings,
Gaming Enterprises owns 25% of Gaming Holdings and GAI, LLC owns 3% of Gaming
Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that
they shall vote their respective Holdings Common Membership Interests and cause
Gaming Enterprises to vote its Holdings Common Membership Interests so that
(taking into account Holdings Common Membership Interests held by London Clubs
or its affiliates) London Clubs controls fifty percent of the voting power of
Gaming Holdings. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." Aladdin Holdings, LLC, a Delaware limited
liability company ("AHL"), indirectly holds a majority interest in Gaming
Holdings. The members of AHL are the Trust Under Article Sixth u/w/o Sigmund
Sommer ("Sommer Trust") which holds a 95% interest in AHL 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 AHL.
Gaming Holdings is a holding company, the material assets of which are 100%
of the outstanding common membership interests and 100% of the outstanding
Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital
Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was
incorporated solely for the purpose of serving as a co-issuer of the 13 1/2%
Senior Discount Notes ("Notes"). Capital will not have any material operations
or assets and will not have any revenues. Gaming Holdings, through its
subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music"). Gaming
Holdings and its subsidiaries are collectively referred to herein as "Company."
NARRATIVE DESCRIPTION OF BUSINESS
ALADDIN. The operations of the Company have been primarily limited to the
design, development, financing and construction of a new Aladdin Hotel and
Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately
35-acre world-class resort, casino and entertainment complex ("Complex") located
on the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a
premier location at the center of Las Vegas Boulevard ("Strip"). The Aladdin has
been designed to include a luxury themed hotel of approximately 2,600 rooms
("Hotel"), an approximately 116,000 square foot casino ("Casino"), an
approximately 1,400-seat production showroom and six restaurants.
The Hotel's 2,600 rooms will be comprised of 1,976 standard rooms, 400 "king
parlors," 136 "tower end-cap suites," 58 "center king suites" and 30 suites
primarily for use by premium players of Aladdin and The London Club (as defined
below). In addition, the Hotel is expected to provide recreational facilities
for the guests, including a health spa and outdoor swimming pool complex.
The Aladdin is expected to include six restaurants offering a wide range of
dining selections with combined seating capacity for approximately 1,600
customers. Food service facilities at the Aladdin will include a buffet, food
plaza and a 24-hour casual dining facility. The mezzanine level, which will
offer a
2
<PAGE>
panoramic view of the main casino floor, will feature a themed restaurant, a
steakhouse, and a casual dining/coffee bar.
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 London Club") that is expected to contain approximately 20 to 30
high denomination table games and approximately 100 high denomination slot
machines. See "Strategic Alliances-- London Clubs."
The Aladdin is also expected to include on the mezzanine level of the main
building over 90,000 square feet of convention, conference, trade show and
reception facilities, including a 37,000 square feet main ballroom, 12,000
square feet of pre-function space and 41,000 square feet of breakout space in 15
separate rooms.
THE COMPLEX. 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 496,000 square feet of retail space ("Desert Passage"); (iii) a
second hotel and casino with a music and entertainment theme ("Aladdin Music
Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts
("Theater"); and (v) an approximately 4,800 space car parking facility
("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project").
The Mall Project will be separately owned in part by an affiliate of the Company
and Aladdin Music is currently seeking a joint venture partner for the Aladdin
Music Project. See "Narrative Description of Business--Aladdin Music Project."
The theming of the Aladdin and the Desert Passage will create an environment
that will be based upon the Legends of the 1001 Arabian Nights, including the
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 Complex.
The Aladdin's exterior will be designed to include a highly articulated
streetscape, and exterior facade that invokes the Legends of the 1001 Arabian
Nights. 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 85-foot high ceiling.
DESERT PASSAGE. Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is
owned 99% by the Sommer Trust, and TrizecHahn Bazaar Centers, Inc. ("THB"), a
subsidiary of TrizecHahn Centers, Inc. ("TrizecHahn"), have entered into a joint
venture agreement and formed Aladdin Bazaar, LLC ("Aladdin Bazaar") to develop,
construct, own and operate the Desert Passage. The Desert Passage, which will
contain approximately 496,000 square feet of retail space, 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 and the Aladdin Music Project upon its
completion.
ALADDIN MUSIC PROJECT. The Company, through its subsidiary Aladdin Music,
is pursuing prospective joint venture partners for the development, construction
and opening of the Aladdin Music Project, a music entertainment themed hotel
casino. The Aladdin Music Project is expected to include a hotel with
approximately 1,000 rooms, a 50,000 square foot casino, three restaurants,
including a music-themed restaurant, a 1,500-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
in exchange for equity in Aladdin Music and to lease to Aladdin Music the
existing Theater for a nominal amount. It is anticipated that Aladdin Music will
carry out an approximately $8 million renovation of the Theater; provided,
however, that because Gaming has an obligation to have the Theater renovated and
operational by the opening of the Aladdin, to the extent a joint venture partner
and financing have not been secured in time to meet this obligation, Gaming will
be required to renovate
3
<PAGE>
the Theater in order to meet this obligation. The Company has not yet secured a
joint venture partner, and has expended certain funds on the Aladdin Music
Project notwithstanding. While the Company is actively pursuing prospective
joint venture partners and acceptable financing for the Aladdin Music Project,
there can be no assurance that the Company will secure an acceptable joint
venture partner and secure financing on terms and conditions acceptable to the
Company. Without securing an acceptable joint venture partner and financing,
there is no assurance that the Company will proceed with the development of the
Aladdin Music Project.
STRATEGIC ALLIANCES
The Company has formed strategic alliances with certain third parties that
the Company believes to be uniquely qualified for the development and operation
of the Complex.
LONDON CLUBS. London Clubs, a prestigious multi-national casino operator,
owns through LCNI 25% of the outstanding Holdings Common Membership Interests,
and the Sommer Trust and its affiliates agreed that they shall vote their
respective Holdings Common Membership Interests and cause Gaming Enterprises to
vote its Holdings Common Membership Interests so that (taking into account
Holdings Common Membership Interests held by London Clubs or its affiliates)
London Clubs controls fifty percent of the voting power of Gaming Holdings. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations." 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)
and the Middle East. In addition to its equity ownership of Gaming Holdings,
London Clubs, through its subsidiary LCNI, will direct the operations of, and
act as marketing consultant to, The London Club, 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 London Club will be the first of its kind in the
United States managed by a European operator and based on the European concept
of luxurious, full service gaming areas for premium players. The London Club's
primary business and marketing focus will be to access London Clubs' worldwide
member base of upscale casino clientele. The London Club Hotel guests will be
escorted through a private entrance to a dedicated registration lobby and then
taken via a private elevator to the suites located on the top two floors. Once
there, the 24-hour butler and concierge will cater to the care and comfort of
The London Club guest. In the elegantly appointed The London Club, the customer
may dine in the 100-seat exclusive restaurant, which will offer fine cuisine
from around the world.
London Clubs has extensive experience in the international marketing of
casinos to premium players. London Clubs operates seven casinos in London, one
near Johannesburg, South Africa, two 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, reopening and managing the casino
operations of the famous Casino du Liban in Lebanon in December, 1996 and the
opening of the Emerald Safari Casino Resort in South Africa in December 1998.
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 contacts, but
also through international sporting sponsorships, including horse racing and
motor racing and its international print publications, which are distributed to
members worldwide utilizing London Clubs' substantial database of premium
clientele.
4
<PAGE>
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, a publicly traded real estate company.
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.
UNICOM. 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 Northwind Aladdin,
LLC ("Northwind") for the supply of electricity and hot and cold water to
certain parts of the Complex. Subject to conditions specified in the Energy
Services Agreement, Northwind has agreed to provide the Complex with
electricity, hot and cold water as specified, from the completion date of the
Aladdin. Pursuant to the Development Agreement, in order to supply the Aladdin's
energy requirements, Northwind has agreed to construct and operate, at its own
cost, a central energy plant ("Plant") on an approximately 0.64-acre portion of
the Complex. The Plant construction commenced during the first quarter of the
year 1999 and Northwind has advised the Company that Northwind currently
believes that the Plant will be completed by March 1, 2000. However, there can
be no assurance that the Plant will be completed by such date. If Northwind does
not perform its obligations under the Development Agreement, or the Energy
Service Agreement, or for any reason the Energy Plant is not constructed, the
Company would have to make alternative arrangements for the provision of energy
to the Complex. While the Company believes that such alternative arrangements
could be made, there can be no assurance that alternative arrangements could, in
fact, be made, or if made, on terms favorable to the Company, which could
adversely affect the Company.
STRATEGY
The Company's business and marketing strategies are linked together by the
Complex's premier location, its design, mixed-use theme development and
strategic partnering.
CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin,
with its unique, well-executed design, together with the Desert Passage and the
Aladdin Music Project (including the renovated Theater), will ensure its place
as a "must-see" destination. The Aladdin theme will be supported by a
sophisticated interior design enhancing the fantasy of a mystical and romantic
time and place. The Company believes that the Aladdin's main Casino traffic will
be driven not only by Hotel guests, but also by the customers directly attracted
from the Strip, and that visitor traffic to the Aladdin will also be enhanced by
the attractiveness of the Desert Passage. With the addition of the Aladdin 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 what the
Company perceives to be a broad customer demographic.
MARKETING 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 the upscale
clientele, providing the amenities and level of service such high-end
guests expect. In particular, 24% of the Hotel's guest rooms and suites
will have an area exceeding 620 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 recreational facilities for its guests, including a health spa and
an outdoor swimming pool. The Company intends
5
<PAGE>
to promote the Hotel's many features to the upscale market through a
variety of media, including high-end print publications, travel agents and
event sponsorships. A targeted relationship marketing program is expected
to ensure clientele retention and repeat visitation.
- INTERNATIONAL PREMIUM PLAYER CLIENTELE. The Company believes that The
London Club 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 on The London Club'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 premium players of Aladdin and The London Club. The Company will
maintain The London Club'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 and
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 Aladdin Music
Project is expected to appeal to the upper-middle market by attracting
younger, affluent customers to the Complex through its music and
entertainment-based theme. 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. 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.
CONSTRUCTION BUDGET AND SCHEDULE
Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the Aladdin.
The Design/Builder has entered into a guaranteed maximum price design/build
contract ("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 prior to the Contract
Completion Date (as defined herein) 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, subject
to certain limitations described in Exhibit 10.10 to this Form 10-K. The
Design/Builder committed itself to a 26-month work schedule to complete the
Aladdin, subject to certain scope changes. An equitable adjustment in the
Contract Completion Date and guaranteed maximum price may be made for changes
that either increase or decrease the Design/Builder's time for performance
and/or cost of construction outside what was contemplated in the Design/Build
Contract.
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 occurred on April 27, 1998. The
Company anticipates the cost of developing, financing, constructing and opening
the Aladdin to be approximately $827 million (excluding the Company's $21.3
million planned indirect cash contribution and land contribution to Aladdin
Music, as part of the development funds for the Aladdin Music Project). The
Company currently believes that completion of the Aladdin will occur during the
second quarter of the year 2000 assuming acceleration, which has been included
in the revised Project budget. The Company believes that the construction budget
is reasonable and can be achieved, assuming that the Company is successful in
the Arbitration (as defined below) and depending on the actual cost for
acceleration of the Project.
During the course of construction, a number of issues and items have arisen
in connection with various change orders and delay claims submitted in
connection with the Project and the scope of the Design/Build Contract. As
discussed in the Company's Form 10-Q for the period ended September 30, 1998
("3rd Quarter Form 10-Q"), the Company and the Design/Builder entered into a
Letter of Intent, dated November 11, 1998 ("LOI"), which was intended, among
other things, to consolidate and resolve existing scope change orders and delay
claims within a comprehensive definitive amendment to the Design/
6
<PAGE>
Build Contract. The amendment to the Design/Build Contract contemplated by the
LOI was not acceptable to the Company in its absolute discretion, and has not
been consummated. Therefore, the parties are no longer negotiating the amendment
pursuant to the LOI. However, the parties are continuing to discuss possible
means to address the various matters contemplated by the LOI and discussed in
the 3rd Quarter Form 10-Q, including disagreements over change orders and delay
claims.
Concurrent with these continuing negotiations, the Company has submitted the
following disputed Design/Builder equitable scope change requests to arbitration
("Arbitration") pursuant to the provisions of the Design/Build Contract: (i)
revised caisson and foundation progress prints (the Company has agreed to pay a
portion of the cost of the foundation revision, but has not agreed to the
associated delay claim); (ii) delay claim regarding the steel fabrication and
delivery; and (iii) increase in design height of ballroom ceiling,
(collectively, "Claims"). The Company believes that these scope change orders
relate to design and work which is base contract work contemplated in the
Design/Build Contract and therefore allocated to the Design/Builder, or
alternatively, that the work in question was required as a result of the Design/
Builder's failure to provide timely and appropriate design services, which
design services the Design/ Builder was solely responsible for under the
Design/Build Contract, and therefore, the Claims are not an appropriate basis
for a change order modifying the Design/Build Contract and the contract time for
completion date ("Contract Completion Date"). The Design/Builder has responded
to the Company's claim in Arbitration, alleging, among other things, that the
Claims relate to unforeseen conditions, and/or are due to the actions of the
Company, therefore, the Company is responsible for all costs and delays
associated with the Claims. While the Company intends to aggressively and
vigorously pursue the Claims, and believes that it will ultimately prevail in
the arbitration, the Claims are only in the preliminary stages of the
Arbitration process, and therefore, no assurances can be given with respect to
the ultimate outcome. The Design/Builder has presented change orders in the
amount of approximately $4.7 million and the Company disputes this amount.
However, if the Company is not successful on all the Claims, it could be
required to pay the amount claimed by the Design/Builder. Further, if the
Company does not prevail on the delay Claims, the Contract Completion Date would
be extended, and to the extent Design/Builder completes the Project prior to the
revised Contract Completion Date, the Design/Builder would be entitled to an
early completion bonus of $100,000 per day (up to a maximum of 90 days). Any
such payments by the Company would increase the Project's budget.
Notwithstanding the Arbitration, work on the Project continues.
Given the significant risks and unforeseen contingencies inherent in the
construction process, especially a large scale construction project such as the
Aladdin, it is possible that construction costs could be significantly higher
than budget and that delays could occur. Such risks and contingencies include,
for example, potential shortages of materials and labor, work stoppages, labor
disputes, weather interference, unforeseen engineering, environmental or
geological problems and unanticipated cost increases, any of which could be
beyond the Company's control, and any of which could give rise to delays or cost
increases. In addition, difficulties in obtaining any of the requisite licenses,
permits, allocations or authorizations from regulatory authorities could also
increase the total cost, delay, or prevent the construction or opening of the
Aladdin or their other components of the Complex or otherwise affect their
respective design and features. It is also possible that the existing budget and
construction schedule for the Complex could be changed for competitive or other
reasons. 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 fund of which $7.5 million has been
utilized as of December 31, 1998; (b) London Clubs, the Sommer Trust and Bazaar
Holdings pursuant to their obligations under the Bank Completion Guaranty; and
(c) the Design/Builder, pursuant to its liability under the Design/Build
Contract, which liability is guaranteed by Fluor Corporation (subject to certain
limitations discussed above).
While management believes that its estimates are reasonable, and that the
projected targets can be met, there can be no assurance that the Complex will be
completed within the time period or budget currently contemplated. In addition,
if the additional identified potential funding sources are insufficient or
unavailable to fully cover any excess, the Company could be materially and
adversely affected. So, while
7
<PAGE>
management believes that its estimates are reasonable, and that the projected
targets can be met, there can be no assurance that the Complex, including the
Aladdin, will be completed within the time period or budget currently
contemplated. Failure to complete the Aladdin on budget or on schedule may have
a material adverse effect on the Company and its financial operations.
The Aladdin, together with the Theater and Desert Passage, 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 Aladdin Music Project. It is
currently anticipated that the Aladdin Music Project will open within
approximately 24 months after financing and a joint venture partner are secured.
The completion and full operation of the Aladdin is not contingent upon the
subsequent financing or completion of the Mall Project or the Aladdin Music
Project and there can be no assurance that either the Mall Project or the
Aladdin Music Project will be completed. If the Mall Project is not completed,
the Company will be required to expend additional amounts, which amounts have
not been quantified by the Company, with respect to the completion of shared
structural space and the cost of parking.
COMPETITION
The hotel and 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. Aladdin will compete with a large number of
hotel casinos in the Las Vegas area, with many of the competitors being
subsidiaries or divisions of large public companies that may have greater
financial or other resources than the Company.
Competitors of the Aladdin will include themed resorts on the Strip such as
Bellagio, Mandalay Bay Resort, Mirage, Treasure Island Hotel and Casino, Bally's
Casino Resort, Monte Carlo Resort and Casino, and the Luxor Hotel and Casino. In
addition, the construction of several new major resort projects, such as the
Paris Casino Resort and the Venetian Hotel Casino will also compete with the
Aladdin. By the end of 1999, it is estimated that approximately 20,000
additional hotel rooms will be opened on the Strip.
The hotel casino operations of the Company will also compete, to some
extent, with other hotel casino facilities in Nevada, Atlantic City, worldwide
and with the state lotteries. In addition, certain states have recently
legalized, and others may or are likely to legalize, casino gaming in specific
areas. The passage of the Indian Gaming Regulatory Act in 1988 has led to
increases in American Indian gaming operations. The Company expects many
competitors to enter such new jurisdictions that authorize gaming. Some of these
competitors may have greater financial and other resources than the Company. The
Company believes that the legalization of large-scale land-based casino gaming
in or near certain major metropolitan areas, particularly in California, from
which the Company expects to attract customers could have a material adverse
effect on the Las Vegas market. Such proliferation of gaming activities could
significantly and adversely affect the business of the Company.
The Desert Passage will compete with retail malls in or near Las Vegas,
including the Fashion Show Mall, the Forum Shops at Caesars Palace, the themed
mall attraction being constructed at the Venetian Hotel Casino and the Mandalay
Bay Resort, and retailers in theme-oriented resorts, all of which may attract
consumers away from the Desert Passage and the Complex.
EMPLOYEES
As of March 15, 1999, the Company had 24 employees. The Company anticipates
that immediately prior to completion of the Aladdin, it will employ
approximately 3,300 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 have completed
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 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.
8
<PAGE>
SERVICE MARKS
On February 26, 1998, 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 (collectively, "Marks"). Two of the Marks were registered on
July 13, 1993, a third on July 29, 1993, and the fourth on August 24, 1993.
During the third quarter of 1999, the Company will file a statement of
continuing use with respect to each of the Marks with the United States Patent
and Trademark Office ("PTO") 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 February 26, 1998.
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, "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 ("Nevada
Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the
Clark County Liquor and Gaming Licensing Board ("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 Aladdin Gaming, LLC, which is defined for this section only as "Company."
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 the registration
and licensing of Gaming Holdings as a holding company and a member, each direct
and indirect owner of Gaming Holdings, including, but not limited to, Aladdin
Gaming Enterprises, Inc. ("Enterprises"), London Clubs, LCNI, London Clubs
Holdings, Ltd. (a wholly-owned subsidiary of London Clubs and the holding
company for LCNI), AHL, the Sommer Trust, Sommer Enterprises, LLC ("Sommer
Enterprises") GAI and their respective owners (collectively, "Aladdin Owners")
will be required to obtain from the Nevada Gaming Authorities the applicable
Gaming Approvals. 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.
9
<PAGE>
Gaming Holdings is a "publicly traded corporation" as that term is defined
in the Nevada Act. If the Company issues an initial public offering of equity
("IPO Equity") 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 corporation. If the Company
becomes an IPO Entity, the Company intends to apply for an exemption from this
eligibility requirement ("Exemption") in connection with its application for a
gaming license. In connection with licensing and receipt of the Exemption,
Gaming Holdings, London Clubs, Enterprises and the Company will each also be
required to be registered by the Nevada Commission as a publicly traded
corporation ("Registered Company"). The following regulatory requirements will
be applicable to the Company, Gaming Holdings and the Aladdin Owners upon their
receipt of all necessary Gaming Approvals from the Nevada Gaming Authorities.
The Company, Gaming 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 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 an entity licensed by the Nevada Gaming
Authorities ("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, Gaming
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 Gaming 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 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 Gaming Holdings unsuitable for licensing or to
continue having a relationship with the Company or Gaming Holdings, the Company
or Gaming 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
Gaming 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
10
<PAGE>
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
Gaming 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, Gaming 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 (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 in to 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 information 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 is 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 of 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
11
<PAGE>
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 the loss of 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 Gaming 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 Gaming 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 ("Qualified Public 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 for the Notes qualified as a public offering. Holdings filed a
written request ("Ruling Request") with the Nevada Board Chairman for a ruling
that it is not necessary to submit the Exchange Offer for prior approval. On
August 21, 1998, the Nevada Board Chairman ruled it was not necessary to submit
the exchange offer for the Notes for the Nevada Commission's prior approval. If
Gaming Holdings or the Company become an IPO Entity prior to receiving its
Gaming Approvals, they intend to file a second Ruling Request with the Nevada
Board Chairman for a ruling that it is not necessary to submit the Qualified
Public Offering for the Nevada Commission's prior approval. No assurance can be
given that such a Ruling Request will be
12
<PAGE>
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 Gaming 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
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 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.
13
<PAGE>
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 effect on the financial
position and results of operations of the Company and the Issuers.
ITEM 2. PROPERTIES.
The Company owns approximately 35 acres of land on the Strip on the site of
the original Aladdin hotel and casino in Las Vegas, Nevada. Such property
includes the site on which the Aladdin, Mall Project and the Plant are being
constructed and the site on which the Aladdin Music Project will be constructed.
The Company is obligated to transfer approximately 12.4 acres of land to Aladdin
Bazaar at a future date and may contribute approximately 4.8 acres of land to
Aladdin Music as part of the development of the Aladdin Music Project.
The Company currently leases two facilities of approximately 51,000 square
feet for its corporate offices and warehouse requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently party to any material pending litigation.
However, Mr. Jack Sommer, the chairman of the Gaming Holdings Board and the
Aladdin Gaming Board and a trustee of the Sommer Trust, and the other trustees
of the Sommer Trust, are co-defendants in a legal action relating to the then
existing Aladdin hotel and casino commenced by members of the Aronow family
("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. Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire
and develop the Aladdin hotel and casino and that Mr. Sommer breached such
alleged agreement when the Sommer 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 Sommer Trust's interest
in the Aladdin hotel and casino, an accounting, compensatory damages of not less
than $200 million and punitive damages of not less than $500 million.
Mr. Sommer and the trustees of the Sommer Trust have informed the Company
that they intend to vigorously defend such action. However, in the event that
the action is successful, the Sommer Trust might be required to pay substantial
damages and/or the Aronow Plaintiffs might be entitled to part of the Sommer
Trust's interest in the Aladdin hotel and casino. An adverse decision could have
a material and adverse effect on the Company.
Mr. Sommer and the other trustees of the Sommer Trust were also
co-defendants in a legal action commenced by Edward Kanbar, Romano Tio and Adino
Winston ("Kanbar Plaintiffs" and together with the Aronow Plaintiffs,
"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 Sommer Trust's interest in the Aladdin hotel and casino,
compensatory damages of not less than $20 million and punitive damages of not
less than $50 million. On January 15, 1998, the court granted the trustees of
the Sommer Trust's motion to dismiss this action in its entirety. However, on or
about November 9, 1998, the Kanbar Plaintiffs appealed the dismissal. Argument
on the appeal is expected to occur during March, 1999.
In 1988, the Sommer 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 ("Bronfman Defendants") alleging, among other
things, that the Bronfman Defendants committed violations of
14
<PAGE>
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 Sommer Trust owns limited partnership interests. Relief requested
includes an accounting, imposition of a constructive trust and damages in excess
of $100 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 million. The trustees of the Sommer
Trust have informed the Company that they are vigorously defending the
counterclaim. However, in the event the Bronfman Defendants are successful, the
Sommer Trust might be required to pay substantial damages. An adverse decision
could have a material and adverse effect on the Sommer Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's membership interests have not been registered under the
Securities Act of 1933 nor under Section 12 of the Securities Exchange Act of
1934. There is no established trading market for the common membership interests
of Aladdin Gaming Holdings, LLC and the Company is not aware of any bid
quotations for the common membership interests of Aladdin Gaming Holdings, LLC.
As of March 15, 1999, there were four holders of the common membership
interests of Aladdin Gaming Holdings, LLC and in addition there are five
individuals who have rights to acquire beneficial ownership of common membership
interests of Aladdin Gaming Holdings, LLC. See "Security Ownership of Certain
Beneficial Owners."
Since inception the Company has not paid any dividends on its equity. The
Company's current long-term debt arrangements restrict, subject to certain
exceptions, the payment of dividends on the Company's equity. See Exhibit 10.7
to this Form 10-K and "Note 2-Long-Term Debt" of the Notes to Consolidated
Financial Statements for additional information on the covenants, conditions and
restrictions on the Company under the Credit Agreement.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The historical selected financial data set forth below should be read in
conjunction with "Item 7-- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and Notes
thereto included elsewhere in this Form 10-K. The statement of operations data
for the years ended December 31, 1998 and 1997, and the balance sheet data at
December 31, 1998 and 1997 are derived from, and are elsewhere in this Form
10-K. The historical results are not necessarily indicative of the results of
operations to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(1)
---------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Gross revenues........................................................ None None
Promotional Allowances................................................ None None
Net revenues.......................................................... None None
Operating expenses.................................................... None None
Operating income (loss)............................................... None None
Interest income (expense), net........................................ $ (17,731) None
Net loss.............................................................. $ 42,468 None
Per Share Data:
Loss before extraordinary item........................................ N/A N/A
Extraordinary item.................................................... N/A N/A
Basic and diluted loss per share...................................... N/A N/A
Other Data:
Capital expenditures.................................................. $ 74,669 None
Cash dividends per common membership interest......................... None None
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- -----
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................................ $ 402,761 $ 7
Long-term debt (including current maturities)........................... $ 392,475 $ 4
Members' equity......................................................... $ (13,860) $ 3
</TABLE>
- ------------------------
(1) This is for the period from inception (December 1, 1997) through December
31, 1997.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the various
other reports which have been previously filed with the United States Securities
and Exchange Commission ("SEC"), which may be inspected, without charge, at the
Public Reference Section of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the SEC internet site address: http://www.sec.gov.
DEVELOPMENT ACTIVITIES
The operations of the Company have been limited to obtaining financing for,
securing the land for, arranging for the construction of, finalizing the design
of, constructing and developing, and applying for the appropriate gaming
licenses for the Aladdin.
RESULTS OF OPERATIONS
The Company is in the development stage and has no significant operations to
date. The Company has capitalized all qualifying construction costs.
Accordingly, the Company does not have any historical operating income. The
capitalized costs consist primarily of land contributed by certain members of
Gaming Holdings, design fees, financing and commitment fees, construction costs
and interest on qualifying assets. Capitalized costs include approximately $2.3
million related to Aladdin Music for necessary predevelopment costs and expenses
of the Aladdin Music Project. The Company's operating expenses primarily have
consisted of interest, amortization costs and expenses related to the Notes and
pre-opening costs.
The Company anticipates that its results of operations from inception to the
grand opening of the Aladdin will be adversely affected by the expensing of
pre-opening costs and interest not qualifying for capitalization and should not
be indicative of future operations. Accordingly, historical results will not be
indicative of future operating results. Future operating results of the Company
are subject to significant business, economic, regulatory and competitive
uncertainties and contingencies, many of which are beyond the Company's control.
While the Company believes that the Aladdin will be able to attract a sufficient
number of patrons and achieve the level of activity necessary to permit the
Company to meet its debt payment obligations, including the Notes and other
indebtedness, and its other obligations there can be no assurance with respect
thereto.
The Company recorded a net loss of approximately $42.5 million for the
twelve months ended December 31, 1998. The Company had no operations for the
period of inception December 1, 1997 to December 31, 1997. The loss was due to
pre-opening costs, interest expense, amortization costs and expense related to
the Notes. The pre-opening costs include approximately $0.5 million related to
Aladdin Music.
MATERIAL CHANGES IN FINANCIAL CONDITION
Through December 31, 1998, approximately $210 million had been expended
primarily on the development of the Aladdin, of which approximately $74.5
million had been expended on repayment of debt associated with the land
contributed to the Company, approximately $74.7 million in construction,
furniture, fixtures and equipment, and capitalized interest, approximately $39.5
million in debt issuance and member equity costs, and approximately $21.3
million in pre-opening costs, net interest expense, and other current assets.
LIQUIDITY AND CAPITAL RESOURCES
On August 26, 1998, Gaming Holdings and Capital completed an exchange offer
for 100% of the $221.5 million aggregate principal amount of their 13 1/2%
Senior Discount Notes due 2010 ("Notes"),
17
<PAGE>
pursuant to a registration statement dated July 23, 1998. The Notes were
exchanged for notes with substantially the same terms issued in a private
placement on February 26, 1998. For further details on the Notes, please refer
to "Note 2--Long Term Debt and Current Maturities of Long-Term Debt" of the
Notes to Consolidated Financial Statements.
Gaming has a $410 million Credit Agreement ("Bank Credit Facility" or
"Credit Agreement") with various financial institutions and the Bank of Nova
Scotia as the administrative agent for the lenders (collectively, "Lenders").
The Credit Agreement consists of three separate term loans. Term A Loan
comprises a term loan of $136 million and matures seven years after the initial
borrowing date. Term B Loan comprises a term loan of $114 million and matures
eight and one-half years after the initial borrowing date. Term C Loan comprises
a term loan of $160 million and matures ten years after the borrowing date. As
of December 31, 1998, approximately $90.4 million of the Term B Loan proceeds
plus accrued interest and approximately $138.5 million of the Term C Loan
proceeds plus accrued interest is available to develop and construct the
Aladdin. The Term A Loan has not been funded. For further details on the Bank
Credit Facility, please refer to "Note 2-- Long Term Debt and Current Maturities
of Long-Term Debt" of the Notes to Consolidated Financial Statements and for
information regarding the covenants, restrictions and limitations on the Company
pursuant to the Bank Credit Facility, see Exhibit 10.7 to this Form 10-K.
The Company has operating lease financing of up to $60 million and a term
loan facility of $20 million to obtain gaming equipment and other specified
equipment (collectively, "FF&E Financing"). For further details on the operating
lease financing and term loan facility, please refer to "Note 2-- Long Term Debt
and Current Maturities of Long-Term Debt" of the Notes to Consolidated Financial
Statements and for information regarding the covenants, restrictions and
limitations on the Company pursuant to the FF&E Financing, see Exhibit 10.35 to
this Form 10-K.
Upon the later of (a) the transfer of the real property under the Mall
Project by the Company to Aladdin Bazaar or (b) the commencement of Aladdin's
operations, Aladdin Bazaar, LLC will execute a promissory note of approximately
$16.7 million to Gaming. Principal and interest on the note is payable by
Aladdin Bazaar to Gaming in the amount of $2 million per year. The required
payments are subordinated to various restrictions under the Aladdin Bazaar
operating agreement. Due to the restrictions upon the payments, there can be no
assurances that Gaming will receive any payments under this note.
London Clubs, the Sommer Trust, and Aladdin Bazaar Holdings, LLC ("Bazaar
Holdings"), which is owned 99% by the Sommer Trust, have entered into a
completion guaranty ("Bank Completion Guaranty") for the benefit of the Lenders
under the Bank Credit Facility, 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 Sommer Trust
and Bazaar Holdings have entered into a limited completion guaranty for the
benefit of the Noteholders ("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 under the Noteholder Completion Guaranty.
In connection with the development of the Mall Project, Aladdin Bazaar, LLC
will reimburse the Company approximately $14.2 million for the construction of
certain areas shared by the Aladdin and the Mall Project and the facade to the
Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to spend no more than
$36 million for the Carpark. Therefore, any cost overruns associated with these
items will be borne by the Company. In addition, the Company is obligated to pay
to Aladdin Bazaar, LLC: (i) a $3.2 million fee per year for a term of 99 years,
which is adjusted annually pursuant to a consumer price index-based formula, for
usage of the Carpark; and (ii) the Company's proportionate share of the
operating costs associated with the Carpark and other common areas.
18
<PAGE>
Under the Credit Agreement, $25 million of the contingency funds is made
available to the Company as a function of the Project's percentage of
construction complete. However, the Company committed to changes in the plans
and specifications early in the Project while the percentage of completion was
low. In addition, the Company revised certain items of the Project budget and
adjusted the budget accordingly, including an increase to pre-opening costs.
Thus, because financial commitments were made when the contingency funds were
not yet available to pay for such changes, in November, 1998 an out-of-balance
of approximately $6.5 million ("November 1998 Out-of-Balance") was created. The
Sommer Trust and London Clubs posted letters of credit in the amounts of
$1,030,500 and $5,543,500, respectively, to fund the November 1998
Out-of-Balance. Pursuant to the Bank Completion Guaranty, the parties agreed to
fund certain Project cost increases and to a contribution agreement
("Contribution Agreement"), dated as of February 26, 1998, whereby, among other
things, the parties agreed to share all the obligations under the Bank
Completion Guaranty, 75% to the Sommer Trust and 25% to London Clubs. On
November 30, 1998, the Sommer Trust and London Clubs agreed that because the
Sommer Trust did not fund its proportionate share of the November 1998
Out-of-Balance, (a) the Sommer Trust and its affiliates shall vote their
respective Holdings Common Membership Interests and cause Gaming Enterprises to
vote its Holdings Common Membership Interests so that (taking into account
Holdings Common Membership Interests held by London Clubs or its affiliates)
London Clubs controls fifty percent of the voting power of Gaming Holdings, and
(b) the Board of Managers for Gaming Holdings and Gaming was expanded from the
then-current five Board members to six and the number of Board Members which
London Clubs shall designate was increased from two to three. Notwithstanding
the change to increase London Clubs' voting power and the increase in the number
of Board members, the supermajority provisions contained in the Gaming Holdings'
Operating Agreement which require the approval of the holders of at least 80% of
the Gaming Holdings Common Membership Interests remain unaffected by this
agreement. See Exhibit 3.5 of this Form 10-K for additional description of
voting mechanics, including supermajority provisions, for Gaming Holdings.
During 1998, while the Company's indirect subsidiary, Aladdin Music, was
pursuing a joint venture agreement with Planet Hollywood International, Inc.
("Planet Hollywood") and thereafter pursuing subsequent prospective partners,
Aladdin Music incurred indebtedness of approximately $2.8 million in connection
with the pre-development costs and expenses of the Aladdin Music Project ("Music
Indebtedness"). While the Music Indebtedness was contemplated by the Credit
Agreement, the incurrence of the Music Indebtedness was not pre-approved by the
Bank Lenders as required by the Credit Agreement and thus the incurrence of the
Music Indebtedness constituted an event of default under the Credit Agreement.
On January 29, 1999, the Credit Agreement was amended to: (i) reduce the net
worth requirement to reflect the accounting treatment requiring certain costs to
be expensed rather than capitalized; (ii) waive the event of default which arose
due to the incurrence of debt by the Company's indirect subsidiary, Aladdin
Music, for the Aladdin Music Project, assuming satisfaction of certain
conditions; (iii) amend certain definitions, including the definition of
"Available Funds," "Realized Savings" and "Indebtedness;" (iv) permit using
letters of credit to fund the November, 1998 Out-of-Balance; (v) provide that
the Company will fund costs for the Carpark which are in excess of $36 million;
(vi) permit Aladdin Music to incur an additional aggregate indebtedness of $3.5
million for reasonable and necessary predevelopment costs and expenses for the
Aladdin Music Project and to enter into agreements for the payment of certain
commissions; (vii) permit certain indebtedness in connection with a 1,400-seat
production theater; and (viii) other technical amendments (collectively, "First
Amendment to the Credit Agreement"). The effectiveness of certain provisions of
the First Amendment to the Credit Agreement was expressly conditioned upon
corresponding amendments to the FF&E Financing documents. Further, the First
Amendment to the Credit Agreement provided that if the FF&E Financing documents
were not correspondingly amended by March 10, 1999, an event of default would
exist under the Credit Agreement. The above summary of the amendments should be
read in conjunction with, and is qualified in its entirety by,
19
<PAGE>
the First Amendment to Credit Agreement which is Exhibit 10.7 to this Form 10-K
and incorporated herein by this reference.
After various discussions with the lenders under the FF&E Financing, the
Company determined that it would not be in its best interests to effect
corresponding amendments to the FF&E Financing documents. Thereafter, Gaming
submitted to the Lenders for their approval a proposed second amendment to the
Credit Agreement ("Second Amendment to the Credit Agreement") to cure these
events of default. The Second Amendment to the Credit Agreement provides: (i)
the Music Indebtedness has been paid by or on behalf of Aladdin Music and this
event of default is waived by the Lenders; (ii) a capital contribution in the
amount of approximately $18.5 million (see discussion below) has been made to
bring the Main Project Budget "In Balance," as defined in the Credit Agreement;
(iii) the letters of credit which were posted in connection with the November
1998 Out-of-Balance will be drawn and the proceeds deposited in Gaming's
account; (iv) amending certain definitions of the Credit Agreement, including,
"Available Funds," "Indebtedness," and "Realized Savings;" (v) requiring any
costs in excess of $36 million for completing the Carpark to be funded by the
Sommer Trust and London Clubs; (vi) requiring that Gaming maintain a minimum
"Net Worth" at the close of each calendar month of not less than $100 million
plus 85% of the positive Net Income (as defined); and (vii) other technical
amendments to the Credit Agreement. The Company has been advised by its counsel
that the Second Amendment to the Credit Agreement will not require the approval
or consent of either the FF&E Financing lenders or the Noteholders. There can be
no assurances that: (i) the Lenders will approve the Second Amendment to the
Credit Agreement or, if approved, it will not be subject to conditions or
limitations; or (ii) the ultimate amendment to the Credit Agreement will not
differ materially from the proposed Second Amendment to the Credit Agreement.
The Sommer Trust, London Clubs and Aladdin Bazaar Holdings, LLC have
proposed to enter into the First Amendment to the Guaranty of Performance and
Completion, dated as of March 10, 1999 ("First Amendment to the Bank Completion
Guaranty"). The First Amendment to the Bank Completion Guaranty would require
that the Sommer Trust, London Clubs and Aladdin Bazaar Holdings, LLC guarantee
the performance by Gaming of Gaming's minimum Net Worth Covenant required by the
Second Amendment to the Credit Agreement. On March 30, 1999, the Sommer Trust
and London Clubs agreed that if either party is required to contribute more than
its proportionate share of any amounts necessary for Gaming to maintain the
revised Net Worth as required in the Second Amendment to the Credit Agreement,
then the party who contributes more than its proportionate share will be deemed
to have made a recourse loan to the party who contributes less than its
proportionate share in the amount not funded by such party. The recourse loan
will bear interest at 20% per annum and will be payable by a transfer at par
value of the corresponding amount of the Holdings Common Membership Interests
held directly by the party who did not contribute its proportionate share. Until
the recourse loan is paid, the party who contributed more than its proportionate
share will have a security interest and continuing lien in the non-contributing
party's Holdings Common Membership Interests.
Because certain provisions of the First Amendment to the Credit Agreement
are not effective, the Lenders are no longer required to forbear exercising
their rights, remedies and options with respect to the events of default under
the Credit Agreement, which, if exercised, would result in delays in funding
under the Credit Agreement or termination of the Credit Agreement, either of
which would have a material and adverse effect on the Company.
On February 17, 1999, GMAC Commercial Mortgage ("GMAC"), one of the
participants in the FF&E Financing, issued a "Notice of Default" based on the
Company's proposal to amend the minimum net worth amount under the FF&E
Financing documents and further provided that GMAC was terminating its
obligation to fund under the FF&E Financing. On February 26, 1999, the Company
responded that, pursuant to the Intercreditor Agreement, dated June 30, 1998, no
participant in the FF&E Financing, including GMAC, could declare a Default or
Event of Default (other than a payment default) prior to the initial funding
under the FF&E Financing and that in fact no default or event of default
existed. To date,
20
<PAGE>
there have been no further developments on this matter and there can be no
assurances as to its ultimate outcome.
In March 1999, the Company completed a review of the project budget and
determined that it was appropriate to increase the Main Project Budget by
approximately $18.5 million, which amount reflected an increase in construction
costs of approximately $9.5 million and an increase in pre-opening costs of
approximately $9 million (collectively, "March 1999 Out-of-Balance"). In
addition to this amount, it may be necessary to increase the Main Project Budget
by the amount of the Music Indebtedness as a means to cure that event of
default.
The revised net worth requirement pursuant to the Second Amendment to the
Credit Agreement would require additional contributions to the Company on a
monthly basis if the Company's net worth falls below $100 million. The Company
estimates that additional contributions of approximately $33 million will be
required to maintain a net worth of $100 million prior to the opening of the
Aladdin.
The Company has informed the Sommer Trust and London Clubs of the March 1999
Out-of-Balance and requested that, pursuant to the Bank Completion Guaranty, the
Sommer Trust and London Clubs fund the March 1999 Out-of Balance. As of March
30, 1999, neither party has funded the March 1999 Out-of-Balance; however,
London Clubs has advised the Company that it will fund the full March 1999
Out-of-Balance amount.
The March 1999 funding under the Credit Agreement was to be made, assuming
payment of the March 1999 Out-of-Balance, on or about March 18, 1999. As of
March 30, 1999, such funding had not occurred, and the Company believes the
funding will not occur without the payment by London Clubs of the March 1999
Out-of-Balance. Even if the March 1999 Out-of-Balance is paid, due to the
existing events of default under the Credit Agreement, there can be no
assurances that any funding will be made under the Credit Agreement or that the
Credit Agreement will not be terminated. The lack of funding under the Credit
Agreement would have a material and adverse effect on the Company and any
further delay in funding could have a material and adverse effect on the
Company.
The monthly payment to the Design/Builder was due from the Company on or
about March 18, 1999. As the Company did not receive its March 1999 funding
under the Credit Agreement, as of March 30, 1999, the Company had not paid the
Design/Builder. Under the Design/Build Contract, ten days after payment is due,
the Design/Builder can issue a written notice of non-payment and if payment is
not made within ten days after such notice, Design/Builder can stop work on the
Project. If the Design/Builder does stop work on the Project, it will cause
delays and expenses to the Project which would have a material and adverse
effect on the Company. After expiration of the applicable time periods, a
default under the Design/Build Contract is an event of default under the Credit
Agreement.
Arthur Andersen LLP, the Company's independent public accountant, has issued
an opinion in connection with its audit of the Company's financial statements
which includes an explanatory fourth paragraph that calls attention to the
existence of substantial doubt about the Company's ability to continue as a
going concern. See "Item 8. Financial Statements and Supplementary Data--Report
of Independent Public Accountants." The Credit Agreement and the FF&E Financing
documents require that the Company's annual financial statements be audited
without an Impermissible Qualification (as defined in the Credit Agreement) from
the independent public accountants, which includes any qualification or
exception to the accountant's opinion of a "going concern," or similar nature.
If such qualified opinion is not cured within thirty days, it would constitute
an event of default under the Credit Agreement and the FF&E Financing documents.
The Company plans to: (i) cure the events of default referred to above; (ii)
continue to comply with current and future Bank Credit Facility debt covenants;
and (iii) obtain adequate funding through project completion. To accomplish
these plans, management: (a) is currently seeking an additional contribution of
$18.5 million from London Clubs (which the Company has been advised will be
funded by London Clubs);
21
<PAGE>
(b) together with London Clubs and the Sommer Trust, has submitted a proposed
Second Amendment to the Credit Agreement, which seeks to cure all current events
of default; and (c) has informed both London Clubs and the Sommer Trust of its
estimate of future equity contributions of approximately $33 million required
under the net worth test proposed under the Second Amendment to the Credit
Agreement.
Subject to, and dependent upon, the ultimate resolution of the various
matters discussed above, the Company believes that the funds provided by the
Notes, Credit Agreement, FF&E Financing, London Clubs' equity contribution and
owner contributions pursuant to the Bank Completion Guaranty (collectively,
"Funding Transactions") will be sufficient to develop, complete and commence
operation of the Aladdin, assuming no future delays or additional construction
cost overruns, which (i) are not covered by the $31.8 million contingency funds,
of which amount $6.8 million is provided for under the Design/Build Contract and
$25 million is provided for under the Credit Agreement; or (ii) Fluor
Corporation and/or its subsidiary Fluor Daniel are not responsible for pursuant
to the Fluor Guaranty and the Design/Build Contract, respectively. As of
December 31, 1998, the Company has utilized approximately $7.5 million of the
contingency. However, there can be no assurance that such funds will be
sufficient for the development, construction and commencement of the Aladdin.
If, for any reason, funding under the Credit Agreement ceases, the Company will
not have sufficient liquidity and capital resources to meet all its current and
long term commitments and obligations, and to complete construction and commence
operation of the Aladdin.
Following the commencement of operations of the Aladdin, the Company expects
to fund its operating, debt service and capital needs, as currently
contemplated, with $15 million of working capital from the funding transactions
and operating cash flows. Although no additional financing is contemplated, the
Company will seek, if necessary and to the extent permitted under the Notes
Indenture and the terms of the Bank Credit Facility and the FF&E Financing,
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.
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates
and prices such as interest rates, foreign currency exchange rates and commodity
prices. The Company's primary exposure to market risk is interest rate risk
associated with its long-term debt. The Company manages interest rate risk by
utilizing derivative financial instruments. The Company evaluates its exposure
to interest rate risk by monitoring changes in interest rates in the market
place.
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For interest rate sensitive debt obligations, the
table presents: (i) the amount of debt outstanding as of December 31, 1998 and
the expected debt to be outstanding for the next five years; (ii) expected
interest expense and related weighted average interest rates for the next five
years and thereafter; (iii) total expected interest expense from January 1, 1999
through the repayment of the indebtedness; and (iv) the current fair market
value of the indebtedness as of December 31, 1998. The amount of expected
indebtedness to be outstanding for the next five years is based on the
assumption that the Aladdin will be operational during the second quarter of the
year 2000 and the debt will be repaid in accordance with the principal
amortization as detailed in "Note 2--Long Term Debt and Current Maturities of
Long-Term Debt" of the Notes to the Consolidated Financial Statements. The
repayment calculations do not include any additional reductions in debt due to
the mandatory prepayments based on excess cash flow. In addition, the
calculations assume that all events of default are cured and the current
maturities of long-term debt are re-classified as long-term debt. See discussion
above regarding events of default. The interest expense due on the Term Loans is
a function of
22
<PAGE>
the London Interbank Offered Rate ("LIBOR") plus additional basis points
depending on whether the funds from the Term Loans have been utilized to develop
and build the Aladdin or the Aladdin is operational. The LIBOR on the Term Loans
was 5.2613% as of December 31, 1998. The LIBOR is adjusted every three months
and on March 1, 1999, LIBOR was set at 5.02%. The interest expense computations
related to the interest rate sensitive debt obligations assume: (a) that LIBOR
remains constant at 5.2613% for all periods; (b) that the Aladdin is operational
during the second quarter of the year 2000; (c) that the funds expended on the
project are in accordance with the Company's future cash flow projections; and
(d) the additional basis points paid on the Term A Loan is the maximum amount
required under the Credit Agreement (for further details on the interest rates
for the Term Loans, see "Note 2--Long Term Debt and Current Maturities of
Long-Term Debt" of the Notes to the Consolidated Financial Statements).
For interest rate swaps, the table presents notional amounts as of the end
of each period, the net expected interest (receivable)/payable amounts during
the periods and the interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. The variable rates are based on the LIBOR in effect under
the agreements as of December 31, 1998 and for these calculations, the same
LIBOR was used for all periods. The LIBOR in effect under the swap agreements as
of December 31, 1998 was 5.3125% and LIBOR is adjusted quarterly.
For interest rate ceiling and floor caps, the table presents notional
amounts as of the end of each period, the net expected interest
(receivable)/payable amounts during the periods and the interest rates by
expected (contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contract. For these
calculations, the Company assumed that LIBOR would remain at 5.3125% for all
periods. This resulted in a net payment of interest as LIBOR was less than the
floor rate.
The Company does not hold or issue interest rate swap agreements for trading
purposes.
23
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Long Term Debt:
(In Thousands)
Term B Loan Outstanding $................... 114,000 114,000 113,200 112,000 110,800
Variable Rate $............................. 9,461 10,103 9,974 9,868
Average Interest Rate....................... 8.2082% 8.7613% 8.7613% 8.7613%
Term C Loan Outstanding $................... 160,000 160,000 159,641 157,334 155,734
Variable Rate $............................. 13,591 14,949 14,807 14,658
Average Interest Rate....................... 8.4012% 9.2613% 9.2613% 9.2613%
Term A Loan Outstanding $................... 0 17,000 126,400 106,667 81,334
Variable Rate $............................. 62 8,732 9,440 7,678
Average Interest Rate....................... 8.2613% 8.0673% 8.0113% 8.0113%
Interest Rate Swaps:
(In Thousands)
Notional Amount $........................... 114,000 114,000 N/A N/A N/A
Variable to Fixed $......................... 650 163 N/A N/A
Average Pay Rate............................ 5.8830% 5.8830% 5.8830% N/A N/A
Average Receive Rate........................ 5.3125% 5.3125% 5.3125% N/A N/A
(Contract Matures March 31, 2000)
Notional Amount $........................... 160,000 160,000 160,000 160,000 160,000
Variable to Fixed $......................... 1,876 1,876 1,876 1,876
Average Pay Rate............................ 6.4850% 6.4850% 6.4850% 6.4850% 6.4850%
Average Receive Rate........................ 5.3125% 5.3125% 5.3125% 5.3125% 5.3125%
(Contract Matures March 31, 2003)
Notional Amount $........................... N/A 27,450 N/A N/A N/A
Variable to Fixed $......................... 39 155 N/A N/A
Average Pay Rate............................ N/A 5.8830% 5.8830% N/A N/A
Average Receive Rate........................ N/A 5.3125% 5.3125% N/A N/A
(Contract Matures March 31, 2000)
Interest Rate Ceiling and Floor Caps:
Notional Amount $........................... N/A N/A 250,000 250,000 250,000
Variable to Fixed $......................... 563 844 844
Ceiling Rate................................ N/A N/A 7.0000% 7.0000% 7.0000%
Floor Rate.................................. N/A N/A 5.6500% 5.6500% 5.6500%
Assumed LIBOR Rate.......................... N/A N/A 5.3125% 5.3125% 5.3125%
(Contracts Mature September 30, 2006)
<CAPTION>
FAIR VALUE AT
DECEMBER 31, DECEMBER 31,
2003 THEREAFTER TOTAL 1998
------------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Long Term Debt:
(In Thousands)
Term B Loan Outstanding $................... 110,195 114,000
Variable Rate $............................. 9,762 21,210 70,378
Average Interest Rate....................... 8.7613% 8.7613%
Term C Loan Outstanding $................... 154,134 160,000
Variable Rate $............................. 14,508 49,965 122,478
Average Interest Rate....................... 9.2613% 9.2613%
Term A Loan Outstanding $................... 50,667 N/A
Variable Rate $............................. 5,372 27,152 58,437
Average Interest Rate....................... 8.0113% 8.0113%
Interest Rate Swaps:
(In Thousands)
Notional Amount $........................... N/A N/A
Variable to Fixed $......................... N/A N/A 813
Average Pay Rate............................ N/A N/A
Average Receive Rate........................ N/A N/A
(Contract Matures March 31, 2000)
Notional Amount $........................... N/A N/A
Variable to Fixed $......................... 469 N/A 7,973
Average Pay Rate............................ 6.4850% N/A
Average Receive Rate........................ 5.3125% N/A
(Contract Matures March 31, 2003)
Notional Amount $........................... N/A N/A
Variable to Fixed $......................... N/A N/A 194
Average Pay Rate............................ N/A N/A
Average Receive Rate........................ N/A N/A
(Contract Matures March 31, 2000)
Interest Rate Ceiling and Floor Caps:
Notional Amount $........................... 250,000 N/A
Variable to Fixed $......................... 844 2,320 5,414
Ceiling Rate................................ 7.0000% 7.0000%
Floor Rate.................................. 5.6500% 5.6500%
Assumed LIBOR Rate.......................... 5.3125% 5.3125%
(Contracts Mature September 30, 2006)
</TABLE>
24
<PAGE>
In addition to the above interest rate swaps and interest rate ceiling and
floor caps, the Company has entered into a swap option. The notional amount of
the swap option is $154,800,000. The option would extend the interest rate swap
on the $160,000,000 notional amount from March 31, 2003 to March 31, 2007. This
option is solely at the discretion of the Company, but must be exercised by
March 24, 2003. The fair market value of all of the Company's interest rate
swaps, interest rate ceiling and floor caps and swap option was a net liability
of approximately $13.9 million as of December 31, 1998.
YEAR 2000
The Company and its subsidiaries are development stage companies that are
developing, constructing, and upon completion, will operate a hotel casino. The
selection of software applications, hardware and other technology currently in
use principally occurred within the last twelve months. The only computer
systems in place at the current time are several financial applications, word
processing and an internal e-mail system that are year 2000 compliant.
Accordingly, it is not expected that the Company will incur significant amounts,
if any, to modify its systems for year 2000 compliance.
The Company has requested representations regarding the year 2000 compliance
from Fluor Corporation and/or its subsidiary Fluor Daniel, the design/builder
for the Aladdin ("Design/Builder"), and through Design/Builder will seek similar
representations of the other contractors and subcontractors for the construction
of the Aladdin (collectively, "Contractors") to assess the impact of year 2000
noncompliance on the construction of the Aladdin. Construction delays will have
a significant impact on the financial results of the Company. There can be no
assurance that the systems of the Contractors or other companies on which the
Company may rely, such as vendors, will be properly converted before the year
2000 and that failure to convert by another company will not have an adverse
effect on the Company's operations.
START-UP ACTIVITIES
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"). The provisions of
SOP 98-5 are effective for fiscal years beginning after December 15, 1998 and
require that the costs associated with start-up activities (including
pre-opening costs of casinos) be expensed as incurred. SOP 98-5 permits early
adoption in fiscal years for which annual financial statements have not yet been
issued.
Effective January 1, 1998 the Company adopted the provisions of SOP 98-5.
CERTAIN FORWARD LOOKING STATEMENTS
Certain information included in this Form 10-K and other materials filed or
to be filed by the Company with the Securities and Exchange Commission (as well
as information included in oral statements or other written statements made or
to be made by the Company) contains statements that are forward-looking within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include, without limitation, those relating to the Design/Build Contract, the
Credit Agreement and other agreements, plans for future operations, current
construction and development activities (including competition dates and
budgets), other business developments activities, capital spending, financing
sources, the effect of regulation (including gaming and tax regulations) and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to the current
development and construction activities and costs and timing thereof, the
sources and extent of financing for the Project, dependence on existing
management, leverage and debt service (including sensitivity to fluctuations in
interest rates), domestic or international economic conditions (including
25
<PAGE>
sensitivity to fluctuations in foreign currencies), changes in federal or state
tax laws or the administration of such laws, changes in gaming laws or
regulations (including the legalization of gaming in certain jurisdictions) and
application for licenses and approvals under applicable jurisdictional laws and
regulations (including gaming laws and regulations).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There is incorporated by reference the information appearing under the
caption "Market Risk" in Item 7 of this Form 10-K.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Public Accountants
To the Board of Directors and Members of
Aladdin Gaming Holdings, LLC:
We have audited the accompanying consolidated balance sheets of Aladdin
Gaming Holdings, LLC (a Nevada limited liability company in the development
stage) and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, members' equity and cash flows for the
year ended December 31, 1998 and for the period from inception (December 1,
1997) to December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide 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, 1998 and 1997, and the results of their
operations and their cash flows for the year ended December 31, 1998, and for
the period from inception (December 1, 1997) to December 31, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is currently in default of certain debt
covenants and management estimates that additional funds will be required to
complete the construction of the new Aladdin Hotel and Casino and maintain
compliance with current and future debt covenants. This raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 30, 1999
27
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 1,248 $ 7
Receivables, related parties....................................................... 77 -
Other receivables.................................................................. 765 -
Inventory.......................................................................... 60 -
Prepaid assets..................................................................... 119 -
Restricted land to be transferred.................................................. 6,842 -
------------ ---
Total current assets............................................................. 9,111 7
------------ ---
Property and equipment:
Land............................................................................... 33,407 -
Furniture, fixtures and equipment.................................................. 272 -
Construction in progress........................................................... 86,557 -
Capitalized interest............................................................... 8,213 -
------------ ---
128,449 -
Less accumulated depreciation and amortization....................................... 17 -
------------ ---
Net property and equipment......................................................... 128,432 -
------------ ---
Other assets:
Restricted cash and cash equivalents............................................... 227,983 -
Interest receivable--restricted cash............................................... 859 -
Other assets....................................................................... 2,061 -
Debt issuance costs, net of accumulated amortization of $2,831 and $-0- as of
December 31, 1998 and 1997, respectively......................................... 34,315 -
------------ ---
Total other assets............................................................. 265,218 -
------------ ---
$ 402,761 $ 7
------------ ---
------------ ---
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................... $ 274,000 $ -
Accounts payable................................................................... 3,394 -
Construction payable............................................................... 12,063 -
Obligation to transfer land........................................................ 6,842 -
Accrued interest................................................................... 1,734 -
Accrued expenses................................................................... 113 -
------------ ---
Total current liabilities........................................................ 298,146 -
------------ ---
Long-term debt, net of discount...................................................... 114,353 -
Related party payables............................................................... 4,119 1
Advances to purchase membership interests............................................ 3 3
Members' equity:
Common membership interest, 1,000,000 common shares issued and outstanding as of
December 31, 1998................................................................ 28,608 3
Deficit accumulated during the development stage................................... (42,468) -
------------ ---
Total members' equity.......................................................... (13,860) 3
------------ ---
$ 402,761 $ 7
------------ ---
------------ ---
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION
(DECEMBER 1, 1997)
FOR THE YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1998 31, 1998
------------------ -------------------
<S> <C> <C>
Pre-opening costs........................................................ $ 24,737 $ 24,737
Other (income) expense:
Interest income...................................................... (12,472) (12,472)
Interest expense..................................................... 38,416 38,416
Less: Interest capitalized........................................... (8,213) (8,213)
-------- --------
Total other (income) expense..................................... 17,731 17,731
-------- --------
Net loss accumulated during the development stage........................ $ 42,468 $ 42,468
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALADDIN LONDON
SOMMER GAMING CLUBS
ENTERPRISES, ENTERPRISES, NEVADA,
LLC LLC INC. GAI, LLC TOTAL
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 1, 1997........................... $ - $ - $ - $ - $ -
Members' contributions.............................. 1 - - 2 3
----------- ----------- ---------- ----------- ----------
BALANCE, DECEMBER 31, 1997.......................... 1 - - 2 3
Net loss accumulated during the development stage... (19,960) (10,617) (10,617) (1,274) (42,468)
Members' contributions.............................. (47,317) 28,247 50,000 - 30,930
Members' equity costs............................... (1,093) (581) (581) (70) (2,325)
----------- ----------- ---------- ----------- ----------
BALANCE, DECEMBER 31, 1998.......................... $ (68,369) $ 17,049 $ 38,802 $ (1,342) $ (13,860)
----------- ----------- ---------- ----------- ----------
----------- ----------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION
(DECEMBER 1, 1997)
FOR THE YEAR ENDED THROUGH DECEMBER
DECEMBER 31, 1998 31, 1998
------------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................... $ (42,468) $ (42,468)
Depreciation and amortization.......................................... 17 17
Amortization of debt costs............................................. 2,831 2,831
Amortization of original issue discount................................ 14,306 14,306
Increase in interest receivable........................................ (859) (859)
Increase in inventory.................................................. (60) (60)
Increase in prepaid expense............................................ (118) (118)
Increase in accounts receivable........................................ (842) (842)
Increase in other assets............................................... (2,061) (2,061)
Increase in accounts payable........................................... 3,394 3,394
Increase in accrued expenses........................................... 113 113
Increase in accrued interest........................................... 1,734 1,734
Increase in related party payable...................................... 3,354 3,354
------------------ -------------------
Net cash used in operating activities.................................... (20,659) (20,659)
------------------ -------------------
Cash flows from investing activities:
Payments for construction in progress.................................. (66,184) (66,184)
Payments for furniture and equipment................................... (272) (272)
Payments for capitalized interest...................................... (8,213) (8,213)
Increase in restricted cash............................................ (227,983) (227,983)
------------------ -------------------
Net cash used in investing activities.................................... (302,652) (302,652)
------------------ -------------------
Cash flows from financing activities:
Proceeds from issuance of notes........................................ 100,047 100,047
Proceeds from long-term debt........................................... 274,000 274,000
Repayment of long-term debt............................................ (547) (547)
Debt issuance costs.................................................... (37,146) (37,146)
Members' contributions................................................. 65,000 65,003
Members' equity costs.................................................. (2,325) (2,325)
Payment of debt on contributed land.................................... (74,477) (74,477)
Payable to related parties............................................. - 1
Advances to purchase membership interests.............................. - 3
------------------ -------------------
Net cash provided by financing activities................................ 324,552 324,559
------------------ -------------------
Net increase in cash..................................................... 1,241 1,248
Cash at beginning of period.............................................. 7 -
------------------ -------------------
Cash at end of period.................................................... $ 1,248 $ 1,248
------------------ -------------------
------------------ -------------------
Supplemental disclosures of cash flow information and non-cash investing
and financing activities:
Cash paid for interest, net of amount capitalized........................ $ 11,332 $ 11,332
Members' contributions--book value
Land................................................................... 33,407 33,407
Construction in progress............................................... 7,000 7,000
Equipment acquired equal to assumption of debt........................... 547 547
Increase in construction payables........................................ 12,826 12,826
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming
Holdings"), was established on December 1, 1997. Gaming Holdings was initially
owned by Aladdin Gaming Enterprises, Inc., a Nevada corporation (25%), Sommer
Enterprises, LLC, a Nevada limited liability company (72%) ("Sommer
Enterprises"), and GAI, LLC, a Nevada limited liability company (3%). On
February 26, 1998, London Clubs International, plc ("London Clubs"), through its
subsidiary London Clubs Nevada, Inc. ("LCNI"), contributed $50 million for a 25%
interest in Gaming Holdings common membership interests ("Holdings Common
Membership Interests"). Sommer Enterprises contributed a portion of land for
Holdings Common Membership Interests. Aladdin Gaming Enterprises, Inc. ("Gaming
Enterprises"), which is owned 100% by Sommer Enterprises, contributed a portion
of land, $7 million of predevelopment costs and $15 million in cash for Holdings
Common Membership Interests. After the additional contributions, Sommer
Enterprises, LLC owns 47% of Gaming Holdings, LCNI owns 25% of Gaming Holdings,
Gaming Enterprises owns 25% of Gaming Holdings and GAI, LLC owns 3% of Gaming
Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that
they shall vote their respective Holdings Common Membership Interests and cause
Gaming Enterprises to vote its Holding Common Membership Interests so that
(taking into account Holdings Common Membership Interests held by London Clubs
or its affiliates) London Clubs controls fifty percent of the voting power of
Gaming Holdings. See Note 5 for additional disclosures regarding voting power.
Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly
holds a majority interest in Gaming Holdings. The members of AHL are the Trust
Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95%
interest in AHL 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 AHL.
Gaming Holdings is a holding company, the material assets of which are 100%
of the outstanding common membership interests and 100% of the outstanding
Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital
Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was
incorporated solely for the purpose of serving as a co-issuer of the 13 1/2%
Senior Discount Notes ("Notes"). Capital will not have any material operations
or assets and will not have any revenues. Gaming Holdings, through its
subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music"). Gaming
Holdings and its subsidiaries are collectively referred to herein as "Company."
The operations of the Company have been primarily limited to the design,
development, financing and construction of a new Aladdin Hotel and Casino
("Aladdin"). The Aladdin will be the centerpiece of an approximately 35-acre
world-class resort, casino and entertainment complex ("Complex") located on the
site of the former Aladdin hotel and casino in Las Vegas, Nevada, a premier
location at the center of Las Vegas Boulevard. The Aladdin has been designed to
include a luxury themed hotel of approximately 2,600 rooms, an approximately
116,000 square foot casino, an approximately 1,400-seat production showroom and
six restaurants.
The Complex will comprise: (i) the Aladdin; (ii) a themed entertainment
shopping mall with approximately 496,000 square feet of retail space ("Desert
Passage"); (iii) a second hotel and casino with a music and entertainment theme
("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the
Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking
facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall
Project"). The Mall Project will be separately
32
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
owned in part by an affiliate of the Company and Aladdin Music is currently
seeking a joint venture partner for the Aladdin Music Project.
The consolidated financial statements include the accounts of Gaming
Holdings and its wholly-owned subsidiaries. Significant inter-company accounts
are eliminated in consolidation.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of December
31, 1998, restricted cash consisted of cash and cash equivalents held for
construction and development of the Aladdin.
PROPERTY AND EQUIPMENT
Property and equipment consists primarily of expenditures incurred for the
design and construction of the Aladdin and have been capitalized as construction
in progress. These amounts are expected to be reclassified to buildings and land
improvements upon completion of the facility and will be depreciated over the
useful life of the assets. Furniture, fixtures and equipment are stated at cost
and depreciation is computed using the straight-line method over the estimated
useful life of between three and ten years.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using first-in first-out method.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, receivables and all current
liabilities approximates fair value because of the short term maturity of these
instruments. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
See Note 2 for additional fair value disclosures.
INTEREST COSTS
Interest costs associated with major construction projects are capitalized.
Interest is capitalized on amounts expended to construct the Aladdin using the
weighted-average cost of the Company's outstanding borrowings. The capitalized
interest will be recorded as part of the asset to which it relates and will be
amortized over the asset's useful life. Capitalization of interest ceases when
the project is substantially complete.
INTEREST RATE SWAPS
The Company uses interest rate swaps and similar financial instruments to
assist in managing interest incurred on its long-term debt. The difference
between amounts received and amounts paid under such agreements, as well as any
costs or fees, is recorded as a reduction of, or addition to, interest expense
as incurred over the life of the swap or similar financial instruments.
33
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRE-OPENING COSTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"). The provisions of
SOP 98-5 are effective for fiscal years beginning after December 15, 1998 and
require that the costs associated with start-up activities (including
pre-opening costs of casinos) be expensed as incurred. SOP 98-5 permits early
adoption in fiscal years for which annual financial statements have not yet been
issued.
Effective January 1, 1998, the Company adopted the provisions of SOP 98-5.
Pre-opening costs include, but are not limited to, salary related expenses for
new employees and management opening team, travel and lodging expenses, training
costs, advertising and marketing, organizational costs and all temporary
facility costs (i.e. rent, insurance, utilities, etc.).
DEBT DISCOUNT AND ISSUANCE COSTS
Debt discount and issuance costs are capitalized and amortized to expense
based on the terms of the related debt agreements using the effective interest
method or a method which approximates the effective interest method.
INCOME TAXES
The Company is a limited liability company and will be taxed as a
partnership for federal income tax purposes. Accordingly, no provision for
federal income taxes was recorded because the taxable income or loss is included
in the income tax returns of the members.
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 determined that
comprehensive income and net income as reported in the accompanying financial
statements are the same.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
34
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT
Long-term debt and current maturities of long-term debt is comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Long-term debt:
Senior Discount Notes (Net of unamortized discount of $107,147).......... $ 114,353
--------
--------
Current maturities of long-term debt:
Term B Loan.............................................................. $ 114,000
Term C Loan.............................................................. 160,000
--------
Total current maturities of long-term debt............................. $ 274,000
--------
--------
</TABLE>
SENIOR DISCOUNT NOTES
On February 26, 1998, Gaming Holdings, Capital and Gaming Enterprises
consummated a private offering ("Offering") under Rule 144A of the Securities
Act of 1933. The Offering consisted of 221,500 units ("Units"), each Unit
consisting of: (i) $1,000 principal amount of maturity of 13 1/2% Senior
Discount Notes due 2010 ("Notes") of Gaming Holdings and Capital; and (ii) 10
warrants ("Warrants") to purchase 10 shares of Class B non-voting common stock,
no par value, of Gaming Enterprises. The Notes and the Warrants became
separately transferable on July 23, 1998. The Warrants became exercisable on
July 23, 1998, and will expire on March 1, 2010.
On August 26, 1998, Gaming Holdings and Capital completed an exchange offer
for 100% of the aggregate principal amount of the Notes pursuant to a
registration statement dated July 23, 1998. The Notes were exchanged for notes
with substantially the same terms issued in the private placement on February
26, 1998.
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 the issued and
outstanding Series A Preferred Interests of Gaming held by Gaming Holdings. The
Indenture to the Notes contains certain covenants that (subject to certain
exceptions) restrict the ability of Gaming Holdings, Capital 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.
35
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
Gaming Holdings' future interest and principal payments required under the
Note will be funded from distributions by Gaming to the extent available. Gaming
has certain restrictions which limit its ability to distribute cash to Gaming
Holdings (see the following discussion under "Term Loans"). There can be no
assurance that Gaming's distributions will be sufficient to meet the required
principal and interest payments of the Notes.
TERM LOANS--CURRENT MATURITIES OF LONG-TERM DEBT
On February 26, 1998, Gaming entered into a $410.0 million Credit Agreement
("Bank Credit Facility" or "Credit Agreement") with various financial
institutions and the Bank of Nova Scotia as the administrative agent for the
lenders (collectively, "Lenders"). The Credit Agreement 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 borrowing date. The Term B Loan and the Term C Loan
were funded by the Lenders on February 26, 1998 and the funds are held by Gaming
in the cash collateral account for the future development of the Aladdin. The
Term B Loan and the Term C Loan proceeds could not be utilized until the
proceeds from the Notes were completely exhausted. As of December 31, 1998, 100%
of the Notes proceeds, approximately $23.6 million of the Term B Loan Proceeds,
net of interest earned and approximately $21.5 million of the Term C Loan
proceeds, net of interest earned had been utilized to develop and construct the
Aladdin. The Term A Loan has not been funded. The Company pays interest on the
term loans as follows: Term A Loan, at the London Interbank Offered Rate
("LIBOR") plus 300 basis points until the Aladdin commences operations, then
LIBOR plus an amount between 150 basis points and 275 basis points depending
upon Gaming's earnings before interest, taxes, depreciation and amortization
("EBITDA"); Term B Loan, LIBOR plus 200 basis points while the funds are held in
the cash collateral account and LIBOR plus 350 basis points once the funds are
utilized for the construction of the Aladdin; and Term C Loan, LIBOR plus 200
basis points while the funds are held in the cash collateral account and LIBOR
plus 400 basis points once the funds are utilized to for the construction of the
Aladdin. Interest on the term loans is due quarterly.
During 1998, the Company's indirect subsidiary, Aladdin Music, incurred
indebtedness of approximately $2.8 million in connection with the
pre-development costs and expenses of the Aladdin Music Project while pursuing
prospective joint-venture partners ("Music Indebtedness"). The incurrence of the
Music Indebtedness was not pre-approved by the Lenders as required under the
Credit Agreement and thus the incurrence of the Music Indebtedness constituted
an event of default under the Credit Agreement.
On January 29, 1999, the Credit Agreement was amended for the following: (i)
a reduction in the net worth requirement; (ii) a waiver of the event of default
due to the Music Indebtedness, assuming satisfaction of certain conditions;
(iii) changes to certain definitions in the Credit Agreement, including the
definition of "Available Funds," "Realized Savings" and "Indebtedness;" (iv)
permit the utilization of letters of credit to fund the November, 1998
Out-of-Balance (see Note 5 regarding additional disclosure related to the
November, 1998 Out-of-Balance); (v) require the Company to fund costs for the
Carpark which are in excess of $36 million; (vi) permit Aladdin Music to incur
an additional aggregate indebtedness of $3.5 million for reasonable and
necessary predevelopment costs and expenses for the Aladdin Music
36
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
Project and to enter into agreements for the payment of certain commissions;
(vii) permit certain indebtedness in connection with a 1,400-seat production
theater; and (viii) other technical amendments (collectively, "First Amendment
to the Credit Agreement"). Further, the First Amendment to the Credit Agreement
provided that if the FF&E Financing documents (see the following discussion
under "Furniture, Fixtures and Equipment Financing" ("FF&E Financing")) were not
correspondingly amended by March 10, 1999, an event of default would exist under
the Credit Agreement.
After various discussions with the lenders under the FF&E Financing, the
Company determined that it would not be in its best interest to effect
corresponding amendments to the FF&E Financing documents consistent with the
First Amendment to the Credit Agreement. The Company, London Clubs and the
Sommer Trust have submitted a proposed second amendment to the Credit Agreement
("Second Amendment to the Credit Agreement"), to cure the events of default. The
Second Amendment to the Credit Agreement provides: (i) the Music Indebtedness
has been paid by or on behalf of Aladdin Music and this event of default is
waived by the Lenders; (ii) a capital contribution in the amount of
approximately $18.5 million (see Note 8 regarding additional disclosures) has
been made to bring the Main Project Budget "In Balance," as defined in the
Credit Agreement; (iii) the letters of credit which were posted in connection
with the November 1998 Out-of-Balance will be drawn and the proceeds deposited
in Gaming's account; (iv) amending certain definitions of the Credit Agreement,
including, "Available Funds," "Indebtedness," and "Realized Savings"; (v)
requiring any costs in excess of $36 million for completing the Carpark will be
funded by the Sommer Trust and London Clubs; (vi) requiring that Gaming maintain
a minimum "Net Worth" at the close of each calendar month of not less than
$100.0 million plus 85% of positive Net Income (as defined); and (vii) other
technical amendments to the Credit Agreement. The Company has been advised by
its counsel, that the Second Amendment to the Credit Agreement will not require
the approval or consent of either the FF&E Financing lenders or the Noteholders.
The Second Amendment to the Credit Agreement would require additional
contributions to the Company on a monthly basis if the Company's net worth falls
below $100 million. The Company estimates that additional contributions of
approximately $33 million will be required to maintain a net worth of $100
million prior to the opening of the Aladdin. The Company has informed both
London Clubs and the Sommer Trust of the estimated future equity contributions
required under the net worth limit.
Because certain provisions of the First Amendment to the Credit Agreement
are not effective and the Second Amendment to the Credit Agreement has not been
approved by the Lenders, the Lenders are no longer required to forbear
exercising their rights, remedies and options with respect to the events of
default under the Credit Agreement, which if exercised, would result in delays
in funding under the Credit Agreement or termination of the Credit Agreement.
Based on the above discussion, the Company is in default under its Credit
Agreement as of the date of the filing of these financial statements and
therefore has classified the Term B Loan and Term C Loan as current maturities
of long-term debt. The following discussion related to the Term B Loan and Term
C Loan is only applicable if the Second Amendment to the Credit Agreement is
approved by the Lenders and the Lenders do not exercise their rights, remedies
and options with respect to the events of default under the Credit Agreement.
37
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
Principal payments for the Term Loans do not commence until the end of the
first quarter following the commencement of operations of the Aladdin. The
following table details the required yearly principal amortization during
operations.
<TABLE>
<CAPTION>
PRINCIPAL
AMORTIZATION (AFTER
COMMENCEMENT OF
OPERATIONS) TERM A LOAN TERM B LOAN TERM C LOAN
- --------------------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Year 1 $ 16,000 $ 1,200 $ 1,600
Year 2 20,000 1,200 1,600
Year 3 28,000 1,200 1,600
Year 4 32,000 1,200 1,600
Year 5 40,000 1,200 1,600
Year 6 68,000 1,600
Year 7 40,000 48,400
Year 8 102,000
------------ ------------ ------------
TOTALS $ 136,000 $ 114,000 $ 160,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In addition to the principal amortization schedules, the Company is required
to make mandatory prepayments beginning the first quarter following the
commencement of operations of the Aladdin. The mandatory prepayments are based
on a percentage of Gaming's excess cash flow as defined in the Credit Agreement.
The mandatory prepayments are due quarterly and the percentages of excess cash
flow are detailed below:
<TABLE>
<CAPTION>
PERCENTAGE OF
EXCESS CASH FLOW
---------------------
<S> <C>
Year 1 65%
Year 2 60%
Year 3 and thereafter 55%
</TABLE>
As security for the Bank Credit Facility, the Company has entered into a
deed of trust in favor of the Lenders securing the Notes and all obligations of
the Company under the Bank Credit Facility, encumbering the Aladdin (including
any and all leasehold interests) as a first priority lien. In addition, the
Company has either assigned or entered into security agreements in favor of the
Lenders for all present and future leases, accounts, accounts receivable,
licenses and any other tangible or intangible assets owned or leased by the
Company, subject to the rights of the FF&E Lenders under the FF&E Financing (see
the following discussion under "Furniture, Fixtures and Equipment Financing
("FF&E Financing")).
As further security for the Bank Credit Facility and to the extent
permissible, the owners of the Company have pledged their interests in the
Company to the Lenders and Gaming Holdings has pledged its interest in Gaming to
the Lenders other than the Series A Preferred Interests.
The Bank Credit Facility contains covenants that (subject to certain
exceptions) restrict the ability of Gaming and its subsidiaries to, among other
things: (i) incur additional indebtedness, liens or other encumbrances; (ii) pay
dividends or make similar distributions; (iii) sell assets or make investments;
38
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
(iv) enter into mergers, consolidations, or acquisition transactions; or (v)
enter into certain transactions with affiliates.
FURNITURE, FIXTURES AND EQUIPMENT FINANCING ("FF&E FINANCING")
On June 30, 1998, the Company entered into FF&E Financing which provides for
operating lease financing of up to $60.0 million and a term loan facility of
$20.0 million to obtain gaming equipment and other specified equipment. Funding
under the FF&E Financing is available beginning six months prior to the
construction completion date of the Aladdin. Repayment of principal and interest
is due in quarterly installments upon the construction completion date of the
Aladdin. The term of the operating lease financing is 36 months (with the
Company having two, one year options to renew) and the term of the loan facility
is five years. The interest rate from the funding date until the construction of
the Aladdin is complete is either the 30-day LIBOR plus 478 basis points or the
Prime Rate plus 275 basis points. After the construction completion date, the
interest rate shall be the 90-day LIBOR plus 478 basis points. As of December
31, 1998, the FF&E financing had not been funded.
On February 17, 1999, GMAC Commercial Mortgage ("GMAC"), one of the
participants in the FF&E Financing, issued a "Note of Default" based on the
Company's proposal to amend the minimum net worth amount under the FF&E
Financing documents and further provided that GMAC was terminating its
obligations to fund under the FF&E Financing. On February 26, 1999, the Company
responded that, pursuant to the Intercreditor Agreement, dated June 30, 1998, no
participant in the FF&E Financing, including GMAC, could declare a Default or
Event of Default (other than a payment default) prior to the initial funding
under the FF&E Financing and that in fact no default or event of default
existed.
INTEREST RATE SWAPS
The Company has entered into various interest rate swaps to manage interest
expense, which is subject to fluctuations due to the variable nature of LIBOR.
The Company has interest rate swap agreements under which it pays a fixed
interest rate and receives a variable interest rate.
At December 31, 1998, the Company had interest rate swaps with a notional
amount of approximately $787.3 million that consist of the following: (i) a cap
and floor notional amount of $250 million; (ii) a swap with an original notional
amount of $114 million increasing to a maximum of $222.5 million; (iii) a swap
with a notional amount of $160 million; and (iv) a swap option with a notional
amount of $154.8 million. As of December 31, 1998, the Company had a portfolio
of variable rate debt outstanding in the amount of $274 million.
Under these agreements, the Company will receive interest from the
counterparty at a variable rate equal to LIBOR and the Company will pay the
counterparty fixed rates of interest as follows: (a) until the Aladdin commences
operations, for the Term A Loan and the Term B Loan interest is fixed at 5.883%
and for the Term C Loan interest is fixed at 6.485%; and (b) once the Aladdin
has commenced operations, for the Term A Loan and the Term B Loan, the maximum
interest is 7.00% and the minimum is 5.65%, and for the Term C Loan, the
interest has been fixed at 6.485%. The LIBOR applicable to these agreements was
5.3125% at December 31, 1998. The notional amounts do not represent amounts
exchanged by the parties, and thus are not a measure of exposure of the Company.
The amounts exchanged are normally based on
39
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED)
the notional amounts and other terms of the swaps. The variable rates are
subject to change over time as LIBOR fluctuates.
Neither the Company nor the counterparty, which is a prominent financial
institution, is required to collateralize their respective obligations under
these swaps. The Company is exposed to loss if the counterparty defaults. The
Company does not hold or issue rate swap agreements for trading purposes.
FAIR VALUE OF LONG-TERM DEBT, CURRENT MATURITIES OF LONG-TERM DEBT AND INTEREST
RATE SWAPS
The estimated fair value of the Company's long-term debt, current maturities
of long-term debt and interest rate swaps have been determined using appropriate
market information and valuation methodologies. Considerable judgment is
required to determine the estimates of fair value; thus, the estimates provided
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
CARRYING AMOUNT FAIR VALUE
---------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Senior Discount Notes........................................... $ 114,353 $ 50,945
Term B Loan..................................................... 114,000 114,000
Term C Loan..................................................... 160,000 160,000
Interest Rate Swaps Loss........................................ - 13,895
</TABLE>
The fair value for the Company's Senior Discount Notes is based on dealer
quotes for those instruments. The fair values for the Company's Term B Loan and
Term C Loan are assumed to approximate carrying values as the interest rate on
the loans fluctuate with changes in LIBOR (i.e., a variable rate loan). The fair
market value of the Company's interest rate swaps is based on the estimated
termination values at December 31, 1998 as provided by the counterparty to the
swaps.
3. GOING CONCERN ASSUMPTION
The Company is currently in default of certain provisions related to its
Bank Credit Facility, as disclosed in Note 2. Management has, therefore,
classified the Term B and Term C Loan as current maturities of long-term debt.
The Company plans to (i) cure the events of default referred to above; (ii)
continue to comply with current and future Bank Credit Facility debt covenants;
and (iii) obtain adequate funding through project completion. To accomplish
these plans, management (a) is currently seeking an additional contribution of
$18.5 million from London Clubs (which the Company has been advised will be
funded by London Clubs); (b) together with London Clubs and the Sommer Trust,
has submitted a proposed Second Amendment to the Credit Agreement (see Note 2),
which seeks to cure all current events of default; and (c) has informed both
London Clubs and the Sommer Trust of its estimate of future equity contributions
of approximately $33 million required under the net worth test proposed under
the Second Amendment to the Credit Agreement.
If for any reason, funding under the Credit Agreement ceases, the Company
will not have sufficient liquidity and capital resources to meet all its current
and long term commitments and obligations, and to complete construction and
commence operation of the new Aladdin Hotel and Casino.
40
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LEASES
The Company leases certain real property, furniture and equipment. At
December 31, 1998 aggregate minimum rental commitments under noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------------------ OPERATING LEASES
-------------------
(IN THOUSANDS)
<S> <C>
1999 $ 646
2000 200
2001 15
-----
Total Minimum Lease Payments $ 861
-----
-----
</TABLE>
Rental expense amounted to approximately $0.5 million for the year ended
December 31, 1998.
5. INCREASE IN THE COMPANY'S BOARD OF MANAGERS
Under the Credit Agreement, $25 million of the total project costs were
designated as contingency funds. Contingency funds are made available to the
Company as a function of the project's percentage of construction complete.
However, the Company committed to changes in the plans and specifications early
in the project while the percentage of completion was low. In addition, the
Company revised certain items of the project budget and adjusted the budget
accordingly, including an increase to pre-opening costs. Thus, because financial
commitments were made when the contingency funds were not yet available to pay
for such changes, an out-of-balance of approximately $6.5 million was created in
November, 1998 ("November 1998 Out-of-Balance"). The Sommer Trust and London
Clubs posted letters of credit in the amounts of $1,030,500 and $5,543,500,
respectively, to fund the November 1998 Out-of-Balance. The Sommer Trust and
London Clubs are parties to the Bank Completion Guaranty whereby, among other
things, the parties agreed to fund certain project costs increases and to a
contribution agreement ("Contribution Agreement"), dated as of February 26,
1998, whereby, among other things, the parties agreed to share all the
obligations under the Bank Completion Guaranty, 75% to the Sommer Trust and 25%
to London Clubs. On November 30, 1998, the Sommer Trust and London Clubs agreed
that because the Sommer Trust did not fund its proportionate share of the
November 1998 Out-of-Balance, (a) the Sommer Trust and its affiliates shall vote
their respective Holdings Common Membership Interests and cause Gaming
Enterprises to vote its Holdings Common Membership Interests so that (taking
into account Holdings Common Membership Interests held by London Clubs or its
affiliates) London Clubs controls fifty percent of the voting power of Gaming
Holdings, and (b) the Board of Managers for Gaming Holdings and Gaming was
expanded from the then-current five Board members to six and the number of Board
Members London Clubs designated was increased from two to three. Notwithstanding
the change to increase London Clubs' voting power and the increase in the number
of board members, the supermajority provisions contained in the Gaming Holdings'
Operating Agreement which require the approval of the holders of at least 80% of
the Gaming Holdings Common Membership Interests remain unaffected by this
agreement.
41
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS AND GUARANTEES
LAND CONTRIBUTION AND RESTRICTED LAND
As discussed in Note 1, both Sommer Enterprises, LLC and Gaming Enterprises
contributed land to the Company. The land was originally owned by AHL, a related
party under common control, and therefore the land has been recorded at its
carryover basis. In addition, the land was subject to certain indebtedness which
was paid by the Company on the date of the contribution. The indebtedness exceed
the carryover basis of the land and therefore resulted in a negative
contribution by Sommer Enterprises, LLC.
The carryover basis of the land was approximately $40.25 million, but a
portion of the land has been classified as restricted land due to a requirement
to transfer the land to Aladdin Bazaar, LLC. Aladdin Bazaar, LLC is owned
effectively 37.5% by the Sommer Trust. Aladdin Bazaar, LLC is currently
constructing and will operate a themed entertainment shopping mall and
4,800-space car parking facility (together known as the "Mall Project"). The
Mall Project is expected to be an integral part of the Aladdin entertainment
complex. The carryover basis of the land was allocated to the Mall Project based
on an appraisal of the entire land parcel. The Company expects to transfer the
land before the end of 1999.
PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of the Company's executive management have purchased
unvested restricted membership interests, in the aggregate, of 4.75% of the
Company. Except for Mr. Goeglein, these membership interests will vest 25% on
the opening of the Aladdin and 25% upon the expiration of the term of the
executive's employment agreement. If Gaming continues to employ the executive
after the expiration of the employment agreement, 25% of the interest will
continue to vest on each anniversary of the Aladdin opening date until such
interests are fully vested. After the term of the employment agreement, if
Gaming does not continue to employ the executive, other than for Cause (as
defined), or if the officer no longer continues his employment for Good Reason
(as defined), only an additional 25% of the interest vests. Mr. Goeglein's
membership interests become fully vested at the earlier of July 1, 2002 or the
date on which such interests become publicly traded, conditioned upon Mr.
Goeglein's continued relationship with Gaming. As of December 31, 1998, none of
these membership interests had vested.
EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts with five members of its
senior management. The terms of these agreements provide for an aggregate annual
amount of approximately $1.5 million, plus any bonuses granted by the Board of
Directors and based on relevant criteria and performance standards. The
agreements have an initial duration of between four years and five years and six
months. All agreements were entered into during 1997. One agreement additionally
provides for the individual to be retained as a consultant for $100,000 per year
for 5 years after the initial term.
GAI, LLC CONSULTING AGREEMENT
Gaming has entered into a consulting agreement with GAI, LLC, a Nevada
limited liability company, 100 percent beneficially owned by Gaming's Chief
Executive Officer. This agreement requires Gaming to pay to GAI, LLC a retainer
of $12,500 per month until June 30, 2002 for remaining on call to provide
services and expertise for such month.
THE LONDON CLUB MANAGEMENT AGREEMENT
Gaming, London Clubs and LCNI are parties to a management agreement which
relates to the operations to be managed by London Clubs ("The London Club").
Under this agreement, London Clubs
42
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED)
has agreed to guaranty the obligations of LCNI. In consideration for the
services to be furnished by LCNI under the management agreement, Gaming will pay
to LCNI a performance-based incentive fee. This fee will be calculated based on
a range of percentages applied to certain thresholds of The London Club EBITDA
(defined as gross revenue attributable to The London Club, less all costs and
expenses directly attributable to The London Club).
COMPLETION GUARANTY AND KEEP-WELL AGREEMENT
London Clubs, the Sommer Trust and Aladdin Bazaar Holdings, LLC ("Bazaar
Holdings"), which is owned 99% by the Sommer Trust, have entered into a
completion guaranty for the benefit of the Lenders under the Bank Credit
Facility, under which they have agreed to guarantee, among other things, the
completion of the Aladdin. The guaranty is not subject to any maximum dollar
limitations. In addition, AHL, London Clubs and Bazaar Holdings (collectively,
"Sponsors") have entered into an agreement ("Keep-Well Agreement") in favor of
the Lenders under the Bank Credit Facility. The Keep-Well Agreement requires the
Sponsors to make certain quarterly cash equity contributions to Gaming beginning
with the commencement of operations if Gaming fails to comply with the minimum
fixed charge coverage ratio set forth in the Bank Credit Facility. Under the
Keep-Well Agreement, the Sponsors are not required to contribute an aggregate of
more than $150.0 million to Gaming ($30.0 million in any one fiscal year), and
are not required to contribute any amounts to Gaming on or after the earlier of
the date on which Gaming complies with all of the financial covenants set forth
in the Credit Agreement for six consecutive quarterly periods or the date on
which the aggregate outstanding principal amounts of the Credit Agreement are
reduced below certain amounts.
The Sommer Trust, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank of
Nova Scotia, as administrative agent for the Lenders, have entered into the
First Amendment to the Guaranty of Performance and Completion, dated as of March
10, 1999 ("First Amendment to the Bank Completion Guaranty"). The First
Amendment to the Bank Completion Guaranty requires that the Sommer Trust, London
Clubs and Aladdin Bazaar Holdings, LLC jointly and severally guarantee that
Gaming maintains the minimum Net Worth required by the Second Amendment to the
Credit Agreement. On March 30, 1999, the Sommer Trust and London Clubs agreed
that if either party is required to contribute more than its proportionate share
of any amounts necessary for Gaming to maintain the revised Net Worth as
required in the Second Amendment to the Credit Agreement, then the party who
contributes more than its proportionate share will be deemed to have made a
recourse loan to the party who contributes less than its proportionate share in
the amount not funded by such party. The recourse loan will bear interest at 20%
per annum and will be payable by a transfer at par value of the corresponding
amount of the Holdings Common Membership Interests held directly by the party
who did not contribute its proportionate share. Until the recourse loan is paid,
the party who contributed more than its proportionate share will have a security
interest and continuing lien in said Holdings Common Membership Interests.
During 1998, London Clubs received a fee of $2.65 million for its
obligations under the Keep-Well Agreement and in addition is entitled to 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 by the Keep-Well Agreement. Such fees accrue from
the closing date of the Bank Credit Facility and are payable from available cash
flow after the opening of the Aladdin. As of December 31, 1998, the Company had
accrued approximately $3.4 million in Keep-Well fees to London Clubs, which is
reported in
43
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED)
the Balance Sheet as Related Party Payables. Additionally, the Company agreed to
reimburse approximately $2.8 million to London Clubs for certain expenses
incurred relating to the Aladdin; however, in November 1998, London Clubs agreed
to defer the payment of approximately $189,000 of this reimbursement until the
Main Project Budget under the Credit Agreement is In Balance (as defined in the
Credit Agreement). As of December 31, 1998, London Clubs received approximately
$2.4 million of this $2.8 million reimbursement obligation.
In consideration for certain expenses incurred by the Sommer Trust prior to
February 26, 1998, relating to the management and coordination of the
development of the Aladdin, the Company reimbursed $3.0 million to the Sommer
Trust on February 26, 1998. In addition, Gaming will reimburse certain ongoing
out-of-pocket expenses of the Sommer Trust relating to the development of the
Aladdin, not to exceed $0.9 million. In November 1998, the Sommer Trust agreed
to defer such reimbursement until the Main Project Budget under the Credit
Agreement is In Balance (as defined in the Credit Agreement). As of December 31,
1998, the Sommer Trust had received approximately $3.3 million of the total $3.9
million reimbursement.
PAYMENT OF MUSIC INDEBTEDNESS
During 1998, the Sommer Trust, the approximately 72% beneficial owner of the
Company, paid approximately $260,000 to certain trade creditors on behalf of
Aladdin Music and Mr. Sommer, the Company's Chairman of the Board, individually
paid $500,000 to a trade creditor on behalf of Aladdin Music. Further, during
the first quarter of 1999, the Sommer Trust paid approximately $747,000 to a
trade creditor on behalf of Aladdin Music. To the extent permissible, Aladdin
Music has agreed, if and when Aladdin Music secures a joint venture partner and
financing for the Aladdin Music Project to reimburse the Sommer Trust and Mr.
Sommer such advanced funds.
7. COMMITMENTS AND CONTINGENCIES
ENERGY SERVICES AGREEMENT
The Company entered into an energy services agreement for hot and cold water
and electricity that will be purchased by the Company and the Mall Project
(which would include the tenants of the mall) over initial terms of 20 years.
The central utility plant is being constructed by Northwind Aladdin, LLC
("Northwind") on land owned by the Company and leased to Northwind. The central
utility plant and equipment (collectively, "Costs") will be owned by Northwind,
which will pay all costs in connection with the construction, purchase and
installation. The current budget for the Costs is $40.0 million.
The charges payable under the energy services agreement will include a fixed
component applied to the Costs paid by Northwind and reimbursement of
operational related costs.
The Company's share of Costs under its energy services agreement is based on
the total Costs (currently budgeted at $40 million) less the amounts payable by
the Mall Project and Aladdin Music, if and when, Aladdin Music enters into an
energy services agreement with Northwind. The Mall Project's share of Costs is
approximately $2.9 million.
If Aladdin Music: (i) does not enter into an energy services agreement with
Northwind prior to the Company incurring Costs under its energy services
agreement; and (ii) the share of Costs assumed by
44
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Aladdin Music are not significant, then the Company intends to account for the
total Costs incurred by Northwind as a capital lease. If however, items (i) and
(ii) above are accomplished prior to the Company incurring any Costs under its
energy services agreement, the Company will account for the energy services
agreement as an executory contract and expense the Costs as incurred.
MALL PROJECT COSTS
In connection with the development of the Mall Project, Aladdin Bazaar, LLC
will reimburse the Company approximately, $14.2 million for the construction of
certain areas shared by the Aladdin and the Mall Project and the facade to the
Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to spend no more than
$36.0 million for the parking garage. Therefore, any cost overruns associated
with these items will be borne by the Company. In addition, the Company is
obligated to pay Aladdin Bazaar, LLC: (i) a $3.2 million fee per year for a term
of 99 years, which is adjusted annually pursuant to a consumer price index-based
formula, for usage of the parking garage; and (ii) the Company's proportionate
share of the operating costs associated therewith.
CONSTRUCTION COSTS
Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the Aladdin.
The Design/Builder has entered into a guaranteed maximum price design/build
contract ("Design/Build Contract") (subject to scope changes) with the Company
to design and construct the Aladdin. During the course of construction, a number
of issues and items have arisen in connection with various change orders and
delay claims submitted with the project and the scope of the Design/Build
Contract. The Company has submitted three disputed Design/Builder equitable
scope change requests ("Claims") to arbitration ("Arbitration") pursuant to the
provisions of the Design/Build Contract. The Company believes that the Claims
relate to design and work which is base work contemplated in the Design Build
Contract and therefore should be included in the guaranteed maximum price of the
Design/Builder. The Design/Builder has responded to the Company's argument in
Arbitration, alleging, among other things, that the Claims relate to unforeseen
conditions, and/or are due to the actions of the Company, and therefore, the
Company is responsible for all costs and delays associated with the Claims.
While the Company intends to aggressively and vigorously pursue the Claims, and
believes that it will ultimately prevail in arbitration, the Claims are only in
the preliminary stages of the Arbitration process, and therefore, no assurances
can be given with respect to the ultimate outcome. The Design/Builder has
presented Claims in the amount of approximately $4.7 million.
8. SUBSEQUENT EVENTS
DEVELOPMENT AND CONSTRUCTION OF ALADDIN
The development of the Aladdin commenced during the first quarter of 1998.
In March 1999, the Company completed a review of the project budget and
determined that it was appropriate to increase the project budget by
approximately $18.5 million, which amount reflected an increase in construction
costs of approximately $9.5 million and an increase in pre-opening costs of
approximately $9.0 million (collectively, "March 1999 Out-of-Balance"). In
addition to this amount, it will be necessary to increase the project budget by
the amount of the Music Indebtedness as a means to cure that event of default.
See discussion at Note 2 for Music Indebtedness event of default.
45
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
The Company has informed the Sommer Trust and London Clubs of the March 1999
Out-of-Balance and requested that, pursuant to the Bank Completion Guaranty, the
Sommer Trust and London Clubs fund the March 1999 Out-of-Balance. As of March
30, 1999, neither party has funded the March 1999 Out-of-Balance; however,
London Clubs has advised the Company that it will fund the full March 1999
Out-of-Balance amount.
The March 1999 funding under the Credit Agreement was to be made, assuming
payment of the March 1999 Out-of-Balance, on or about March 18, 1999. As of
March 30, 1999, such funding had not occurred, and the Company believes the
funding will not occur without the payment by London Clubs of the March 1999
Out-of-Balance. Even if the March 1999 Out-of-Balance is paid, due to the
existing events of default under the Credit Agreement, there can be no
assurances that any funding will be made under the Credit Agreement or that the
Credit Agreement will not be terminated.
The monthly payment to Fluor Daniel, Inc., the design/builder
("Design/Builder") of the Aladdin was due from the Company on or about March 18,
1999. As the Company did not receive its March 1999 funding under the Credit
Agreement, as of March 30, 1999, the Company has not paid the Design/Builder.
Under the Design/Build Contract, ten days after payment is due, the
Design/Builder can issue a written notice of non-payment and if payment is not
made within ten days after such notice, Design/Builder can stop work on the
Project. If the Design/Builder does stop work on the Project, it will cause
delays and expenses to the Project which would have a material and adverse
effect on the Company. After expiration of the applicable time periods, a
default under the Design/Build Contract is an event of default under the Credit
Agreement.
OPINION OF THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP, the Company's independent public accountant, has issued
an opinion in connection with its audit of the Company's financial statements
which includes an explanatory fourth paragraph that calls attention to the
existence of substantial doubt about the Company's ability to continue as a
going concern. The Credit Agreement and the FF&E Financing documents requires
that the Company's annual financial statements be audited without an
Impermissible Qualification (as defined in the Credit Agreement) from the
independent public accountants, which includes any qualification or exception to
the accountant's opinion of a "going concern," or similar nature. If such
qualified opinion is not cured within thirty days, it would constitute an event
of default.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
46
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the executive officers and the directors of
Gaming Holdings, Gaming and Capital. A "director" of the Gaming Holdings or
Gaming as such term is used in this Form 10-K, shall refer to a person who sits
on the Board of Managers of Gaming Holdings ("Gaming Holdings Board") or Gaming
("Gaming Board").
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jack Sommer.......................................... 52 Chairman of the Gaming Holdings Board and the Gaming
Board; Director of Capital
Richard J. Goeglein.................................. 64 Chief Executive Officer and President of Gaming
Holdings, Gaming and Capital; Director of Gaming
Holdings, Gaming and Capital
Ronald Dictrow....................................... 55 Executive Vice President and Director of Gaming
Holdings, Gaming and Capital and Secretary of Gaming
Holdings and Capital
Alan Goodenough...................................... 55 Director of Gaming Holdings, Gaming and Capital
G. Barry C. Hardy.................................... 51 Director of Gaming Holdings, Gaming and Capital
William Timmins...................................... 51 Director of Gaming Holdings and Gaming
James H. McKennon.................................... 45 Senior Vice President of Gaming Holdings, Gaming and
Capital; President/Chief Operating Officer of the
Aladdin Hotel and Casino
Cornelius T. Klerk................................... 45 Senior Vice President/Chief Financial Officer/
Treasurer of Gaming Holdings, Gaming and Capital
Lee A. Galati........................................ 57 Senior Vice President/Human Resources of Gaming
Holdings, Gaming and Capital
Jose A. Rueda........................................ 62 Senior Vice President/Gaming of Gaming Holdings,
Gaming and Capital
David Attaway........................................ 44 Senior Vice President of Gaming Holdings, Gaming and
Capital; President and Chief Operating Officer of the
Aladdin Music Project
Patricia Becker...................................... 47 Senior Vice President/General Counsel of Gaming
Holdings, Gaming and Capital and Secretary of Gaming
</TABLE>
Jack Sommer is the Chairman of the Gaming Holdings Board and the Gaming
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
47
<PAGE>
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.
Richard J. Goeglein is Chief Executive Officer and a director of Gaming
Holdings, Gaming and Capital. Mr. Goeglein has spent over 35 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.
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 served as a director of
Hollywood Park, Inc. until October 1998.
Ronald Dictrow is Executive Vice President and a director of Gaming
Holdings, Gaming and Capital and Secretary of Gaming 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 Sommer 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 Gaming Holdings, Gaming 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. 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 Gaming Holdings, Gaming 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.
William Timmins is a director of Gaming Holdings and Gaming. Mr. Timmins has
served as Director of International Operations of London Clubs since March,
1996. Mr. Timmins has over thirty years of experience in the casino industry and
before joining London Clubs, Mr. Timmins was the Managing Director of Soceite
Participation Investisments Casino, the third largest gaming company in France,
from 1990 until 1995.
48
<PAGE>
James H. McKennon is Senior Vice President of Gaming Holdings, Gaming and
Capital and President/Chief Operating Officer of the Aladdin Hotel and Casino.
Mr. McKennon's career spans over 22 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 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
Gaming Holdings, Gaming and Capital. He has over 20 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 Gaming
Holdings, Gaming and Capital. Mr. Galati has 23 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/Gaming of Gaming Holdings, Gaming
and Capital. Mr. Rueda's 29 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 Gaming Holdings, Gaming and
Capital and President and Chief Operating Officer of the Aladdin Music Project.
Mr. Attaway has 18 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.
49
<PAGE>
Patricia Becker is the Senior Vice President/General Counsel of Gaming
Holdings, Gaming and Capital and Secretary of Gaming. Ms. Becker currently is a
director of Powerhouse Technologies, Inc. and Fitzgerald's 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 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 Gaming Holdings Operating Agreement provides that there will be
Executive Management Committees which will be responsible for the day to day
management of Gaming Holdings and Gaming. The Executive Management Committee of
Gaming includes the following persons: the President and Chief Executive Officer
of Gaming; the Chief Financial Officer of Gaming; the President and Chief
Operating Officer of the Aladdin; the President and Chief Operating Officer of
the Aladdin Music Project; the Senior Vice President of Human Resources of
Gaming; the Senior Vice President/Gaming of Gaming; the Senior Vice
President/General Counsel of Gaming and a London Club Board member. The Gaming
Holdings Board may also establish committees of the Gaming Holdings Board as it
may deem necessary or advisable. Each of London Clubs and Sommer Enterprises is
entitled to have one of its nominee Gaming Holdings Board members on each such
committee. Presently, no committees of the Gaming Holdings Board have been
established.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation earned during 1998 and 1997
by Gaming Holdings', Gamings' and Capital's Chief Executive Officer and the four
highest compensated executive officers of the Gaming Holdings, Gaming or Capital
who earned over $100,000 in 1998 or 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION(1)
----------------------------------- ---------------------
OTHER ANNUAL RESTRICTED STOCK ALL OTHER
NAME AND PRINCIPAL OCCUPATION SALARY BONUS COMPENSATION AWARDS COMPENSATION(1)
- ------------------------------ --------- --------- ------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. Goeglein Chief
Executive Officer........... 1998 $ 630,770(2) $ 0 $ 248,379(3) $ 0 $ 22,137(4)
1997 $ 650,000(5) $ 0 --(6) $ 0(7) $ 16,343(4)
James H. McKennon Senior Vice
President................... 1998 $ 330,192 $ 0 --(8) $ 0 $ 696(4)
1997 $ 243,750(9) $ 0 --(8) $ 0(10) $ 635(4)
Jose A. Rueda Senior Vice
President................... 1998 $ 243,423 $ 0 --(8) $ 0 $ 1,896(4)
1997 $ 86,538(9) $ 0 --(8) $ 0(11) $ 0
Cornelius T. Klerk Chief
Financial Officer........... 1998 $ 195,785 $ 50,000 --(8) $ 0 $ 381(4)
1997 $ 96,154(9) $ 0 --(8) $ 0(12) $ 0
David Attaway Senior Vice
President................... 1998 $ 204,669 13) $ 0 $ 173,163(14) $ 0 $ 136(4)
1997 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------------
(1) All of the executive officers of the Company (other than Mr. Dictrow) are
compensated by Gaming. Mr. Dictrow is principally employed by the Sommer
Trust and is compensated by the Sommer Trust. Compensation has been paid on
the Company's behalf by AHL for 1997 and until February 26, 1998.
(2) Includes $150,000 paid to GAI in 1998 for consulting fees.
50
<PAGE>
(3) Represents automobile allowance of $19,536 and moving expenses of $228,843
including federal income tax gross-up paid to Mr. Goeglein.
(4) Represents life insurance premiums paid on behalf of the executive.
(5) Includes $150,000 paid to GAI in 1997 for consulting fees.
(6) 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.
(7) 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. See "Employment Agreements" for information
regarding the vesting of the Holdings Common Membership Interests.
(8) The aggregate amount of all perquisites and other personal benefits received
by the executive was less than 10% of the total annual salary and bonus paid
to the executive.
(9) Executive's employment with Gaming began during 1997.
(10) 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 date of purchase. See "Employment Agreements"
for information regarding the vesting of the Holdings Common Membership
Interests.
(11) Mr. Rueda purchased unvested Holdings Common Membership Interests
representing approximately 0.75% of the outstanding Holdings Common
Membership Interests for a purchase price of $450. Such interests had a fair
market value of $450 on the date of purchase. See "Employment Agreements"
for information regarding the vesting of the Holdings Common Membership
Interests.
(12) Mr. Klerk purchased unvested Holdings Common Membership Interests
representing approximately 0.75% of the outstanding Holdings Common
Membership Interests for a purchase price of $450. Such interests had a fair
market value of $450 on the date of purchase. See "Employment Agreements"
for information regarding the vesting of the Holdings Common Membership
Interests.
(13) Mr. Attaway's employment with the Company began in 1998.
(14) Represents moving expenses paid to Mr. Attaway including federal income tax
gross-up.
EMPLOYMENT AGREEMENTS
Richard J. Goeglein, James H. McKennon, Cornelius T. Klerk, Lee A. Galati
and Jose A. Rueda ("Officers") each signed an employment agreement (each,
"Employment Agreement") with Gaming during 1997. David Attaway and Patricia
Becker are currently negotiating employment agreements with Gaming 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
Gaming Holdings became a party and the Officers contributed their Restricted
Membership Interests in Gaming to Gaming Holdings in return for Restricted
Membership Interests in Gaming 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 Gaming. 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 Gaming.
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
51
<PAGE>
Officers have been receiving and are expected to continue to receive their
compensation from Gaming, except that prior to February 26, 1998, such amounts
were paid by AHL on Gaming'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
Gaming 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 Gaming Board. The Employment Agreements provide that the Officers' salary
cannot be reduced. After the initial term of Mr. Goeglein's Employment
Agreement, Gaming has agreed to retain Mr. Goeglein as a consultant to Gaming
for an additional five years at $100,000 per year. The Officers are entitled to
receive other employee benefits from Gaming, 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 Gaming Common Membership Interests which were contributed to Gaming
Holdings on February 26, 1998 in return for unvested Holdings Common Membership
Interests representing approximately 2.0%, 1.0%, 0.75%, 0.25% and 0.75%,
respectively, of the Holdings Common Membership Interests ("Restricted
Membership Interests") subject to the receipt of applicable Nevada gaming
regulatory approval (collectively, "Gaming Approvals"). Gaming Enterprises'
interest in Gaming Holdings will be unaffected by the vesting of the Officers'
Restricted Membership Interests. On January 27, 1999, the Company's Board of
Directors, except with respect to Mr. Goeglein, amended the vesting schedule of
each Officer's Restricted Membership Interests during the terms of the
Employment Agreement to vest 25% on the date of the opening of the Aladdin and a
further 25% upon the expiration of the initial term of the Employment Agreement.
If Gaming continues to employ each Officer after the expiration of the initial
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 Gaming 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
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 Gaming. If an
Officer's employment with Gaming and Gaming Holdings terminates, Gaming and
Gaming 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 Gaming Holdings at
fair market value (subject to the receipt of applicable Gaming Approvals and to
certain restrictions on restricted payments set forth in the Notes Indenture and
the Bank Credit Facility). If Gaming Holdings does not satisfy its obligation to
purchase the Restricted Membership Interests within seven days, the Officers
have the right to require Gaming to purchase such interests at fair market value
(subject to certain restrictions on Restricted Payments set forth in the Note
Indenture). After Gaming has satisfied its obligation to purchase the Restricted
Membership Interests, Gaming Holdings has the right to call such interests from
Gaming 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, Gaming and Gaming
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 Gaming Holdings to purchase
the Common Membership Interests which correspond to such Restricted Membership
Interests for nominal consideration).
The Employment Agreements may be terminated by Gaming with or without Cause
(as defined in each Employment Agreement) or by the Officers for Good Reason (as
defined in each Employment
52
<PAGE>
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 Gaming 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 Gaming.
Each of the Employment Agreements provides that Gaming 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 Gaming 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 $500,000 from AHL, and
certain excise tax gross-up provisions.
GAI CONSULTING AGREEMENT
Gaming has entered into a consulting agreement (as amended, "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 Gaming Holdings as a party and pursuant to which
amendment GAI contributed its Common Membership Interests in Gaming to Gaming
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 Gaming Board until June 30, 2002.
During the term of the Consulting Agreement, Gaming 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 Gaming which was contributed to Gaming Holdings on February 26, 1998
in return for a 3% Holdings Common Membership Interest ("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 Gaming
other than for "Cause" or voluntarily terminates for "Good Reason" (as such
terms are defined in Mr. Goeglein's Employment Agreement with Gaming) 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 Gaming 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 Notes Indenture and
the Bank Credit Facility). If Gaming Holdings does not satisfy its obligation to
purchase the GAI Membership Interest within seven days, GAI has the right to
require Gaming to purchase such interests at fair market value. After Gaming has
satisfied its obligation to purchase the GAI Membership Interest, Gaming
Holdings will have the right to call such interests from Gaming 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. Gaming 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 Gaming and Gaming Holdings are indemnified.
53
<PAGE>
BONUS AND INCENTIVE PLANS
Gaming and Gaming Holdings currently do not have any bonus or incentive
plans. However, Gaming anticipates adopting such a plan at such time as it may
deem appropriate (subject to supermajority approval by the Gaming Holdings
Members, 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table set forth certain information with respect to the
beneficial ownership of the membership interests of Gaming Holdings by: (i) each
person who, to the knowledge of the Company, beneficially owns more than 5% of
the outstanding membership interests; (ii) the directors of Gaming Holdings;
(iii) all executive officers of Gaming Holdings named in "Management;" and (iv)
all directors and executive officers of Gaming Holdings as a group. The
membership interests of Gaming Holdings are not presently listed or traded on
any securities exchange or securities market.
<TABLE>
<CAPTION>
ALADDIN GAMING HOLDINGS, LLC
----------------------------------------------------------
PERCENTAGE OWNERSHIP OF PERCENTAGE OWNERSHIP OF
GAMING HOLDINGS COMMON GAMING HOLDINGS COMMON
MEMBERSHIP INTERESTS MEMBERSHIP INTERESTS
BENEFICIALLY OWNED PRIOR TO BENEFICIALLY OWNED ASSUMING
EXERCISE OF THE FULL EXERCISE OF THE
NAME OF BENEFICIAL OWNER WARRANTS(9) WARRANTS(10)
- ---------------------------------------- --------------------------- -----------------------------
<S> <C> <C>
Viola Sommer, Jack Sommer and Eugene
Landsberg, as trustees of the Sommer
Trust (1)(2)(3)....................... 71.1% 61.6%
Jack Sommer (2)(3)...................... 71.1% 61.6%
London Clubs (3)........................ 50.0% 50.0%
Alan Goodenough (3)..................... 0.0% 0.0%
G. Barry C. Hardy (3)................... 0.0% 0.0%
William Timmins (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%
David Attaway (6)....................... 0.0% 0.0%
Patricia Becker (6)..................... 0.0% 0.0%
All Directors and Executive Officers as
a group (twelve persons) (8).......... 75.0% 65.0%
</TABLE>
- ------------------------
* Represents less than one percent of the outstanding Holdings Common
Membership Interests.
(1) The Sommer 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 Sommer Trust is 280 Park Avenue,
Floor 38 West, New York, New York 10017.
(2) Mr. Jack Sommer, who is Chairman and a director of Gaming Holdings and
Gaming and a director of Capital and Gaming Enterprises, is a trustee and
contingent beneficiary of the Sommer Trust. Mrs. Sommer, Mr. Sommer and Mr.
Landsberg are each deemed to beneficially own the same interest as the
Sommer Trust owns in Gaming Holdings because each of them is a trustee of
the
54
<PAGE>
Sommer Trust. The address for Mrs. Sommer, Mr. Sommer and Mr. Landsberg is
280 Park Avenue, Floor 38 West, New York, New York 10017.
(3) London Clubs owns 25% of the Gaming Holdings Common Membership Interests.
On November 30, 1998, Londons Clubs and the Sommer Trust agreed that the
Sommer Trust and its affiliates shall vote their respective Holdings Common
Membership Interests and cause Gaming Enterprises to vote its Holdings
Common Membership Interests so that (taking into account Holdings Common
Membership Interests held by London Clubs or its affiliates) London Clubs
controls fifty percent of the voting power of Gaming Holdings. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations." Mr. Alan Goodenough is Chief Executive Officer of London Clubs
and a director of Gaming Holdings, Gaming and Capital. As of February 15,
1999, Mr. Goodenough held approximately 202,228 ordinary shares
(representing less than one percent of the share capital) of London Clubs
and held options to purchase approximately 8,405 ordinary shares. Mr. Barry
Hardy is Finance Director of London Clubs and a director of Gaming
Holdings, Gaming and Capital. As of February 15, 1999, Mr. Hardy held
approximately 901,048 ordinary shares (representing less than one percent
of the share capital) of London Clubs and held options to purchase
approximately 512,400 ordinary shares (options to purchase 512,400 ordinary
shares presently exercisable) of London Clubs. Mr. William Timmins is
Director of International Operations of London Clubs and a director of
Gaming Holdings and Gaming. As of February 15, 1999, Mr. Timmins held
options to purchase approximately 214,870 ordinary shares of London Clubs.
The address of London Clubs and Messrs. Goodenough, Hardy and Timmins is 10
Brick Street, London, W1Y, 8HQ, United Kingdom.
(4) Mr. Ronald Dictrow is a director of Gaming Enterprises and the Executive
Vice President/Secretary and a director of Gaming Holdings, Gaming and
Capital. Mr. Dictrow's address is 280 Park Avenue, Floor 38 West, New York,
New York 10017.
(5) Mr. Richard J. Goeglein, who is Chief Executive Officer, President and a
director of Gaming Holdings, Gaming 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 89119.
(6) The address of Messrs. McKennon, Klerk, Rueda, Galati and Attaway and Ms.
Becker is 831 Pilot Road, Las Vegas, Nevada 89119.
(7) Messrs. Goeglein, McKennon, Klerk, Rueda and Galati have rights to acquire
beneficial ownership of Gaming Holdings Common Membership Interests
representing an aggregate of 4.75% of such interests, which rights do not
vest within 60 days. See "Item 10. Directors and Executive Officers of the
Registrant-Employment Agreements."
(8) The directors of Gaming Holdings are Messrs. Sommer, Goodenough, Hardy,
Timmins, Dictrow, and Goeglein. The executive officers of Gaming Holdings
are Messrs. Goeglein, Dictrow, McKennon, Klerk, Rueda, Galati, Attaway and
Ms. Becker.
(9) Gaming Holdings owns 100% of the Common Membership Interests and Series A
Preferred Interests of Gaming. 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 Notes offering,
pledged to the Trustee for the benefit of the Note Holders.
(10) Gaming Enterprises owns 25% of the Gaming 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.
55
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
THE LONDON CLUB MANAGEMENT AGREEMENT
Gaming, London Clubs and LCNI are parties to a management agreement which
relates to The London Club. Under the management agreement, London Clubs has
agreed to guaranty the obligations of LCNI. In consideration for the services to
be furnished by LCNI under the management agreement, Gaming will pay to LCNI a
performance-based incentive fee ("Incentive Marketing and Consulting Fee")
calculated as follows: (i) 10% of The London Club EBITDA (defined in the
management agreement to mean gross revenue attributable to The London Club, less
all costs and expenses directly attributable to The London Club), up to and
including $15.0 million of EBITDA; plus (ii) 12.5% of The London Club EBITDA, in
excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of
The London Club EBITDA, in excess of $17.0 million, up to and including $20.0
million; plus (iv) 50% of The London Club EBITDA, in excess of $20.0 million.
The foregoing thresholds will be adjusted in accordance with consumer price
index changes every five years.
OTHER PAYMENTS TO CONTROLLING STOCKHOLDERS
In consideration for certain expenses incurred by the Sommer Trust prior to
February 26, 1998, relating to the management and coordination of the
development of the Aladdin, Gaming reimbursed $3.0 million to the Sommer Trust
on February 26, 1998. In addition, Gaming will reimburse certain ongoing
out-of-pocket expenses of the Sommer Trust relating to the development of the
Aladdin, not to exceed $0.9 million. In November 1998, the Sommer Trust agreed
to defer such reimbursement until the Main Project Budget under the Credit
Agreement is In Balance (as defined in the Credit Agreement). As of December 31,
1998, the Sommer Trust had received approximately $3.3 million of the total $3.9
million reimbursement.
In consideration for its obligations under the Keep-Well Agreement (as
defined below) and related arrangements, under the London Clubs Purchase
Agreement, the parties agreed that London Clubs receive (a) an initial fee of
1.0% of Gaming'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, which fee was paid on February 26, 1998, and (b) an annual fee of
1.5%, payable in arrears, of Gaming'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). Additionally, Gaming agreed to reimburse
approximately $2.8 million to London Clubs for certain expenses incurred
relating to the Aladdin; however, in November 1998, London Clubs agreed to defer
the payment of approximately $189,000 of this reimbursement until the Main
Project Budget under the Credit Agreement is In Balance (as defined in the
Credit Agreement). As of December 31, 1998, London Clubs received approximately
$2.4 million of this $2.8 million reimbursement obligation.
MUSIC INDEBTEDNESS PAYMENTS BY THE SOMMER TRUST AND MR. SOMMER
During 1998, the Sommer Trust, the approximately 72% beneficial owner of the
Company, paid approximately $260,000 to certain trade creditors on behalf of
Aladdin Music and Mr. Sommer, the Company's Chairman of the Board, individually
paid $500,000 to a trade creditor on behalf of Aladdin Music. Further, during
the first quarter of 1999, the Sommer Trust paid approximately $747,000 to a
trade creditor on behalf of Aladdin Music. To the extent permissible, Aladdin
Music has agreed, if and when Aladdin Music secures a joint venture partner and
financing for the Aladdin Music Project, to reimburse the Sommer Trust and Mr.
Sommer such advanced funds.
56
<PAGE>
KEEP-WELL AGREEMENT
On February 26, 1998, London Clubs, AHL and Bazaar Holdings (collectively,
"Sponsors") entered into the Keep-Well Agreement in favor of the Administrative
Agent and the Bank Lenders under the Bank Credit Facility. The Keep-Well
Agreement is the joint and several agreement of the Sponsors to make certain
quarterly cash equity contributions to Gaming from and after the Conversion Date
if Gaming fails to comply with certain financial ratios set forth in the Bank
Credit Facility. Under the Keep-Well Agreement, the Sponsors are not required to
contribute an aggregate of more than $150 million to Gaming ($30 million in any
one fiscal year), and are not required to contribute any amounts to Gaming on or
after the earlier of the date on which Gaming complies with all of the financial
covenants set forth in the Credit Agreement for six consecutive quarterly
periods or the date on which the aggregate outstanding principal amounts of the
Credit Agreement are reduced below certain amounts.
BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY
London Clubs, the Sommer 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 Sommer Trust and Bazaar Holdings
have entered into the Noteholder Completion Guaranty for the benefit of the
holders of the Notes.
ARRANGEMENTS WITH RICHARD GOEGLEIN AND GAI
Gaming 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 Gaming until June 30, 2002. During the term of the
Consulting Agreement, Gaming 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 Gaming (which were contributed to Gaming Holdings on February 26,
1998 for a 3% interest in Gaming Holdings) for $1,800. Such membership interest
is fully vested, subject to certain anti-dilution provisions, put rights and
certain "piggyback" registration rights. See "Item 10. Directors and Executive
Officers of the Registrant-GAI Consulting Agreement." In addition, Mr.
Goeglein's Employment Agreement provided Mr. Goeglein with relocation expense
reimbursement, an interest free mortgage loan of $500,000 from AHL and certain
excise tax gross-up provisions.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(l) The following consolidated financial statements of the Company and its
subsidiaries have been filed as a part of this report (See "Part II,
Item 8: Financial Statements and Supplementary Data"):
Independent Auditor's Report;
Consolidated Balance Sheets as of December 31, 1998 and 1997;
Consolidated Statements of Operations for the Year Ended December 31,
1998 and from inception (December 1, 1997 through December 31, 1998);
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1998 and 1997;
Consolidated Statements of Cash Flows for the Year Ended December 31,
1998 and from inception (December 1, 1997 through December 31, 1998);
and
Notes to Consolidated Financial Statements
(a)(2) All schedules are omitted because they are not required, inapplicable,
or the information is otherwise shown in the financial statements or
notes thereto.
(a)(3) The following exhibits (1) are filed as part of this form 10-K or
incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Organization of Aladdin Gaming Holdings, LLC ("Gaming Holdings") are incorporated herein by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.1.
3.2 Articles of Incorporation of Aladdin Capital Corp. ("Capital") are incorporated herein by reference from
the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on
April 9, 1998, Part II, Item 21, Exhibit 3.2.
3.3 Articles of Organization of Aladdin Gaming, LLC ("Gaming") are incorporated herein by reference from the
Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9,
1998, Part II, Item 21, Exhibit 3.3.
3.4 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises") are incorporated herein by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.4; Amendment No. 1 to Articles of Incorporation
of Enterprises is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.5.
3.5 Operating Agreement of Gaming Holdings is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed on June 10,
1998, Part II, Item 21, Exhibit 3.6.
</TABLE>
- ------------------------
(1) Copies of exhibits to this Form 10-K will be furnished to any requesting
security holder who furnishes the Company a list identifying the exhibits to
be copied by the Company at a charge of $.25 per page. Alternatively, these
exhibits can be inspected, without charge at the Public Reference Section of
the SEC located at 450 Fifth Street, NW, Washington, D.C. 20549 or at the
SEC internet site: http:// www.sec.gov.
58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.6 Bylaws of Capital are incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.7.
3.7 Operating Agreement of Gaming is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21,
Exhibit 3.8.
3.8 Bylaws of Enterprises are incorporated herein by reference from the Company's (SEC File Nos. 333-49717
and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit
3.9.
4.1 Indenture, dated February 26, 1998, among Gaming Holdings, Capital and State Street Bank and Trust
Company, as Trustee ("Trustee") is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21,
Exhibit 4.1.
4.2 Note Registration Rights Agreement, dated February 26, 1998, among Gaming Holdings, Capital and Merrill
Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp.
and Scotia Capital Markets (USA) Inc. ("Initial Purchasers") is incorporated herein by reference from the
Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9,
1998, Part II, Item 21, Exhibit 4.2.
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 is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed on June 10, 1998, Part II, Item 21, Exhibit
4.3.
4.4 Disbursement Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, 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 is incorporated herein by reference
from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4,
Amendment No. 1, filed on June 10, 1998, Part II, Item 21, Exhibit 4.4.
4.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Gaming Holdings and the
Trustee is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 4.5.
4.6 The Gaming Holdings Collateral Account Agreement, dated February 26, 1998, between Gaming Holdings and
the Trustee is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21,
Exhibit 4.6.
4.7 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises,
London Clubs Nevada, Inc. ("LCNI") and the Trustee is incorporated here by reference from the Company's
(SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998,
Part II, Item 21, Exhibit 4.7.
4.8 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee is
incorporated here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 4.8.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.1 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs,
Gaming Holdings, Aladdin Holdings, LLC, Gaming, Sommer Enterprises, LLC, and the Trust Under Article
Sixth u/w/o Sigmund Sommer is incorporated here by reference from the Company's (SEC File Nos. 333-49717
and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit
10.1.
10.2 Closing Schedules to Amended and Restated London Clubs Purchase Agreement are incorporated here by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.2.
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 is incorporated here by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.3.
10.4 Salle Privee Agreement, dated February 26, 1998, among Gaming, LCNI and London Clubs is incorporated here
by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.4.
10.5 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as
Warrant Agent (the "Warrant Agent") is incorporated here by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21,
Exhibit 10.6.
10.6 Warrant Registration Rights Agreement, dated February 26, 1998, among Enterprises and the Initial
Purchasers is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.7.
10.7 Credit Agreement, dated February 26, 1998, among Gaming, a syndicate of lenders ("Bank Lenders"), The
Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and
CIBC Oppenheimer Corp as Documentation Agent is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.8; First Amendment to Credit Agreement dated January 29, 1999, by and
among Gaming, Bank Lenders, The Bank of Nova Scotia, as Administrative Agent, Merrill Lynch Capital
Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent.
10.8 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth
u/w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement
on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.9.
10.9 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin
Bazaar Holdings, LLC is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21,
Exhibit 10.10.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.10 Design/Build Contract, dated December 4, 1997, between Gaming and Fluor Daniel, Inc. is incorporated here
by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.11; Amendment No. 1 to Design/Build Contract,
dated January 21, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from
the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment
No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.12; Amendment No. 2 to Design/Build Contract,
dated January 28, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from
the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment
No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.13; Fluor Guaranty, dated December 4, 1997,
between the Company and Fluor Corporation is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.14.
10.11 Site Work, Development and Construction Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar,
LLC and Aladdin Holdings, LLC is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998,
Part II, Item 21, Exhibit 10.15.
10.12 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among Gaming, Aladdin
Bazaar, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.16.
10.13 Common Parking Area Use Agreement, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit
10.17.
10.14 Music Project Lease, dated February 26, 1998, between Gaming and Aladdin Music Holdings, LLC is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 2, filed on July 22, 1998, Part II, Item 21, Exhibit
10.18.
10.15 Mall Project Lease, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement
on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.19.
10.16 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26,
1998, made by Gaming to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit
10.20.
10.17 Development Agreement, dated December 3, 1997, between Aladdin and Northwind Aladdin, LLC is incorporated
here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on
Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.21.
10.18 Energy Service Agreement, dated September 24, 1998, between Aladdin and Northwind Aladdin, LLC.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.19 Energy Lease, dated December 3, 1997, between Gaming and Northwind Aladdin, LLC is incorporated here by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.23.
10.20 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and Gaming is incorporated here by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.24.
10.21 Operating Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers, Inc. and
Aladdin Bazaar Holdings, LLC is incorporated here by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21,
Exhibit 10.25; First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated
October 16, 1997, is incorporated herein by reference to the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.26;
Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998, is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit
10.45.
10.22 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between Gaming
and Planet Hollywood International, Inc. is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.27; Amendment to Music Project Memorandum of Understanding and Letter
of Intent, dated October 15, 1997, between Gaming and Planet Hollywood International, Inc. is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit
10.28.
10.23 GAI Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, and
GAI, LLC is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.29.
10.24 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and
Richard J. Goeglein is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.30.
10.25 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and
James H. McKennon is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.31.
10.26 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and
Cornelius T. Klerk is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.32.
10.27 Galati Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and
Lee A. Galati is incorporated herein by reference to the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.33.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.28 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and
Jose A. Rueda is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.34.
10.29 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and Gaming as amended as of January, 1998
is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit
10.35.
10.30 Employment and Consulting Agreement, dated July 1, 1997, between Gaming and Richard J. Goeglein, as
amended as of January, 1998, is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998,
Part II, Item 21, Exhibit 10.36.
10.31 Employment Agreement, dated July 28, 1997, between Gaming and James H. McKennon is incorporated herein by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.37.
10.32 Employment Agreement, dated July 26, 1997, between Gaming and Cornelius T. Klerk is incorporated herein
by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.38.
10.33 Employment Agreement, dated August 19, 1997, between Gaming and Lee A. Galati is incorporated herein by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.39.
10.34 Employment Agreement, dated July 1, 1997, between Gaming and Jose A. Rueda is incorporated herein by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form
S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.40.
10.35 FF&E Commitment Letter, dated January 23, 1998, between Gaming and General Electric Capital Corporation
is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, filed April 9, 1998, Part II, Item 21, Exhibit 10.41; Facilities
Agreement between General Electric Capital Corporation and Gaming, dated June 26, 1998, is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Form 10-Q filed August
14, 1998, Part II, Item 6, Exhibit 10.01; Amendment No. 1 to Facilities Agreement between General
Electric Capital Corporation and Gaming, dated September 2, 1998.
10.36 Intercreditor Agreement by and among The Bank of Nova Scotia, General Electric Capital Corporation and
Gaming, dated as of June 30, 1998, is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) For 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.02.
10.37 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as
Administrative Agent is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21,
Exhibit 10.42.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.38 Purchase Agreement, dated February 18, 1998, among Gaming Holdings, Capital, Enterprises, Aladdin
Holdings, LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs and the Initial
Purchasers is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.43.
10.39 Guaranteed Land Appraisal prepared by HVS International is incorporated herein by reference from the
Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1,
filed June 10, 1998, Part II, Item 21, Exhibit 10.44.
21.01 List of Subsidiaries.
27.01 Financial Data Schedule.
</TABLE>
- ------------------------
(b) Reports on Form 8-K. During the fourth quarter of the fiscal year ended
December 31, 1998, the Company did not file any Current Report on Form 8-K.
(c) The exhibits required by Item 601 of Regulation S-K filed as part of this
Report or incorporated herein by reference are listed in Item 14(a)(3)
above, and the exhibits filed herewith are listed on the Index to Exhibits
which accompanies this Report.
(d) See Item 14(a)(2) of this Report.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by this undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
REGISTRANT: ALADDIN GAMING HOLDINGS, LLC
By: /s/ RICHARD J. GOEGLEIN
-----------------------------------------
Richard J. Goeglein, PRESIDENT AND CHIEF
EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE
OFFICER)
</TABLE>
DATE: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
March 31, 1999 By: /s/ JACK SOMMER
-----------------------------------------
Jack Sommer, CHAIRMAN OF THE BOARD
March 31, 1999 By: /s/ RICHARD J. GOEGLEIN
-----------------------------------------
Richard J. Goeglein, CHIEF EXECUTIVE
OFFICER, PRESIDENT AND MANAGER
March 31, 1999 By: /s/ CORNELIUS T. KLERK
-----------------------------------------
Cornelius T. Klerk, SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER/TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
March 31, 1999 By: /s/ RONALD DICTROW
-----------------------------------------
Ronald Dictrow, EXECUTIVE VICE PRESIDENT/
SECRETARY AND MANAGER
March 31, 1999 By: /s/ ALAN GOODENOUGH
-----------------------------------------
Alan Goodenough, MANAGER
March 31, 1999 By: /s/ G. BARRY C. HARDY
-----------------------------------------
G. Barry C. Hardy, MANAGER
March 31, 1999 By: /s/ WILLIAM TIMMINS
-----------------------------------------
William Timmins, MANAGER
</TABLE>
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by this undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
REGISTRANT: ALADDIN CAPITAL CORP.
BY: /S/ RICHARD J. GOEGLEIN
-----------------------------------------
Richard J. Goeglein, PRESIDENT AND CHIEF
EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE
OFFICER)
</TABLE>
DATE: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
March 31, 1999 By: /s/ JACK SOMMER
-----------------------------------------
Jack Sommer, CHAIRMAN OF THE BOARD
March 31, 1999 By: /s/ RICHARD J. GOEGLEIN
-----------------------------------------
Richard J. Goeglein, CHIEF EXECUTIVE
OFFICER, PRESIDENT, DIRECTOR
March 31, 1999 By: /s/ CORNELIUS T. KLERK
-----------------------------------------
Cornelius T. Klerk, SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER, TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
March 31, 1999 By: /s/ RONALD DICTROW
-----------------------------------------
Ronald Dictrow, EXECUTIVE VICE PRESIDENT,
SECRETARY, DIRECTOR
March 31, 1999 By: /s/ ALAN GOODENOUGH
-----------------------------------------
Alan Goodenough, DIRECTOR
March 31, 1999 By: /s/ G. BARRY C. HARDY
-----------------------------------------
G. Barry C. Hardy, DIRECTOR
March 31, 1999 By: /s/ WILLIAM TIMMINS
-----------------------------------------
William Timmins, DIRECTOR
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
Other than this Form 10-K, the Company has not issued, and will not be
issuing, any annual report to its security holders covering the Company's last
fiscal year. The Company has not sent, and will not send, any proxy statement,
form of proxy or other proxy soliciting material to its security holders.
66
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- -------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
3.1 Articles of Organization of Aladdin Gaming Holdings, LLC ("Gaming Holdings") are incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.1.......................
3.2 Articles of Incorporation of Aladdin Capital Corp. ("Capital") are incorporated herein by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on
Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.2....................................
3.3 Articles of Organization of Aladdin Gaming, LLC ("Gaming") are incorporated herein by reference
from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4
filed on April 9, 1998, Part II, Item 21, Exhibit 3.3.............................................
3.4 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises") are incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 3.4; Amendment No. 1 to
Articles of Incorporation of Enterprises is incorporated herein by reference from the Company's
(SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9,
1998, Part II, Item 21, Exhibit 3.5...............................................................
3.5 Operating Agreement of Gaming Holdings is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed
on June 10, 1998, Part II, Item 21, Exhibit 3.6...................................................
3.6 Bylaws of Capital are incorporated herein by reference from the Company's (SEC File Nos. 333-49717
and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21,
Exhibit 3.7.......................................................................................
3.7 Operating Agreement of Gaming is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part
II, Item 21, Exhibit 3.8..........................................................................
3.8 Bylaws of Enterprises are incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II,
Item 21, Exhibit 3.9..............................................................................
4.1 Indenture, dated February 26, 1998, among Gaming Holdings, Capital and State Street Bank and Trust
Company, as Trustee ("Trustee") is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part
II, Item 21, Exhibit 4.1..........................................................................
4.2 Note Registration Rights Agreement, dated February 26, 1998, among Gaming Holdings, Capital and
Merrill Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC
Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. ("Initial Purchasers") is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 4.2.......................
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 is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed on June 10, 1998, Part
II, Item 21, Exhibit 4.3..........................................................................
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- -------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
4.4 Disbursement Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, 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 is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4, Amendment No. 1, filed on June 10, 1998, Part II, Item 21, Exhibit 4.4.....
4.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Gaming Holdings
and the Trustee is incorporated herein by reference from the Company's (SEC File Nos. 333-49717
and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part
II, Item 21, Exhibit 4.5..........................................................................
4.6 The Gaming Holdings Collateral Account Agreement, dated February 26, 1998, between Gaming Holdings
and the Trustee is incorporated herein by reference from the Company's (SEC File Nos. 333-49717
and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part
II, Item 21, Exhibit 4.6..........................................................................
4.7 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC,
Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee is incorporated here by reference
from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4
filed on April 9, 1998, Part II, Item 21, Exhibit 4.7.............................................
4.8 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee
is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 4.8..........
10.1 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London
Clubs, Gaming Holdings, Aladdin Holdings, LLC, Gaming, Sommer Enterprises, LLC, and the Trust
Under Article Sixth u/w/o Sigmund Sommer is incorporated here by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998,
Part II, Item 21, Exhibit 10.1....................................................................
10.2 Closing Schedules to Amended and Restated London Clubs Purchase Agreement are incorporated here by
reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on
Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.2...................................
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 is
incorporated here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.3.........
10.4 Salle Privee Agreement, dated February 26, 1998, among Gaming, LCNI and London Clubs is
incorporated here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.4.........
10.5 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust
Company, as Warrant Agent (the "Warrant Agent") is incorporated here by reference from the
Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on
April 9, 1998, Part II, Item 21, Exhibit 10.6.....................................................
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- -------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.6 Warrant Registration Rights Agreement, dated February 26, 1998, among Enterprises and the Initial
Purchasers is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit
10.7..............................................................................................
10.7 Credit Agreement, dated February 26, 1998, among Gaming, a syndicate of lenders ("Bank Lenders"),
The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication
Agent and CIBC Oppenheimer Corp. as Documentation Agent is incorporated herein by reference from
the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4,
Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.8; First Amendment to Credit
Agreement dated January 29, 1999, by and among Gaming, Bank Lenders, The Bank of Nova Scotia, as
Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer
Corp. as Documentation Agent......................................................................
10.8 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o
Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.9.......
10.9 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and
Aladdin Bazaar Holdings, LLC is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.10.............................................................
10.10 Design/Build Contract, dated December 4, 1997, between Gaming and Fluor Daniel, Inc. is
incorporated here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.11;
Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between Gaming and Fluor Daniel,
Inc. is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II,
Item 21, Exhibit 10.12; Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between
Gaming and Fluor Daniel, Inc. is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June
10, 1998, Par II, Item 21, Exhibit 10.13; Fluor Guaranty, dated December 4, 1997, between the
Company and Fluor Corporation is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June
10, 1998, Part II, Item 21, Exhibit 10.14.........................................................
10.11 Site Work, Development and Construction Agreement, dated February 26, 1998, among Gaming, Aladdin
Bazaar, LLC and Aladdin Holdings, LLC is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed
June 10, 1998, Part II, Item 21, Exhibit 10.15....................................................
10.12 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among Gaming,
Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from the
Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment
No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.16.......................................
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- -------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.13 Common Parking Area Use Agreement, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC
is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21,
Exhibit 10.17.....................................................................................
10.14 Music Project Lease, dated February 26, 1998, between Gaming and Aladdin Music Holdings, LLC is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 2, filed on July 22, 1998, Part II, Item 21,
Exhibit 10.18.....................................................................................
10.15 Mall Project Lease, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is
incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01)
Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21,
Exhibit 10.19.....................................................................................
10.16 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated
February 26, 1998, made by Gaming to Stewart Title of Nevada, as trustee for the benefit of the
Bank of Nova Scotia is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.20.............................................................
10.17 Development Agreement, dated December 3, 1997, between Aladdin and Northwind Aladdin, LLC is
incorporated here by reference from the Company's (SEC File Nos 333-49717 and 333-49717-01)
Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.21........
10.18 Energy Service Agreement, dated September 24, 1998, between Aladdin and Northwind Aladdin, LLC....
10.19 Energy Lease, dated December 3, 1997, between Gaming and Northwind Aladdin, LLC is incorporated
here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.23.....................
10.20 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and Gaming is incorporated
here by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit 10.24.....................
10.21 Operating Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers,
Inc. and Aladdin Bazaar Holdings, LLC is incorporated here by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998,
Part II, Item 21, Exhibit 10.25; First Amendment to the Limited Liability Company Agreement of
Aladdin Bazaar, LLC, dated October 16, 1997, is incorporated herein by reference to the Company's
(SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9,
1998, Part II, Item 21, Exhibit 10.26; Second Amendment to Limited Liability Company Agreement of
Aladdin Bazaar, LLC, dated May 1998, is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed
June 10, 1998, Part II, Item 21, Exhibit 10.45....................................................
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- -------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.22 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between
Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from the
Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment
No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.27; Amendment to Music Project Memorandum
of Understanding and Letter of Intent, dated October 15, 1997, between Gaming and Planet Hollywood
International, Inc. is incorporated herein by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10,
1998, Part II, Item 21, Exhibit 10.28.............................................................
10.23 GAI Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming,
and GAI, LLC is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit
10.29.............................................................................................
10.24 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings,
Gaming and Richard J. Goeglein is incorporated here by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II,
Item 21, Exhibit 10.30............................................................................
10.25 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings,
Gaming and James H. McKennon is incorporated here by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II,
Item 21, Exhibit 10.31............................................................................
10.26 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming
and Cornelius T. Klerk is incorporated here by reference from the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II,
Item 21, Exhibit 10.32............................................................................
10.27 Galati Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings,
Gaming and Lee A. Galati is incorporated herein by reference to the Company's (SEC File Nos.
333-49717 and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 198, Part II,
Item 21, Exhibit 10.33............................................................................
10.28 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming
and Jose A. Rueda is incorporated here by reference from the Company's (SEC File Nos. 333-49717
and 333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21,
Exhibit 10.34.....................................................................................
10.29 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and Gaming as amended as of
January, 1998 is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II,
Item 21, Exhibit 10.35............................................................................
10.30 Employment and Consulting Agreement, dated July 1, 1997, between Gaming and Richard J. Goeglein,
as amended as of January, 1998, is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June
10, 1998, Part II, Item 21, Exhibit 10.36.........................................................
10.31 Employment Agreement, dated July 28, 1997, between Gaming and James H. McKennon is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.37......
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- -------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.32 Employment Agreement, dated July 26, 1997, between Gaming and Cornelius T. Klerk is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.38......
10.33 Employment Agreement, dated August 19, 1997, between Gaming and Lee A. Galati is incorporated
herein by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration
Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.39......
10.34 Employment Agreement, dated July 1, 1997, between Gaming and Jose A. Rueda is incorporated herein
by reference from the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement
on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.40................
10.35 FF&E Commitment Letter, dated January 23, 1998, between Gaming and General Electric Capital
Corporation is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4, filed April 9, 1998, Part II, Item 21, Exhibit
10.41; Facilities Agreement between General Electric Capital Corporation and Gaming, dated June
26, 1998, is incorporated herein by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.01; Amendment No. 1 to
Facilities Agreement between General Electric Capital Corporation and Gaming, dated September 2,
1998..............................................................................................
10.36 Intercreditor Agreement by and among The Bank of Nova Scotia, General Electric Capital Corporation
and Gaming, dated as of June 30, 1998, is incorporated herein by reference from the Company's (SEC
File Nos. 333-49717 and 333-49717-01) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit
10.02.............................................................................................
10.37 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National
Bank, as Administrative Agent is incorporated herein by reference from the Company's (SEC File
Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4, Amendment No. 1, filed June
10, 1998, Part II, Item 21, Exhibit 10.42.........................................................
10.38 Purchase Agreement, dated February 18, 1998, among Gaming Holdings, Capital, Enterprises, Aladdin
Holdings, LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs and the Initial
Purchasers is incorporated here by reference from the Company's (SEC File Nos. 333-49717 and
333-49717-01) Registration Statement on Form S-4 filed on April 9, 1998, Part II, Item 21, Exhibit
10.43.............................................................................................
10.39 Guaranteed Land Appraisal prepared by HVS International is incorporated herein by reference from
the Company's (SEC File Nos. 333-49717 and 333-49717-01) Registration Statement on Form S-4,
Amendment No. 1, filed June 10, 1998, Part II, Item 21, Exhibit 10.44.............................
21.01 List of Subsidiaries.
27.01 Financial Data Schedule...........................................................................
</TABLE>
72
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT
Dated as of January 29, 1999
(amending the Credit Agreement,
dated as of
February 26, 1998)
among
ALADDIN GAMING, LLC,
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
THE BANK OF NOVA SCOTIA,
as the Administrative Agent for the Lenders,
MERRILL LYNCH CAPITAL CORPORATION,
as the Syndication Agent for the Lenders,
and
CIBC OPPENHEIMER CORP.,
as the Documentation Agent for the Lenders.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") dated as of
January 29, 1999, by and among ALADDIN GAMING, LLC, a Nevada limited-liability
company (the "BORROWER"), the various financial institutions as are or may
become parties hereto (collectively, the "LENDERS"), THE BANK OF NOVA SCOTIA, as
administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the
Lenders, MERRILL LYNCH CAPITAL CORPORATION, as syndication agent (in such
capacity, the "SYNDICATION AGENT") for the Lenders, and CIBC OPPENHEIMER CORP.,
as documentation agent (in such capacity, the "DOCUMENTATION AGENT") for the
Lenders.
In consideration of the mutual agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Administrative Agent, the
Syndication Agent and the Documentation Agent have heretofore entered into a
certain Credit Agreement, dated as of February 26, 1998 (the "CREDIT
AGREEMENT");
WHEREAS, the Borrower has requested the Lenders to grant certain
forbearances and waivers under the Credit Agreement and to enter into certain
amendments of the Credit Agreement; and
WHEREAS, each of the parties hereto is willing, on the terms and subject to
the conditions hereinafter set forth, to so amend the Credit Agreement and grant
the forbearances and waivers, but only upon the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the agreements contained herein, the
parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION I.1. CERTAIN DEFINED TERMS. The following terms (whether or
not italicized) when used in this Amendment, including its preamble and
recitals, shall, except where the context otherwise requires, have the following
meanings:
"FACILITIES AGREEMENT" shall mean that certain Facilities Agreement between
General Electric Capital Corporation ("GECC"), for itself and as agent for
certain participants, and the Borrower dated as of June 26, 1998, as amended by
that certain First Amendment to Facilities Agreement between GECC, for itself
and as agent for certain participants, and the Borrower dated as of September 2,
1998, as the same may be further amended in accordance with the Intercreditor
Agreement by the Second Amendment to Facilities Agreement if, as and when
effective, and as thereafter from time to time amended, supplemented, amended
and restated or otherwise modified in accordance with the terms hereof.
"FIRST AMENDMENT TO CREDIT AGREEMENT" shall mean this Amendment.
"INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement
by and among the Administrative Agent, GECC and the Borrower dated as of June
30, 1998 and as thereafter from time to time amended, supplemented, amended and
restated or otherwise modified in accordance with the terms thereof.
"SECOND AMENDMENT TO FACILITIES AGREEMENT" shall mean the second amendment
to the Facilities Agreement which is entered into by the Borrower and GECC, for
itself and as agent for certain participants, in accordance with the terms of
the Intercreditor Agreement. As of the date of this Amendment, the Facilities
Agreement has not been amended by the Second Amendment to Facilities Agreement.
SECTION I.2. OTHER DEFINED TERMS; CONSTRUCTION. For purposes of this
Amendment, capitalized terms used but not defined herein shall have the meanings
assigned to them in the Credit Agreement, as amended by this Amendment, and the
rules of construction set forth in ARTICLE I of the Credit Agreement shall apply
to this Amendment.
ARTICLE II
EVENTS OF DEFAULT; FORBEARANCES BY THE LENDERS
SECTION II.1. INDEBTEDNESS OF ALADDIN MUSIC. Aladdin Music has incurred
the Indebtedness listed on Schedule 2.1 to this Amendment which Indebtedness is
not permitted under SECTION 7.2.2 of the Credit Agreement. The existence of
such Indebtedness by Aladdin Music constitutes an Event of Default under the
Credit Agreement which will continue unless
-3-
<PAGE>
waived by the Lenders in their sole discretion. The Lenders agree to forbear
from exercising their rights, remedies and options under the Credit Agreement
based upon such Event of Default until March 10, 1999 and during such
forbearance the Lenders agree to reduce the amount required to bring the Main
Project Budget In Balance in accordance with the Credit Agreement by the
amount of such Indebtedness. Such forbearance and reduction shall no longer
apply without any further notice after 11:59 p.m. on March 10, 1999 unless
the following have occurred:
(a) If such Indebtedness is due from Aladdin Music to the
Borrower, either Completion Guarantor or an Affiliate of
Aladdin Music, the Borrower or either Completion Guarantor,
as the case may be, the holder of such Indebtedness shall
deliver its agreement to Aladdin Music, the Borrower and the
Lenders effective as of January 19, 1999, which provides, in
relevant part, that (i) such Indebtedness is subject and
subordinate in all respects to the Loan, the Loan Documents,
the Facilities Agreement and the FF&E Lease Documents, the
repayment of all amounts evidenced and secured thereby and
the rights, remedies and options of the Lenders and GECC
thereunder, as the case may be, (ii) such holder shall
forbear from exercising any and all rights to collect such
Indebtedness (including rights in bankruptcy) until the
earlier of (A) indefeasible payment of the Indebtedness
evidenced and secured by the Loan Documents, the Facilities
Agreement and the FF&E Lease Documents and (B) such time as
the Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2
of the Credit Agreement has been consummated by Aladdin
Music and the Music Project Parcel has been released from
the Deed of Trust in accordance with CLAUSE (c) of SECTION
7.1.19 of the Credit Agreement and (C) in no event shall any
amount under the Credit Agreement or the Facilities
Agreement be allocated to repayment or reimbursement of such
Indebtedness or be used to fund any such amounts;
(b) If all or a portion of such Indebtedness is or becomes due
and payable on or before March 10, 1999, Aladdin Music shall
pay the amount thereof as and when such Indebtedness becomes
due and payable and shall deliver proof of such payment to
the Administrative Agent which shall be in form and content
satisfactory to it in its sole discretion and which shall
include a general release of Aladdin Music with respect to
such Indebtedness;
-4-
<PAGE>
(c) Subject to ITEM (b) above, if all or a portion of such
Indebtedness is due and payable after March 10, 1999, the
Borrower and the Completion Guarantor shall deliver an
agreement to the Administrative Agent effective as of
January 19, 1999, which shall be in form and content
satisfactory to the Administrative Agent in its sole
discretion and which shall provide, in relevant part, that
(1) Aladdin Music and each Completion Guarantor shall
furnish, or cause to be furnished, to the Administrative
Agent within 10 days after the end of each calendar month a
certificate from Aladdin Music and each Completion Guarantor
which lists all unpaid Indebtedness of Aladdin Music and the
amount thereof which has become due and payable or for which
demand has been made and which includes an unqualified
representation that Aladdin Music has not incurred any
Indebtedness in addition to that which is set forth in the
Borrower's Letter or which is otherwise expressly permitted
by the Credit Agreement, as amended by this Amendment, (2)
Aladdin Music and each Completion Guarantor have agreed
jointly, severally, absolutely and unconditionally to pay
such Indebtedness or the portion thereof which becomes due
and payable from time to time within 5 days after such
Indebtedness or portion thereof becomes due and payable and
demand for payment has been made therefor and (3) in
addition to the obligations set forth in ITEM (2) of this
CLAUSE (c), the Borrower and each Completion Guarantor
covenant and agree that with respect to any Indebtedness of
Aladdin Music (whether or not listed on SCHEDULE 2.1 or
permitted by the Credit Agreement, as amended by this
Amendment) which has not been paid within 5 days after such
amount becomes due and payable and demand for such payment
has otherwise been made, (A) the amount thereof shall be
added to the amount required at such time to bring the Main
Project Budget In Balance, (B) the waiver granted by the
Lenders under this Amendment shall automatically be revoked
without further notice and the Lenders shall be entitled
immediately to exercise all rights, remedies and options
under the Loan Documents and (C) no pending or further
Advance Requests will be approved and no pending or further
Advances will be made by the Administrative Agent or the
Disbursement Agent; and
(d) the Borrower has delivered all other waivers of such Event
of Default which are required by the Discount Note Indenture
and the Facilities Agreement.
-5-
<PAGE>
SECTION II.2. WAIVER OF DEFAULT BY THE BORROWER AND ALADDIN MUSIC. If on
or before March 10, 1999, time being of the essence, the requirements set forth
in CLAUSES (a), (b), (c) and (d) of SECTION 2.1 of this Amendment have been
satisfied by or on behalf of the Borrower and the Second Amendment to Facilities
Agreement has been executed and delivered by GECC and the Borrower in accordance
with this Amendment, the Event of Default described in Section 2.1 of this
Amendment shall be waived by the Lenders.
SECTION II.3. REPRESENTATIONS BY THE BORROWER. The Borrower acknowledges
that it is unable to make certain representations which it is required to make
under SECTION 3.2. of the Disbursement Agreement as a condition to an Advance
because CLAUSE (c) of SECTION 7.2.4 of the Credit Agreement needs to be amended
as set forth in CLAUSE (j) of SECTION 3.1 of this Amendment. The Borrower will
continue to be unable to make such representation until the Credit Agreement is
amended in accordance with this Amendment and the Intercreditor Agreement.
Between the date of this Amendment and March 10, 1999, the Lenders agree to
waive the requirement that the Credit Agreement be amended, as aforesaid. Such
waiver shall automatically expire without any further notice at 11:59 p.m. on
March 10, 1999. After such expiration, no Advance Requests will be approved and
no Advances will be made by the Administrative Agent or the Disbursement Agent
until the Credit Agreement has been amended in accordance with this Amendment
and the Borrower has otherwise satisfied the conditions in SECTION 3.2 of the
Disbursement Agreement.
SECTION II.4. BALANCING THE MAIN PROJECT BUDGET. The Borrower
acknowledges that as of December 17, 1998, the amount required in order for the
Main Project Budget to be In Balance was $4,838,466 plus the amount of the
Indebtedness of Aladdin Music described in SCHEDULE 2.1 annexed to this
Amendment (collectively, the "IN BALANCE AMOUNT"). The Lenders agree that until
March 10, 1999 the In Balance Amount shall be reduced by $2,750,000, the
approximate amount which Pepsi-Cola Company has agreed to pay the Borrower
pursuant to that certain concession agreement dated November 17, 1998. Such
reduction shall no longer apply without any further notice after 11:59 p.m. on
March 10, 1999 unless the Facilities Agreement and the Credit Agreement have
been amended in accordance with this Amendment. The Borrower agrees that no
Advance Requests will be approved and no Advances will be made by the
Administrative Agent or the Disbursement Agent until the Borrower has satisfied
all of the conditions which are required to be satisfied with respect to each
Advance including, without limitation, the performance of its obligations under
SECTION 7.1.14 of the Credit Agreement and that an additional Event of Default
will exist under the Loan Documents if such In Balance Amount (as adjusted in
accordance with the Credit Agreement) is not paid by March 10, 1999, time being
of the essence.
SECTION II.5. LETTERS OF CREDIT. On or about November 30, 1998, the
Completion Guarantors delivered letters of credit to the Administrative Agent in
the aggregate amount of $6,574,000 in order to bring the Main Project Budget In
Balance. The Lenders agree that the Administrative Agent shall forbear until
March 10, 1999 from drawing the letters of credit
-6-
<PAGE>
previously delivered by or on behalf of the Borrower in order for the Main
Project Budget to be In Balance. The Borrower and each of the Completion
Guarantors agree that such forbearance shall no longer apply without any
further notice after 11:59 p.m. on March 10, 1999 unless the Facilities
Agreement has been amended in accordance with this Amendment and the
Intercreditor Agreement, on or before such date, time being of the essence,
and the Administrative Agent shall draw such letters of credit and deposit
the proceeds thereof into the Guaranty Deposit Account for disbursement in
accordance with the Disbursement Agreement. The Completion Guarantors agree
that any demand or draw under the letter of credit delivered by each of them
shall be based upon the first certification or statement contained in each
letter of credit.
SECTION II.6. SECOND AMENDMENT TO FACILITIES AGREEMENT. As of the date of
this Amendment, the Borrower has requested GECC and its participants to execute
and deliver a second amendment to the Facilities Agreement which is consistent
with and includes and approves, as applicable, all of the provisions of this
Amendment and which includes (x) an express acknowledgment by GECC that after
giving effect to such second amendment, the Borrower has performed all of its
obligations under the Facilities Agreement which it is required to perform
thereunder through and including the effective date of such second amendment and
that the Indebtedness set forth on SCHEDULE 2.1 of this Amendment which has been
incurred by Aladdin Music and the Indebtedness to be incurred by Aladdin Music
which is permitted under CLAUSE (k) of SECTION 3.1 of this Amendment is
"INDEBTEDNESS" (as defined in the Facilities Agreement) of Aladdin Music which
is permitted by the Facilities Agreement and that the incurrence thereof has not
and will not constitute a "DEFAULT" or "EVENT OF DEFAULT" (as such terms are
defined in the Facilities Agreement) or result in the failure of the Borrower to
satisfy any of the conditions to "FUNDING" (as such term is set forth in the
Facilities Agreement), (y) representations from the Borrower for the benefit of
GECC and the Lenders as set forth in SECTIONS 8(a), 8(b), 8(c), 8(d), 8(e),
8(f), 8(g), 8(n), 8(o), 8(p), 8(s) and 8(y) of the Facilities Agreement and (z)
a representation from the Completion Guarantors for the benefit of GECC and the
Lenders that the Completion Guarantors have no knowledge of any act or condition
which, with the giving of notice or passage of time, would constitute a
"DEFAULT" or "EVENT OF DEFAULT" under the Facilities Agreement. GECC and its
participants have not agreed to enter into any such second amendment to the
Facilities Agreement and the Borrower is continuing its discussions with GECC,
the outcome of which is unknown at this time. If the Second Amendment to
Facilities Agreement in the form required by this SECTION 2.6 is not executed
and delivered by GECC and the Borrower in accordance with the Intercreditor
Agreement on or before March 10, 1999, time being of the essence, the Borrower
and the Completion Guarantors agree that an Event of Default shall exist under
the Credit Agreement and the Lenders shall have the right to exercise all
rights, remedies and options under the Loan Documents including, without
limitation, those granted under ARTICLE VIII of the Credit Agreement and that
the Administrative Agent shall have no obligation to approve any Advance
Requests and that the Administrative Agent and the Disbursement Agent shall have
no obligation to make any Advance.
-7-
<PAGE>
SECTION II.7. RESERVATION OF RIGHTS. The Borrower agrees that neither
this Amendment nor the making of any Advance by the Disbursement Agent and the
Administrative Agent's consent thereto shall constitute (w) an approval of all
or any portion of any Advance Request, (x) a waiver or forbearance by the
Disbursement Agent or the Administrative Agent under any of the Loan Documents,
except as expressly set forth herein, (y) the acceptance by the Disbursement
Agent or the Administrative Agent of any course of conduct by the Borrower or
the Completion Guarantor or (z) an agreement by the Administrative Agent to
amend any of the Loan Documents without the required approval from the Required
Lenders and a corresponding amendment of the Facilities Agreement. The Borrower
further agrees that the Administrative Agent and the Disbursement Agent reserve
all rights, remedies and options under the Loan Documents to require the
Borrower to satisfy in all respects the conditions relating to each Advance and
perform all of its obligations under the Loan Documents which are then due and
owing or are susceptible of performance, as the case may be.
ARTICLE III
AMENDMENTS
SECTION III.1. AMENDMENTS. The parties hereto hereby agree as follows:
(a) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the amendment to the definition of
"AVAILABLE FUNDS" as set forth below, the definition of "AVAILABLE FUNDS" in
SECTION 1.1 of the Credit Agreement shall be amended in its entirety to read as
set forth below:
"'AVAILABLE FUNDS' means, from time to time, the sum of (s)
amounts which are available to be drawn to fund Line Item Categories
under letters of credit deposited by or on behalf of the Borrower
pursuant to SECTION 7.1.14 of this Agreement, PLUS (t) so long as no
default (beyond the expiration of applicable grace, notice and cure
periods) exists under an executed lease, occupancy, concession or
license agreement (but not including any letter of intent or other
interim agreement) covering a portion of the Main Project which has
been approved by the Administrative Agent in its sole discretion
(which approval may be conditioned upon the delivery of a
subordination, non-disturbance and attornment agreement or
continuation agreement, as applicable, and estoppel certificate each
in form and content satisfactory to the Administrative Agent in its
sole discretion), amounts payable thereunder prior to the Conversion
Date for Project Costs which amounts (1) would otherwise have been
paid by the Borrower if such lease, occupancy, concession or license
agreement had not been entered into and (2) are not otherwise payments
or prepayments of rent or other periodic payments to be made for the
occupancy, use or right to market products at the Main Project as
determined by the
-8-
<PAGE>
Administrative Agent in its sole discretion, PLUS (u) the aggregate of
the unutilized Commitments (EXCLUDING, HOWEVER, the Commitments of all
Defaulting Lenders) under the Bank Credit Facility, PLUS (v) the
aggregate of the amounts on deposit in the Borrower's Funds Account, the
Construction Note Disbursement Account and all Anticipated Earnings
thereon, PLUS (w) the aggregate of the amounts on deposit in the
Guaranty Deposit Account, the Cash Management Account, the Bank Proceeds
Account, the Loss Proceeds Account and the Interest Payment Account,
PLUS (x) so long as (1) no default under the Site Work Agreement and the
Mall Project Loan and no Default hereunder have occurred and are
continuing at the relevant time of computation, (2) advances of the Mall
Project Loan have commenced on or before June 30, 1998 and have
continued in accordance with the approved draw schedule for the Mall
Project Loan, (3) advances of the Mall Project Loan to reimburse the
Borrower in accordance with the Site Work Agreement are made within 45
days after the Construction Consultant and the Owner Representative have
approved the work to be completed by the Borrower pursuant to the Site
Work Agreement, the aggregate amounts payable to the Borrower by Aladdin
Bazaar pursuant to Section 4.5 of the Site Work Agreement, PLUS (y) the
lesser of (1) the aggregate of the amounts available to be drawn under
all Approved Equipment Funding Commitments and (2) the aggregate amount
of Remaining Costs on the date of calculation for the Equipment
Component (as in effect from time to time), PLUS (z) the aggregate
amount of Main Project Costs which the Design/Builder and/or Fluor have
agreed or confirmed in writing, to the reasonable satisfaction of the
Administrative Agent, that they are responsible for paying (on a timely
basis relative to the Main Project's cash needs) from their own funds
but which they have not yet paid."
(b) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the addition of the following
definitions to the Credit Agreement, the following definitions shall be added to
SECTION 1.1 of the Credit Agreement:
"ADJUSTED NET WORTH" means Net Worth increased by an amount equal to
the losses attributable to the Music Project (not to exceed $8,660,000 in the
aggregate).
"COMMON PARKING AREA" is defined in the Site Work Agreement.
"COMMON PARKING AREA BUDGET" is defined in SECTION 7.1.24.
"EXCESS CONTRIBUTION" is defined in SECTION 7.1.24.
"EXCESS CONTRIBUTION AGREEMENT" is defined in SECTION 7.1.24.
-9-
<PAGE>
(c) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the addition of the parenthetical clause
set forth below, the following parenthetical clause shall be added at the end of
CLAUSE (d) of the definition of "INDEBTEDNESS" in SECTION 1.1 of the Credit
Agreement:
"(other than (x) prior to the Conversion Date Indebtedness which is to
be funded from Available Funds and (y) after the Conversion Date
accounts payable by the Borrower arising in the ordinary course of
business in connection with the operation of the Main Project as a
casino/hotel)"
(d) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the amendment to the definition of "LOAN
DOCUMENTS" as set forth below, the definition of "LOAN DOCUMENTS" in SECTION 1.1
of the Credit Agreement shall be amended in its entirety to read as set forth
below:
"'LOAN DOCUMENTs' means, collectively, this Agreement, the Notes,
the Letters of Credit, each Pledge Agreement, each Rate Protection
Agreement, each Borrowing Request, each Letter of Credit Issuance
Request, the Security Agreement, the Keep-Well Agreement, the
Completion Guaranty, the Excess Contribution Agreement, the GECC
Intercreditor Agreement, the Trademark Security Agreement, the Deed of
Trust, the Disbursement Agreement, the Mall Project Completion
Assignment, the Fee Letters, the Environmental Indemnity, the
Assignment of Contracts, the Assignment of Consulting Agreement, the
Assignment of Design/Build Contract, the Assignment of Salle Prive
Agreement, the Assignment of Project Management Agreement, the
Borrower Collateral Account Agreement, the Holdings Collateral Account
Agreement, the Servicing and Collateral Account Agreement, the
Design/Builder Consent and Acknowledgment and any other agreement,
certificate, document or Instrument delivered in connection with this
Agreement and such other agreements, whether or not specifically
mentioned herein or therein."
(e) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the addition of the sentence set forth
below, the following sentence shall be added at the end of the definition of
"MAIN PROJECT BUDGET" in SECTION 1.1 of the Credit Agreement:
"The Main Project Budget shall include a Line Item and a Line Item
Category consistent with the Common Parking Area Budget."
-10-
<PAGE>
(f) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves an amendment to the definition of
"REALIZED SAVINGS" as set forth below, the definition of "REALIZED SAVINGS" in
SECTION 1.1 of the Credit Agreement shall be amended in its entirety to read as
set forth below:
"'REALIZED SAVINGS' means:
(a) the portion of any decrease to the Guaranteed Maximum Price
retained or to be retained by the Borrower in accordance with the
provisions of Attachment H to the Design/Build Contract in the 'COST
OF THE WORK' (as defined in Section 3 of Attachment G to the
Design/Build Contract) contemplated by a Line Item but only to the
extent that the Guaranteed Maximum Price has been reduced as a result
of such decrease in the anticipated 'COST OF THE WORK' as approved in
writing by the Design/Builder and such reduction is confirmed by the
Construction Consultant;
(b) with respect to the Construction Period Interest Line Item,
a decrease in the anticipated cost of construction period interest
resulting from (x) a decrease in the interest rates payable by the
Borrower prior to the date which is six months after the Conversion
Date as determined by the Administrative Agent with the reasonable
concurrence of the Borrower taking into account the current and future
anticipated interest rates and the anticipated times and amounts of
draws under the Bank Credit Facility for the payment of Main Project
Costs or (y) the anticipated Conversion Date being earlier than the
date set therefor in the Construction Benchmark Schedule as determined
by the Owner Representative with the reasonable concurrence of the
Construction Consultant; and
(c) with respect to any other Line Item, the amount by which the
total cost allocated to such Line Item exceeds the total cost incurred
by the Borrower to complete all aspects of the Work contemplated by
such Line Item which amount shall not be established until the
Borrower has actually completed 90% of all such Work or provided other
evidence acceptable to the Administrative Agent in its sole discretion
(with the concurrence of the Construction Consultant) that such amount
is reasonably expected to be realized as a permanent savings prior to
completion of 90% of such Work;
in each case, which is documented by the Borrower in a Realized
Savings Certificate substantially in the form of EXHIBIT W hereto,
duly executed and completed with all exhibits and attachments
thereto."
-11-
<PAGE>
(g) CLAUSE (n) of SECTION 7.1.1 of the Credit Agreement is
hereby amended in its entirety to read as set forth below:
"(n) prior to Final Completion, within 30 days after the end of
each month, a monthly status report describing in reasonable detail
the progress of the construction and completion of the Common Parking
Area and each Construction Component and the Main Project as a whole
since the immediately preceding report hereunder, including the cost
incurred to the end of such month, an estimate of the time and cost
required to complete the Common Parking Area and each Construction
Component and the Main Project as a whole, the progress of
construction and how it relates to the Construction Benchmark
Schedule, an accounting of costs which have been incurred and funded
with respect to the Common Parking Area, a variance report of the
costs incurred through the date of such report from those set forth in
the Common Parking Area Budget and such other information and reports
as the Administrative Agent or Construction Consultant may reasonably
request;"
(h) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement includes an amendment to CLAUSE (r) of SECTION 10 of the
Facilities Agreement substantially similar to the amendment set forth below,
SECTION 7.1.14 of the Credit Agreement shall be amended in its entirety to read
as set forth below:
"Section 7.1.14 IN BALANCE; BORROWER EQUITY. If at any time and
from time to time the Main Project Budget is not In Balance, the
Borrower shall deposit or cause to be deposited into the Guaranty
Deposit Account, in cash, funds in the amount required to bring the
Main Project Budget In Balance. Each such deposit shall be made on
the earlier of (x) 10 days after demand therefor by the Administrative
Agent or (y) the Business Day immediately preceding the date on which
an Advance is to be made by the Lenders pursuant to the Loan Documents
or, if applicable, by the Disbursement Agent pursuant to the
Disbursement Agreement, as the case may be. With respect to the
amount required to bring the Main Project Budget In Balance on
November 13, 1998 only, if no Event of Default exists under this
Agreement, in addition to or in lieu of cash, the Borrower may deliver
or cause to be delivered one or more clean, irrevocable and
unconditional letters of credit satisfactory to the Administrative
Agent in its sole discretion in such amounts required to bring the
Main Project Budget In Balance, in which case the following provisions
shall apply:
(a) If and to the extent the amount of each Line Item Category set
forth in the Main Project Budget has been fully funded from Available
Funds or other sources of payment (other than the letters of credit
which have been delivered to
-12-
<PAGE>
fund such Line Item Category[ies] which are not In Balance (the "L/C
LINE ITEM CATEGORIES")) and additional funds are required therefor, the
Administrative Agent may draw on such letters of credit without any
notice to the Borrower or any other Person to the extent required to
fund such amounts. If any of the letters of credit are dishonored or
have been fully drawn or the amounts available thereunder have been
reduced to zero and such payments have not been fully paid, the
Administrative Agent shall have the right to demand payment by the
Borrower in accordance with the first two sentences of this SECTION
7.1.14 and declare an Event of Default if SECTION 8.1.16 of the First
Amendment to Credit Agreement applies.
(b) The Administrative Agent shall be entitled to realize against any
or all of the letters of credit (i) upon the occurrence of an Event of
Default hereunder or (ii) in its sole discretion, at any time the Main
Project Budget is not In Balance and apply the proceeds thereof at the
discretion of the Administrative Agent.
(c) During its review of each request for an Advance, the
Administrative Agent shall determine whether the L/C Line Item
Categories are In Balance. If the L/C Line Item Categories are In
Balance without any need for support from the letters of credit and
the Main Project Budget is otherwise In Balance or the maximum amounts
permitted to be drawn under such letters of credit have been reduced
to zero, the Administrative Agent shall return the letters of credit
to the Persons which delivered such letters of credit to the
Administrative Agent. Provided that the Main Project Budget is In
Balance and no act or condition exists which, with the giving of
notice or passage of time, would constitute a "DEFAULT" or "EVENT OF
DEFAULT" under the Credit Agreement, the Facilities Agreement or the
Discount Note Indenture, after request by the Borrower (which request
shall be made in connection with a request for an Advance), the
Administrative Agent shall permit the amounts of the letters of credit
to be reduced to the amount required for the Borrower to perform its
obligation under the Credit Agreement to keep the L/C Line Item
Categories In Balance.
(d) In the event that each letter of credit is not extended or
replaced at least fifteen (15) days prior to its stated expiration
date, the Administrative Agent shall make a drawing under such letter
of credit of the full amount then available thereunder and shall
deposit such amount into the Guaranty Deposit Account to be held by
the Disbursement Agent in accordance with the terms of the
Disbursement Agreement."
(i) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the addition of the new Section set
forth below, the following new Section shall be added to the Credit Agreement as
SECTION 7.1.24:
-13-
<PAGE>
"Section 7.1.24 SITE WORK AGREEMENT; EXCESS CONTRIBUTION AGREEMENT.
Aladdin Bazaar has asked the Borrower and AHL to agree under the Site
Work Agreement that Aladdin Bazaar will pay up to $36,000,000 for
amounts attributable to the design and construction of the Common
Parking Area and that the Borrower and AHL will pay all amounts in
excess of $36,000,000 for such design and construction. The Borrower
has delivered a budget (the "COMMON PARKING AREA BUDGET") which is
being reviewed by the Construction Consultant. The Borrower agrees
that if the Construction Consultant reasonably determines that
adjustments are required in order for the Common Parking Area Budget
to be accurate, the Borrower shall make such adjustments as so
determined. The Borrower shall pay all reasonable costs, expenses and
fees of the Administrative Agent and the Lenders with respect to any
reviews of the Common Parking Area Budget and the design and
construction of the Common Parking Area including, without limitation,
the costs and expenses of the Construction Consultant's reviews of the
Common Parking Area Budget from time to time and, if required,
attorneys' fees and costs and expenses. In addition, if the Common
Parking Area Budget, as approved by the Construction Consultant,
shows a cost of completion exceeding $36,000,000, the amount over
$36,000,000 shall be funded by the Borrower by delivery of a cash
deposit in such amount upon the earlier of (x) such time as the
Borrower is otherwise required to bring the Loan In Balance (without
giving effect to such excess amount) in accordance with this Credit
Agreement and the other Loan Documents and (y) such time as such
amount is required in order to pay for such costs of completion (each
such amount being referred to as an "EXCESS CONTRIBUTION"). In no
event shall (x) any portion of any contingency, reserve or Realized
Savings be allocated to the Common Parking Area Line Item Category in
the Main Project Budget for amounts to be funded by the Borrower
pursuant to this section or (y) any contingency, reserve or Realized
Savings be used to fund any such amounts without the prior written
consent of the Administrative Agent in its sole discretion. Each month
the Construction Consultant shall verify the amounts required to
complete construction of the Common Parking Area as part of its review
of the Main Project Budget and In Balance requirements. If the
Construction Consultant determines in its sole discretion that there
should be an increase in the Excess Contributions, the Borrower shall,
in accordance with this SECTION 7.1.24, deposit cash into the Guaranty
Deposit Account in such increased amount. London Clubs and the Trust
shall enter into an agreement (the "EXCESS CONTRIBUTION AGREEMENT")
for the benefit of the Lenders and the Administrative Agent which
shall provide, in relevant part, that London Clubs and the Trust,
jointly and severally (x) shall make all Excess Contributions required
from time to time in accordance with this SECTION 7.1.24 (in addition
to all other payments under the Excess Contribution Agreement, the
Completion Guaranty, the Environmental Indemnity and the Keep-Well
-14-
<PAGE>
Agreement) and (y) shall perform the obligation to keep the Line Item
Category for all such amounts in excess of $36,000,000 In Balance in
accordance with the Excess Contribution Agreement if the Borrower
fails or refuses to do so. The form and content of the Excess
Contribution Agreement shall be satisfactory to the Administrative
Agent in its sole discretion."
(j) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement includes an amendment to ITEM (3) of CLAUSE (d) of SECTION
11 of the Facilities Agreement substantially similar to the amendment set forth
below, CLAUSE (c) of SECTION 7.2.4 shall be amended in its entirety to read as
set forth below:
"(c) ADJUSTED NET WORTH. Adjusted Net Worth as of the close of any
such Fiscal Quarter to be less than the sum of $45,000,000 PLUS 85% of
positive Net Income (after giving effect to the amount of Restricted
Payments made by the Borrower in cash in accordance with CLAUSES (a) and
(c) of SECTION 7.2.6, subject to the terms thereof for the period, treated
as one accounting period) from the Closing Date through the close of such
Fiscal Quarter."
(k) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement includes an amendment to CLAUSE (b) of SECTION 11 of the
Facilities Agreement substantially similar to the amendment set forth below, the
following clauses shall be added as CLAUSE (j), CLAUSE (k), CLAUSE (l) and
CLAUSE (m) to SECTION 7.2.2 of the Credit Agreement:
"(j) Indebtedness of Aladdin Music (in addition to the
Indebtedness referred to in SECTION 2.1 of the First Amendment to Credit
Agreement) which has been approved in writing by the Completion
Guarantors and which, when combined with the Indebtedness permitted
under CLAUSE (k) and the first parenthetical clause in CLAUSE (m) of
this SECTION 7.2.2, shall not exceed $3,500,000 in the aggregate for
reasonable and necessary pre-development costs and expenses of the Music
Project pursuant to agreements with either Completion Guarantor or
Affiliates thereof so long as after giving effect to such Indebtedness
no event or condition exists under the Credit Agreement, the Facilities
Agreement or the Discount Note Indenture which, with the giving of
notice or passage of time, would constitute a "DEFAULT" or "EVENT OF
DEFAULT" thereunder and five days prior to the incurrence thereof the
holder of such Indebtedness delivers its agreement to Aladdin Music, the
Borrower and the Lenders which provides, in relevant part, that (i) such
Indebtedness is subject and subordinate in all respects to the Loan, the
Loan Documents, the Facilities Agreement and the FF&E Lease Documents,
the repayment of all amounts evidenced and secured thereby and the
rights, remedies and options of the Lenders and GECC thereunder, as the
case may be, (ii) such holder shall forbear from exercising any and all
rights to collect such Indebtedness (including rights in bankruptcy)
until the earlier of (A) indefeasible
-15-
<PAGE>
payment of the Indebtedness evidenced and secured by the Loan Documents,
the Facilities Agreement and the FF&E Lease Documents and (B) such time
as the Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2 of the
Credit Agreement has been consummated by Aladdin Music and the Music
Project Parcel has been released from the Deed of Trust in accordance
with CLAUSE (c) of SECTION 7.1.19 of the Credit Agreement and (iii) in
no event shall any amount under the Credit Agreement or the Facilities
Agreement be allocated to repayment or reimbursement of such
Indebtedness or be used to fund any such amounts;
(k) Indebtedness of Aladdin Music (in addition to the Indebtedness
referred to in SECTION 2.1 of the First Amendment to Credit Agreement)
which has been approved in writing by the Completion Guarantors and which,
when combined with the Indebtedness permitted by CLAUSE (j) and the first
parenthetical clause in CLAUSE (m) of this SECTION 7.2.2, shall not exceed
$3,500,000 in the aggregate for reasonable and necessary pre-development
costs and expenses of the Music Project pursuant to agreements with third
parties (other than the Borrower, either Completion Guarantor or an
Affiliate of Aladdin Music, the Borrower or either Completion Guarantor, as
the case may be) so long as after giving effect to such Indebtedness no
event or condition exists under the Credit Agreement, the Facilities
Agreement or the Discount Note Indenture which, with the giving of notice
or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT"
thereunder and five days prior to the incurrence thereof the holder of such
Indebtedness delivers its agreement to Aladdin Music, the Borrower and the
Lenders which provides, in relevant part, that such Indebtedness shall only
be due and payable if and only if and not unless or until such time as the
Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2 of the Credit
Agreement has been consummated by Aladdin Music and the Music Project
Parcel has been released from the Deed of Trust in accordance with CLAUSE
(c) of SECTION 7.1.19 of the Credit Agreement and that in no event shall
any amount under the Credit Agreement or the Facilities Agreement be
allocated to repayment or reimbursement of such Indebtedness or be used to
fund any such amounts;
(l) Indebtedness of the Borrower which has been approved in writing
by the Completion Guarantors in respect of the development and use of the
approximately 1,400 seat production showroom at the Main Project (including
production of shows and installations with respect to such shows) so long
as after giving effect to such Indebtedness no event or condition exists
under the Credit Agreement, the Facilities Agreement or the Discount Note
Indenture which, with the giving of notice or passage of time, would
constitute a "DEFAULT" or "EVENT OF DEFAULT" thereunder, the terms of which
and Instruments which evidence and, if applicable, secure such Indebtedness
shall be satisfactory to the Administrative Agent as determined in good
faith in its sole discretion; and
-16-
<PAGE>
(m) Indebtedness of Aladdin Music which has been approved in writing
by the Completion Guarantors for payment of a commission (but not expenses
which shall be subject to the limitations in CLAUSE (k) of this SECTION
7.2.2) for procuring a lender for the Music Project and/or equity investor
(which shall not be the Borrower, either Completion Guarantor or an
Affiliate of Aladdin Music, the Borrower or either Completion Guarantor, as
the case may be) in Aladdin Music so long as after giving effect to such
Indebtedness no event or condition exists under the Credit Agreement, the
Facilities Agreement or the Discount Note Indenture which, with the giving
of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF
DEFAULT" thereunder and five days prior to the incurrence thereof the
holder of such Indebtedness delivers its agreement to Aladdin Music, the
Borrower and the Lenders which provides, in relevant part, that such
Indebtedness shall only be due and payable if and only if and not unless or
until such time as the Indebtedness permitted under CLAUSE (i) of SECTION
7.2.2 of the Credit Agreement has been consummated by Aladdin Music and the
Music Project Parcel has been released from the Deed of Trust in accordance
with CLAUSE (c) of SECTION 7.1.19 of the Credit Agreement and that in no
event shall any amount under the Credit Agreement or the Facilities
Agreement be allocated to repayment or reimbursement of such Indebtedness
or be used to fund any such amounts."
(l) From and after the effective date of the Second Amendment to
Facilities Agreement (but not before) and provided that the Second Amendment to
Facilities Agreement expressly approves the addition of SECTION 8.1.16 as set
forth below, the following new Section shall be added to the Credit Agreement as
SECTION 8.1.16:
"SECTION 8.1.16. DISHONOR OR EXPIRATION OF LETTER OF CREDIT. If
any letter of credit deposited by or on behalf of the Borrower
hereunder is dishonored by the issuer thereof or is not extended
within fifteen (15) days prior to the expiration thereof (unless the
Lenders have been given written instructions to draw such letter of
credit fifteen (15) days prior to the expiration thereof)."
ARTICLE IV
CONDITIONS PRECEDENT AND COVENANT
SECTION IV.1. CONDITIONS TO EFFECTIVENESS. This Amendment shall be and
become effective as of the date (the "EFFECTIVE DATE") on which each of the
following conditions precedent shall have been satisfied.
(a) EXECUTION OF AMENDMENT. The Administrative Agent shall have
received counterparts of this Amendment executed on behalf of the Borrower,
the
-17-
<PAGE>
Administrative Agent, the Syndication Agent, the Documentation Agent
and the Required Lenders.
(b) INCUMBENCY, ETC. The Administrative Agent shall have received
(with copies for each Lender) a certificate, dated the date hereof, of an
Authorized Representative of the Borrower certifying
(i) as to the incumbency and signatures of the Person or Persons
authorized to execute and deliver this Amendment and any instruments
or agreements required hereunder,
(ii) as to an attached copy of one or more resolutions or other
authorizations of the manager of the Borrower certified by the
Authorized Representative of such manager as being in full force and
effect on the date hereof, authorizing the execution, delivery and
performance of this Amendment and any instruments or agreements
required hereunder, and
(iii) that the Organizational Documents of the Borrower have not
been modified since the date on which they were last delivered to the
Administrative Agent,
upon which certificate the Administrative Agent, the Syndication Agent, the
Documentation Agent and each Consenting Lender (collectively, the
"FINANCING PARTIES") may conclusively rely until it shall have received a
further certificate of an Authorized Representative of the Borrower
canceling or amending such prior certificate.
(c) FEES. All reasonable fees and costs and expenses of Mayer, Brown
& Platt and other professionals employed by the Administrative Agent and
all other reasonable expenses of the Administrative Agent in connection
with the negotiation, execution and delivery of this Amendment and the
transactions contemplated herein shall have been paid in full.
(d) SATISFACTORY LEGAL FORM. Each Financing Party and its counsel
shall have received all information, approvals, opinions, documents or
instruments as each Financing Party or its counsel may have reasonably
requested, and all documents executed or submitted pursuant hereto by or on
behalf of the Borrower shall be satisfactory in form and substance to each
Financing Party and its counsel.
(e) DEFAULT. After giving effect to this Amendment the following
statements shall be true and correct: (i) to the best knowledge of the
Borrower, except as expressly set forth in this Amendment, no act or
condition exists which, with the giving of notice or passage of time would
constitute a "DEFAULT" or "EVENT OF DEFAULT" (as defined in
-18-
<PAGE>
the Credit Agreement and the Facilities Agreement) has occurred and is
continuing as of the date hereof, and (ii) no material adverse change in
(A) the financial condition, business, property, prospects or ability of
the Borrower to perform in all material respects its obligations under
any Operative Document or any of the documents evidencing and securing
the FF&E Financing to which it is a party or (B) the financial
condition, business, property, prospects and ability of any other
Aladdin Party or, to the best knowledge of the Borrower, LCNI, the
Design/Builder or Fluor to perform in all material respects its
obligations under any Operative Document to which it is a party has
occurred since the Closing Date.
(f) CONSENTS AND APPROVALS. All approvals and consents required to
be taken, given or obtained, as the case may be, by or from any
Governmental Instrumentality or another Person, or by or from any trustee
(including, without limitation, the Discount Note Indenture Trustee) or
holder of any indebtedness or obligation of the Borrower, that are
necessary or, in the reasonable opinion of the Administrative Agent,
advisable in connection with the execution, delivery and performance of
this Amendment by all parties hereto, shall have been taken, given or
obtained, as the case may be, shall be in full force and effect and the
time for appeal with respect to any thereof shall have expired (or, if an
appeal shall have been taken, the same shall have been dismissed) and shall
not be subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and shall be in form and substance satisfactory to
the Administrative Agent.
(g) DELIVERY OF AMENDMENT. The Borrower shall have delivered this
Amendment to all Persons entitled under the Operative Documents to receive
delivery hereof.
(h) OPINIONS. The Administrative Agent shall have received such
opinions of counsel as it deems necessary, dated as of the date of this
Amendment and addressed to the Administrative Agent, the Lenders and, if
applicable, the Disbursement Agent, which shall be in form and substance
satisfactory to the Administrative Agent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce each Financing Party to enter into this Amendment, the
Borrower hereby reaffirms, as of the date hereof, its representations and
warranties contained in Article VI of the Credit Agreement and additionally
represents and warrants unto each Financing Party as set forth in this
ARTICLE V.
-19-
<PAGE>
SECTION V.1. SCHEDULE 2.1. To the best knowledge of the Borrower,
Schedule 2.1 annexed to this Amendment, as of the date of hereof, is true,
correct and complete in all respects.
SECTION V.2. MATTERS PERTAINING TO THE FACILITIES AGREEMENT.
(a) The Borrower has not directly or indirectly amended (by Change
Order or otherwise), modified (by Change Order or otherwise), allocated,
reallocated or supplemented or permitted or consented to the amendment (by
Change Order or otherwise), modification (by Change Order or otherwise)
allocation, reallocation or supplementation of the Construction Benchmark
Schedule in any manner which would extend the Completion Date.
(b) The Borrower has performed all of its obligations under ITEM (1)
of CLAUSE (a) of SECTION 12 of the Facilities Agreement.
SECTION V.3. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by the Borrower of this Amendment and each other
document executed or to be executed by it in connection with this Amendment are
within the Borrower's powers, have been duly authorized by all necessary action,
and do not
(a) contravene the Borrower's Organizational Documents;
(b) contravene any contractual restriction binding on or affecting
the Borrower;
(c) contravene any court decree or order or Legal Requirement binding
on or affecting the Borrower; or
(d) result in, or require the creation or imposition of, any Lien
on any of the Borrower's properties except as expressly contemplated by
the Operative Documents, and the Financing Parties may conclusively rely
on such representation and warranty.
SECTION V.4. GOVERNMENT APPROVAL,
REGULATION, ETC. No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery or performance by
the Borrower of this Amendment or any other document to be executed by it in
connection with this Amendment.
SECTION V.5. VALIDITY, ETC. This Amendment constitutes, and each other
document executed by the Borrower in connection with this Amendment, on the due
execution and delivery thereof, will constitute, the legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms, except as such enforceability may be
-20-
<PAGE>
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors rights generally and by general principles of equity.
SECTION V.6. LIMITATION. Except as expressly provided hereby, all of the
representations, warranties, terms, covenants and conditions of the Credit
Agreement and each other Operative Document shall remain unamended and unwaived
and shall continue to be, and shall remain, in full force and effect in
accordance with their respective terms. The amendments, modifications and
consents set forth herein shall be limited precisely as provided for herein, and
shall not be deemed to be a waiver of, amendment of, consent to or modification
of any other term or provision of the Credit Agreement, the Facilities Agreement
any Operative Document, or other Instrument referred to therein or herein, or of
any transaction or further or future action on the part of the Borrower or any
other Person which would require the consent of the Agents, the Lenders, GECC or
the Discount Note Indenture Trustee.
SECTION V.7. OFFSETS AND DEFENSES. The Borrower has no offsets or
defenses to its obligations under the Loan Documents or the documents evidencing
and securing the FF&E Financing and no claims or counterclaims against any of
the Agents, the Lenders or the Construction Consultant.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION VI.1. RATIFICATION OF AND REFERENCES TO THE CREDIT AGREEMENT.
This Amendment shall be deemed to be an amendment to the Credit Agreement, and
the Credit Agreement, as amended hereby, shall continue in full force and effect
and is hereby ratified, approved and confirmed in each and every respect. All
references to the Credit Agreement in any other document, instrument, agreement
or writing shall hereafter be deemed to refer to the Credit Agreement as amended
hereby.
SECTION VI.2. HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or interpretation
of this Amendment or any provisions hereof.
SECTION VI.3. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING
ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES OF SUCH STATE.
SECTION VI.4. CROSS-REFERENCES. References in this Amendment to any
Article or Section are, unless otherwise specified, to such Article or Section
of this Amendment.
-21-
<PAGE>
SECTION VI.5. OPERATIVE DOCUMENT. This Amendment is an Operative Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated therein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION VI.6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION VI.7. COUNTERPARTS. This Amendment may be executed by the parties
hereto in any number of counterparts and on separate counterparts, each of which
shall be an original but all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first above written.
ALADDIN GAMING, LLC
By: /s/ Richard J. Goeglein
Name: Richard J. Goeglein
Title: President
THE BANK OF NOVA SCOTIA, as the
Administrative Agent
By: /s/ Alan W. Pendergast
Name: Alan W. Pendergast
Title: Relationship Manager
MERRILL LYNCH CAPITAL
CORPORATION, as the Syndication Agent
By: /s/ Howard B. Sople
Name: Howard B. Sople
Title: Vice President
CIBC OPPENHEIMER CORP.,
as the Documentation Agent
By: /s/ Dean J. Decker
Name: Dean J. Decker
Title: Executive Director, CIBC Oppenheimer
Corp., As Agent
<PAGE>
By signing below, the Guarantors (w) ratify and reaffirm
the Loan Documents to which they are a party, (x) confirm
their agreement to the terms of this Amendment and (y) acknow-
ledge that they have no offsets or defenses to their
respective obligations under the Loan Documents
to which they are a party and no claims or counterclaims
against the Agents, the Lenders or the Construction Consultant.
ALADDIN BAZAAR HOLDINGS, LLC
By: /s/ Ron Dictrow
Name: Ron Dictrow
Title: Secretary/Treasurer
THE TRUST UNDER ARTICLE SIXTH
UNDER THE WILL OF SIGMUND SOMMER
By: /s/ Jack Sommer
Name: Jack Sommer
Title: Trustee
LONDON CLUBS INTERNATIONAL PLC
By: /s/ G. Barry Hardy
Name: G. Barry Hardy
Title: Finance Director
<PAGE>
SCHEDULE 2.1
Unpaid invoices for Aladdin Music
As of January 22, 1998
<TABLE>
<CAPTION>
Schreck Culinary
ADP/Marshall TLCP Rockwell HKS Morris Design
------------ ---------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,000.00 5,000.00 275,000.00 131,743.93 1,157.43 2,640.00
706,000.00 116,752.22 3,510.00
16,714.21 19,104.77 3,500.00
185,000.00 121,157.81 123.75
21,138.21 82,216.34 3,742.00
174,000.00 9,760.00
23,452.47 3,250.00
1,718.81 7,635.63
14,657.45 141,218.37
4,691.10 10,110.67
1,996.01
447.40
3,183.57
376.60
Estimate per Tishman
------------ ---------- ------------- ------------ ----------- ----------
Total Accounts Payable 2,000.00 5,000.00 1,422,372.25 648,953.32 1,157.43 13,515.75
------------ ---------- ------------- ------------ ----------- ----------
Trust Advances -100,000.00
Trust Advances -100,000.00 -50,000.00
Planet Hollywood Advances -100,000.00
Jack Sommer Advance -500,000.00
------------ ---------- ------------- ------------ ----------- ----------
Net Accounts Payable 2,000.00 5,000.00 722,372.25 498,953.32 1,157.43 13,515.75
------------ ---------- ------------- ------------ ----------- ----------
<CAPTION>
Pre-Opening
McNamara/ Planet Total Capitalized Expensed
Tishman Salvia, Inc. Hollywood RWDI Construction Costs Skadden,Arps
---------- ------------ ----------- ----------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
44,320.88 59,400.00 46,300.00 567,562.24 537,673.00
2,493.43 28,835.80 857,591.45
4,666.30 119.55 44,104.83
9,300.16 1,186.47 316,768.19
107,096.55
183,760.00
26,702.47
9,354.44
155,875.82
14,801.77
1,996.01
447.40
3,183.57
376.60
0.00
0.00
Estimate per Tishman 5,000.00 5,000.00
0.00
0.00
0.00
0.00
---------- ------------ ------------ ---------- --------------- -------------
Total Accounts Payable 65,780.77 89,541.82 0.00 46,300.00 2,294,621.34 537,673.00
---------- ------------ ------------ ---------- --------------- -------------
Trust Advances -100,000.00
Trust Advances -13,890.00 -163,890.00
Planet Hollywood Advances 100,000.00 0.00
Jack Sommer Advance -500,000.00
0.00
---------- ------------ ------------ ---------- --------------- -------------
Net Accounts Payable 65,780.77 89,541.82 100,000.00 32,410.00 1,530,731.34 537,673.00
---------- ------------ ------------ ---------- --------------- -------------
Related party Payables
Sommer Trust Advance for Rockwell costs 100,000.00
Advance for HKS costs 50,000.00
Advance to RWDI - Consulting
Engineers 13,890.00
Advance for Rockwell costs 100,000.00
Jack Sommer
Advance for Rockwell costs 500,000.00
--------------- -------------
Related Party Payables 763,890.00 0.00
--------------- -------------
TOTAL
--------------- ------------- ------------
Total Liabilities for Aladdin Music, LLC. 2,294,621.34 537,673.00 2,832,294.34
--------------- ------------- ------------
--------------- ------------- ------------
</TABLE>
<PAGE>
ENERGY SERVICE AGREEMENT
ENERGY SERVICE AGREEMENT, dated as of September 24, 1998,
between Aladdin Gaming, LLC, a Nevada limited-liability company (the
"Customer"), and Northwind Aladdin, LLC, a Nevada limited-liability company
(the "Supplier").
W I T N E S S E T H:
WHEREAS, Customer, in conjunction with the Aladdin Bazaar, LLC
("Bazaar") and Aladdin Music, LLC ("Music") (Customer and Music collectively
are referred to as the "Parties" and each individually as a "Party"), are
developing a resort, casino, shopping and entertainment complex in Clark
County, Nevada to be comprised of the Aladdin Hotel and Casino, the Desert
Passage Mall and a music-themed hotel and casino and certain related
facilities (collectively, the "Complex"); and
WHEREAS, concurrently with the execution of this Agreement, Music
and Bazaar also are executing Energy Service Agreements with the Supplier
(such Energy Service Agreements, together with this Agreement, as any of them
may be amended, restated, modified or supplemented and in effect from time to
time, are collectively referred to herein as the "Complex Energy Service
Agreements"); and
WHEREAS, the Customer is developing a luxury themed hotel of
approximately 2,600 rooms (the "Hotel"), a 116,000 square foot casino (the
"Casino"), a 1,400-seat production showroom, seven restaurants and a newly
renovated 7,000-seat Theatre of the Performing Arts (the "Theatre" and
together with the Hotel and Casino, the "Premises") which will be part of the
Complex; and
WHEREAS, the Customer has entered into an agreement with the
Supplier dated as of December 3, 1997 (the "Development Agreement") to
develop and construct an energy facility (such facility, together with the
Supplier Interconnection Equipment, the "Northwind Facilities") on a 0.64
acre portion of the Complex site to supply hot water, chilled water and
electricity to the Complex, including supplying hot water, chilled water and
electricity to the Premises;
WHEREAS, the Customer intends to purchase its chilled water, hot
water and electricity needs for the premises from the Supplier; and
<PAGE>
WHEREAS, the Customer is the beneficiary of a guaranty of Unicom
Corporation (the "Guarantor"), a parent company of the Supplier, dated as of
December 3, 1997 (the "Guaranty") pursuant to which the Guarantor
unconditionally and irrevocably guaranties to the Customer the performance of
the obligations and duties of the Supplier under the Development Agreement
and this Agreement to construct and demonstrate "Final Completion" of the
Plant, subject to a limitation of the lesser of (i) $30 million or (ii) the
"Guaranteed Maximum Price" as finally determined and agreed upon pursuant to
the Development Agreement, plus interim operating costs up to the
"Substantial Completion Date"; and
WHEREAS, the Customer has entered into a lease with the Supplier
dated as of December 3, 1997 (the "Lease") to lease a site (the "Site") to
the Supplier on which the Supplier will construct and operate the Plant
pursuant to the Development Agreement and this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed between the Supplier
and the Customer as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used herein, the terms set forth in Annex A
hereto shall have the meanings specified or referred to in Annex A.
ARTICLE 2
ENERGY SERVICE
2.1 SERVICES; EXCLUSIVITY; RIGHT OF FIRST REFUSAL; PERFORMANCE;
CUSTOMER AGREEMENTS.
(a) PROJECT SCOPE; CUSTOMER ENERGY REQUIREMENTS. The Northwind
Facilities will be engineered, designed and constructed under the terms of
the Development Agreement and in accordance with the design and equipment
parameters set forth in Exhibit A hereto (such Exhibit, as it may be amended,
restated, modified or supplemented and in effect from time to time, is
referred to as the "Project Scope"), to generate and provide to the Complex:
(a) chilled water ("Chilled Water Services"), (b) hot water ("Hot Water
Services"), and (c) primary and secondary AC electricity (up to and including
the initial transformation) generated both by the Northwind Facilities and
third party sources of electricity
<PAGE>
("Electricity Services", and together with Chilled Water Services and Hot
Water Services, the "Services"), in capacities which are set forth in Exhibit
A. The characteristics and capacities of the Northwind Facilities have been
agreed upon by the Parties pursuant to the statement of projected energy
requirements for the Complex under the heading "Contracted Demand" set forth
in Exhibit B hereto. (The definitive specifications of the Plant Energy
Requirements are set forth in Exhibit B.1 and the Customer Energy
Requirements are set forth in Exhibit B.2. Exhibit B.1, as it may be
amended, restated, modified or supplemented and in effect from time to time,
is referred to as the "Energy Requirements.")
(b) SERVICES. Subject to the provisions of the Development
Agreement, which govern the Supplier's obligation to engineer, design and
construct the Northwind Facilities, the Supplier agrees that it will provide
Initial Services up to the Initial Energy Requirements to the Customer on the
Initial Services Date and Services to the Customer on the Substantial
Completion Date up to the Energy Requirements.
With respect to Electricity Services, the Northwind Facilities
shall be capable of generating 4.9 megawatts. The Supplier shall have the
sole responsibility for procuring from third party electricity sources, and
providing to the Customer up to the Specified Demand Amount in effect from
time to time, the Electricity Services whether or not generated by the
Northwind Facilities.
(c) EXCLUSIVITY; RIGHT OF FIRST REFUSAL. The Supplier agrees
that, so long as the Customer is not in default hereunder and subject to the
provisions of the following paragraphs of this Section 2.1(c), the Customer
shall have first call on that portion of the Services produced and procured
by the Northwind Facilities necessary to serve the Customer Energy
Requirements set forth in Exhibit B.1. The Customer agrees that, for the
term of this Agreement and thereafter so long as this Agreement remains in
effect, it shall purchase all of its requirements for Services from the
Supplier, except to the extent that, (i) the Customer's requirements for
Services exceed its allocated portion of Services as set forth in Exhibit B.1
and the Supplier does not agree to supply such excess in accordance with this
Section 2.1, or (ii) the Supplier does not supply such Services for any
reason.
If the Northwind Facilities are being operated to meet the Energy
Requirements and the Customer determines that its requirements for one or
more Services exceed those set forth in Exhibit B.1, and if the Northwind
Facilities are then able to supply such additional requirements of Services
(the "Additional Services") and the Supplier has not entered into commitments
to sell such Services to
<PAGE>
anyone else other than the Complex Energy Service Agreements, which, while
this Agreement is in effect, the Supplier shall not do without the prior
written consent of the Customer, then the Customer shall have the obligation
to purchase all the Additional Services from the Supplier except as otherwise
permitted by this Section 2.1 and Section 6.1(c) and Section 6.3, and the
Supplier shall be obligated to supply the Additional Services.
In the event that the Customer shall determine that its Services
requirements exceed those set forth in Exhibit B.1 hereto and the provision
of such Services would not require the Plant to exceed the capacities set
forth on Exhibit A hereto and the Supplier has not entered into commitments
to sell such Services to third parties, in accordance with the terms hereof,
then the Supplier shall provide such Services to the Customer at the existing
rates comprising the Consumption Charges applicable to such Services, and
without any increase in the Capacity Charges payable hereunder.
In the event that the Customer shall determine that its Services
requirements exceeds those set forth in Exhibit B.1 hereto and such Services
requirements would cause the Plant to exceed the capacities set forth in
Exhibit A hereto, then the Customer will negotiate in good faith with the
Supplier to reach agreement as to the terms and conditions upon which the
Supplier will provide Additional Services, in accordance with Section
2.1(c)(i)-(v) of this Agreement. Customer may simultaneously solicit bids
from other sources of energy services. Supplier shall have the right to
match the terms and conditions of the lowest tender or proposal within the
bid process set forth below. The terms and conditions of the bid process
shall be as follows:
(i) the Customer shall prepare a statement (the
"Additional Services Request") setting forth specifics of the amount and type
of the Additional Services which the Customer desires to obtain, the period
for which the Additional Services are to be obtained, the date (or dates)
upon which such Services are to commence, any changes to the Customer's
equipment which are contemplated or intended to be made in connection
therewith and such other information as may be relevant, and shall provide a
copy of the Additional Services Request to the Supplier and request the
Supplier to consider providing the Additional Services in accordance with the
Additional Services Request. In the event that the Supplier shall desire
additional information or specifications concerning the matter, the Supplier
shall request such information or specifications in writing and the Customer
shall thereafter provide such additional information or specifications to the
Supplier as
<PAGE>
soon as reasonably possible following such request and the Additional
Services Request shall be deemed modified or supplemented to include the same;
(ii) if the Supplier determines that it will offer to
provide the Additional Services requested, then the parties shall negotiate
in good faith the terms upon which the Additional Services shall be provided,
including the amount of additional Contract Capacity Charges payable as a
result of changes to the Plant and increased operations expenses only and
additional Consumption Charges which will be payable by the Customer in
respect thereof and upon reaching agreement with respect thereto the parties
shall thereupon take all actions which are necessary to implement and carry
out such agreement, including negotiating and executing any relevant
documents or agreements (or amendments to existing documents and agreements)
including an appropriate amendment to the Project Scope and to the Contract
Capacity Charge and the Consumption Charges;
(iii) in addition to the above paragraphs (i) and (ii), the
Customer may simultaneously provide the Additional Services Request to any
other Person or Persons and solicit offers to provide the Additional Services
from such other Person or Persons and if any of such other Persons responds
with an offer to provide the Additional Services and the Customer determines
that it intends to accept such an offer, then the Customer shall give written
notice thereof to the Supplier which notice shall include a summary of the
terms and conditions of the offer which the Customer intends to accept (the
"Offer"). In the event that the Supplier desires additional information or
clarification concerning the Offer, the Supplier shall request the same in
writing within four (4) days of the date upon which it receives the
notification and the Customer shall thereafter provide such additional
information or clarification to the Supplier as permitted under the terms of
the Offer as soon as reasonably possible following such request and the Offer
shall be deemed modified or supplemented to include the same;
(iv) the Supplier shall have ten (10) days from the date
upon which it receives the notification (or ten (10) days from the date upon
which it receives any additional information or clarification requested)
under clause (iii) above that the Customer intends to accept the Offer to
determine if the Supplier is willing to provide the Additional Services on
the terms of the Offer and, if it is so willing, to so indicate to the
Customer by written notice thereof to the Customer (the "Notice of Exercise")
given within such ten (10) day period stating that the Supplier will provide
the Additional Services on the terms and conditions set forth in the Offer,
whereupon the Supplier shall be deemed to have made an offer to the Customer
to provide the Additional Services on the terms and conditions set forth in
<PAGE>
the Notice of Exercise and the Offer and the Customer shall be deemed to have
accepted such offer by the Supplier. Notwithstanding anything to the contrary
contained herein, if the Supplier is unwilling or unable to match the Offer,
the Customer shall have the right to purchase the Additional Services from
such other Person or Persons;
(v) the Customer and the Supplier shall thereupon take
all actions which are necessary to implement and carry out the arrangements
and undertakings contemplated by the Notice of Exercise and the Offer,
including negotiating and executing any relevant documents or agreements (or
amendments to existing documents and agreements), including an appropriate
amendment to the Project Scope and to the Contract Capacity Charge and the
Consumption Charges.
In the event that any Additional Services Request contemplates
increasing services in two or more phases, then, unless the Supplier and the
Customer shall then agree otherwise, each such phase shall be deemed to be
subject to a distinct right of first refusal hereunder and the Customer shall
be required to comply with the procedures set forth herein with respect to
each such phase.
(d) PERFORMANCE. At all times while this Agreement is in
force, but subject to the terms hereof, the Supplier will operate the
Northwind Facilities to comply with the Project Scope and all applicable
federal, state and local codes, laws, rules and regulations. The Supplier's
obligations will include, but not be limited to, (i) performing all
day-to-day operations, routine testing, normal maintenance, service and
repair of the Northwind Facilities; (ii) the estimating, scheduling,
coordinating and monitoring the performance of any extraordinary service,
maintenance, repair, improvement or modification to the Northwind Facilities;
(iii) carrying out such performance tests of equipment as is required under
this Agreement or otherwise reasonably requested by the Customer; (iv)
coordinating maintenance and power deliveries with the Customer and (v)
providing for the handling and disposal of chemicals and hazardous materials
at and from the Site; and (vi) subject to Section 5.7, obtaining and
maintaining all required licenses, permits, approvals and clearances to
provide the Services and operate the Northwind Facilities. The Supplier
shall at all times maintain the appropriate operating personnel at the
Northwind Facilities, twenty four (24) hours per day, seven (7) days per
week. The Supplier agrees to coordinate matters with those parties designated
by the Customer to be the Customer's representative with respect to this
Agreement or portions thereof.
<PAGE>
The Customer shall have the right, upon at least twenty four (24)
hours' advance notice, or no notice in the event of an emergency, to inspect
the operation of the Northwind Facilities during normal business hours and to
review the Supplier's maintenance and operating records to assure compliance
with this Section 2.1(d).
2.2 CHILLED WATER.
(a) Commencing on the Commencement Date, the Supplier agrees to
supply at the Chilled Water Delivery Point and the Customer agrees to
purchase the Customer's requirements of Chilled Water Service up to the
capacity or capacities described in Exhibit B.2 under the heading "Contracted
Demand". Chilled water the Supplier provides under this Agreement shall not
be intermixed by the Customer with any other water or other substances
without the prior written consent of the Supplier, which consent shall not be
unreasonably withheld.
(b) The Supplier shall ensure that the chilled water is
delivered to the Chilled Water Delivery Point at a design temperature of not
more than 36 degrees Fahrenheit, measured at the Chilled Water Delivery Point.
(c) Provided that the Supplier is in compliance with Section
2.2(b) above, the Customer will ensure that all chilled water supplied
hereunder is returned to the Supplier at the Chilled Water Return Point at a
temperature not less than 20 degrees Fahrenheit in excess of the temperature
at which such chilled water was supplied and otherwise uncontaminated in any
material respect and in the condition in which it was received. In the event
Customer fails to comply with this Section 2.2(c), the Supplier may elect, as
its sole remedy (other than as set forth in Section 6.2(a) and Section 6.3(a)
with respect to a Payment Default), to determine the actual cost(s) to the
Supplier of such failure and invoice the Customer on the next monthly invoice
under Section 2.7 for such amount(s) as additional Consumption Charges
hereunder. In such event, the Supplier shall notify the Customer of such
action and such invoice(s) shall be accompanied by detailed calculations
demonstrating the manner in which such additional Consumption Charges have
been determined, and such additional Consumption Charges shall thereupon be
payable in accordance with Section 2.8.
2.3 HOT WATER.
(a) Commencing on the Commencement Date, the Supplier agrees to
supply at the Hot Water Delivery Point and the Customer agrees to
<PAGE>
purchase the Customer's requirements of Hot Water Services up to the capacity
or capacities described in Exhibit B under the heading "Customer Energy
Requirements." Hot water the Supplier provides under this Agreement shall
not be intermixed by the Customer with any other water or other substances
without the prior written consent of the Supplier, which consent shall not be
unreasonably withheld.
(b) The Supplier will ensure that the hot water is delivered to
the Hot Water Delivery Point at a design temperature of not less than 180
degrees Fahrenheit, measured at the Hot Water Delivery Point.
(c) Provided that the Supplier is in compliance with Section
2.3(b) above, the Customer will ensure that all hot water supplied hereunder
is returned to the Supplier at the Hot Water Return Point at a temperature at
least 35 degrees Fahrenheit less than the temperature at which it was
delivered and otherwise uncontaminated in any material respect and in the
condition in which it was received. In the event Customer fails to comply
with this Section 2.3(c), the Supplier may elect to determine the actual
cost(s) to the Supplier of such failure and invoice the Customer on the next
monthly invoice under Section 2.7 for such amount(s) as additional
Consumption Charges hereunder. In such event, the Supplier shall notify the
Customer of such action and such invoice(s) shall be accompanied by detailed
calculations demonstrating the manner in which such additional Consumption
Charges have been determined, and such additional Consumption Charges shall
thereupon be payable in accordance with Section 2.8.
2.4 ELECTRICITY. Commencing on the Commencement Date, the Supplier
shall make available at the Electricity Delivery Points electricity to meet
all of the Customer's primary and secondary AC electricity (up to and
including the initial transformation -- i.e., immediately prior to the
Customer Interconnection Equipment) needs for the Premises, up to the
Specified Demand Amount then in effect.
2.5 CHARGES. In consideration of the Supplier's undertakings
hereunder, the Customer shall pay to the Supplier, when and in the manner
required by Section 2.8, the following charges, as the same may be adjusted
from time to time pursuant to Section 2.6 and any other applicable provisions
of this Agreement:
(a) CONTRACT CAPACITY CHARGE - a monthly Contract Capacity
Charge for Customer's share of the capital cost of the Plant determined in
accordance with Exhibit C hereto, as the same may be amended, restated,
modified or supplemented and in effect from time to time, for each month or
portion thereof
<PAGE>
occurring after the Commencement Date, whether or not any Services are taken
by the Customer during such month; and
(b) CONSUMPTION CHARGE - a monthly Consumption Charge for
Services actually taken by the Customer during each month or portion thereof
occurring after the Substantial Completion Date, determined in accordance
with Exhibit C hereto, as the same may be amended, restated, modified or
supplemented and in effect from time to time, for each month or portion
thereof occurring after the Substantial Completion Date.
The Contract Capacity Charge shall be paid by the Customer monthly in
accordance with Section 2.8 so long as this Agreement remains in force and
has not been terminated, whether or not the Customer actually takes or uses
any Services and, except as provided for in Section 6.1(c), whether or not
there shall exist a default by the Supplier in any of its obligations
hereunder.
2.6 ADJUSTMENTS.
(a) On each annual anniversary of the Commencement Date, the
Contract Capacity Charge and the Consumption Charges for the Contract Year
then beginning shall be adjusted as set forth in Section 2.6 (b) and in
accordance with Exhibit C.
(b) The Supplier shall adjust the Contract Capacity Charge
payable during the remaining term hereof then in effect and the Consumption
Charges to reflect any changes in Supplier's costs of providing any Service
that results directly from the adoption or modification of any applicable
laws, rules or regulations of any governmental authority, or from any change
in the interpretation by any court, tribunal or regulatory agency of any such
applicable laws, rules or regulations or any other Force Majeure Event, after
the date of this Agreement, and such adjustment shall become effective
immediately upon notice of the adjustment to Customer.
2.7 SERVICE INVOICES. On or about the first day of each month,
beginning with the first month which commences after the Substantial
Completion Date, the Supplier shall deliver to the Customer a monthly invoice
which reflects any Consumption Charges for the prior month just ended.
Beginning with the first invoice delivered following the Commencement Date,
such invoice shall also reflect the Contract Capacity Charge for the month
then beginning and any other amounts then owing by the Customer under this
Agreement. In the event that the
<PAGE>
Commencement Date is a date other than the first day of a calender month,
then the first invoice for Contract Capacity Charges shall also include a
prorated Contract Capacity Charge for the portion of the immediately
preceding month occurring after the Commencement Date. In the event that the
term of this Agreement ends on a date other than the first day of a calender
month, then the Contract Capacity Charge for the final month shall be
prorated accordingly.
2.8 PAYMENT. Payment of each invoice shall be due in full, on or
before the thirtieth (30th) day following the date each invoice is received
by the Customer (each a "Due Date"). The Customer shall make each payment
invoiced by the Supplier when due without any further notice or demand,
without offset of any kind, and irrespective of dispute to the amount of such
invoice or otherwise, except as provided for in Section 6.1(b). In addition
to any actions which the Supplier may take during the continuance of a
Customer Default, whether at law or in equity or otherwise, a service charge
shall be imposed if payment of an invoice is not received within thirty (30)
days after such invoice is delivered to the Customer equal to one and
one-half percent (1.50%) per month, or the maximum legal rate, whichever is
less, on the unpaid balance of such invoice for the period from the fifteenth
(15th) day after such invoice was delivered through and including the date of
payment thereof (calculated using actual days elapsed and a year of 365 or
366 days, as applicable).
2.9 TAXES. In addition to the Contract Capacity Charges and the
Consumption Charges payable hereunder, the Customer will pay all Taxes,
including, without limitation, any Taxes which the Supplier is required to
collect, except to the extent that such Taxes have been included in
determining the Contract Capacity Charges then payable.
ARTICLE 3
MAINTENANCE OF EQUIPMENT, SYSTEMS AND METERS
3.1 MAINTENANCE OF SUPPLIER INTERCONNECTION EQUIPMENT.
(a) At all times while this Agreement is in force, the Supplier
shall operate and maintain the Supplier Interconnection Equipment, in
accordance with the O&M Specifications. If any of the Supplier
Interconnection Equipment is damaged or destroyed as a direct result of the
acts of the Customer or its agents, employees, tenants, customers,
contractors or other Persons for whom the Customer is responsible, then the
Customer shall be liable for the cost of the required repair or replacement.
<PAGE>
(b) The Supplier, its agents and employees will not authorize
or knowingly permit any Person, except a duly authorized employee or agent of
the Supplier or the Customer, to operate, maintain, alter or otherwise affect
the Supplier Interconnection Equipment or any component thereof or any
equipment of the Customer, to break or replace any seal or lock of the
Supplier or the Customer, or to alter or interfere with the operation of any
item of equipment installed by the Customer.
(c) The Supplier will not modify the Supplier Interconnection
Equipment in any material respect without the prior written consent of the
Customer, which consent shall not be unreasonably withheld. The Supplier's
operations or equipment shall not adversely affect the Customer's ability to
receive the Services in accordance with the provisions hereof and the
Exhibits attached hereto and, in the event they do, the Supplier shall, at
its own expense, except as set forth in Section 3.2, make such reasonable
changes in its operations or equipment as are necessary to restore capacity
in respect of the Services.
3.2 CUSTOMER'S EQUIPMENT.
The Customer will notify the Supplier of substantial
modifications it makes to the operating equipment and systems of the Premises
and will be responsible for the maintenance of such equipment and systems.
The Customer will not modify its equipment so as to adversely affect the
Supplier's ability to deliver or the Customer's ability to receive the
Services, or, if it does, the Customer shall, at its own expense, make such
reasonable changes in its equipment as are necessary to permit the Supplier
to deliver, and the Customer to receive, the Services in the capacities
required hereby.
3.3 METERING.
(a) The Supplier will provide metering equipment to measure the
delivery of electricity to the Customer, the quantity of chilled water and
hot water delivered to the Customer and the temperature at the Chilled Water
Delivery Points and the Hot Water Delivery Points, respectively, of the
chilled water and hot water being delivered to, and returned by, the
Customer. Electrical meters shall be placed on the secondary site of each
transformer, and the results of the electrical metering shall be based on
coincidental demand. All metering equipment will be furnished, paid for,
owned and maintained by the Supplier. All such metering equipment shall be
of the type which provides, and preserves a continuous flow of the relevant
data
<PAGE>
twenty four (24) hours per day; all parties shall have full right of access
to all such data and printouts thereof at all times and without reference to
the other parties. The Supplier will regularly test its metering equipment
in accordance with the manufacturer's recommendations but not less than two
(2) times per year and, if requested by the Customer, will conduct such tests
in the presence of a representative of the Customer. All testing shall
include recalibration. If requested by the Customer, the Supplier will
conduct such testing on additional occasions; PROVIDED, that unless such
testing indicates that the tested equipment provides metering results which
are inaccurate by three percent (3%) or more with respect to water or by
one-half of one percent (0.5%) or more with respect to electricity in a
manner which is adverse to the Customer, the Customer will pay all
out-of-pocket costs and expenses incurred by the Supplier in conducting such
additional tests. The Supplier will maintain an accurate log or record of
all tests, whether initiated by the Supplier or the Customer, and will make
the results of such tests available in a comprehensible manner to the
Customer promptly upon request.
(b) If any test of the metering equipment reveals equipment
that has failed to accurately record consumption of the Services metered
thereby, the Supplier shall restore such metering equipment to a condition of
accuracy or replace it. If the metering equipment is in error by three
percent (3%) or more with respect to water or by one-half of one percent
(0.5%) or more with respect to electricity, then the Supplier will repair or
replace such defective metering equipment within a reasonable period after
receiving notice or becoming aware thereof and an adjustment shall be made in
respect of the Consumption Charges for such Service in accordance with clause
(d) below.
(c) The regular meter reading and billing period will be
monthly. If more than one meter is installed on the Premises, the readings of
all meters will be used in calculating the invoice with respect thereto.
(d) If the Supplier's metering record is interrupted at any
time for any reason, or is found to be inaccurate and in need of repair or
replacement under Section 3.3(b), the measurement of Services to be billed
for such period of interruption, or for the period from the last test of the
affected meters which shows them to have been operating within the acceptable
limits of error under Section 3.3(b) through the date upon which such meters
are corrected, will be estimated by the Supplier, acting reasonably, based
upon past Customer usage during a similar period and under similar conditions
if such information is available (and if such information is not available,
based upon fuels consumed during such period and any other relevant
information and/or bases which may reasonably be used for such
<PAGE>
purpose in the circumstances), and the Customer will pay invoices during such
period based on the estimated measurement; subject to the Customer's right to
withhold up to $12,500 in the aggregate from invoices based on estimates in
any such period and dispute the same in good faith if the Customer reasonably
disagrees with such estimated measurement.
(e) The Customer will provide to Supplier, without charge,
adequate space, power and access on the Premises for the housing and
maintenance of all metering and related equipment and other equipment related
to the delivery of Energy which the Supplier provides to comply with its
obligations hereunder; PROVIDED, however, that the Supplier shall act in
accordance with all reasonable safety and security rules, regulations and
policies then in effect on the Customer's property or other reasonable rules
or requirements which the Customer may impose, and the Supplier's use shall
in no way materially adversely affect the Customer's other activities at the
Premises.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 MUTUAL REPRESENTATIONS.
(a) Each party represents and warrants to the other that it has
the requisite limited-liability company capacity to enter into this Agreement
and fulfill its obligations hereunder, that the execution and delivery by it
of this Agreement and the performance by it of its obligations hereunder have
been duly authorized by all requisite action of its members, and by its board
of directors or other governing body, and that, subject to compliance with
any applicable regulatory laws or regulations governing the sale or delivery
of the Services, the entering into of this Agreement and the fulfillment of
its obligations hereunder does not contravene any law, statute or contractual
obligation of the party giving the representation or warranty.
(b) Each party represents and warrants to the other that no
suit, action or arbitration, or legal administrative or other proceeding is
pending or has been threatened against the representing party that would
affect the validity or enforceability of this Agreement or the ability of the
representing party to fulfill its commitments hereunder, or that could result
in any material adverse change in the business or financial condition of the
representing party.
<PAGE>
4.2 SUPPLIER REPRESENTATIONS. The Supplier hereby represents and
warrants to the Customer that, as of the date of this Agreement, the Supplier
is an indirect wholly-owned subsidiary of Unicom Corporation.
4.3 SUPPLIER COVENANTS.
(a) CONTINGENCY PLAN. The Supplier covenants that it shall be
responsible for developing a written contingency plan, with the technical
assistance of the Customer, setting forth an agreed upon process for dealing
with interruptions to Services, which contingency plan shall have as its goal
minimizing the duration and effect of such interruptions to Services.
Because the contingency plan may require the purchase or lease of equipment,
the parties shall use their best efforts to agree upon the contingency plan
on or before the date upon which the "Guaranteed Maximum Plant Price" is
fixed under the Development Agreement. If the parties are unable to agree
upon the contingency plan on or before such date, then the Supplier shall be
entitled to require an increase in the Guaranteed Maximum Plant Price with
respect to any items required by the final contingency plan agreed upon which
terms were not included in determining the Guaranteed Maximum Plant Price.
In order to facilitate the process of establishing the contingency plan,
within 120 days after the date of receipt of the Notice to Proceed by the
Supplier, the Supplier will prepare an initial draft thereof and provide the
same to the Customer, which, within fifteen (15) days of receipt thereof,
shall review the same and provide written comments with respect thereto to
the Supplier, or, if the Customer deems such plan to be satisfactory, then
the Customer shall provide written confirmation of such satisfaction to the
Supplier within such fifteen (15) day period. (In the absence of any written
comments from the Customer within such fifteen (15) day period, the Supplier
shall be entitled to presume that the Customer is satisfied with such plan as
provided.) In the event that the Customer provides comments, the parties
will meet to review the same and seek in good faith to incorporate such
comments into the agreed final plan.
(b) OWNERSHIP OF NORTHWIND. The Supplier covenants that it
shall not permit any transfer of any membership interest in the Supplier by
the sole member of the Supplier as of the date of this Agreement, and not to
issue any new membership interests in the Supplier, except as provided for in
Section 10.2, without the prior written consent of the Customer (such consent
not to be unreasonably withheld).
(c) THIRD PARTY ENERGY SERVICE AGREEMENTS. The Supplier
covenants that it shall not modify the Energy Service Agreement entered into
by the
<PAGE>
Supplier with Music without Customer's prior written consent, provided such
consent is not unreasonably withheld (provided, however, that Customer's
consent shall not be required in the event of a Payment Default), and that
such Agreement is in force substantially identical to this Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 CONDITIONS PRECEDENT TO EFFECTIVENESS.
(a) The Supplier and the Customer agree that this Agreement and
the obligations of the parties hereunder shall not become effective until
each of the following conditions has been satisfied:
(i) all exhibits to this Agreement shall have been agreed
upon in definitive form, initialed by the parties and attached hereto, it
being agreed and acknowledged that certain of the exhibits attached hereto on
the date of execution of this Agreement have been identified as "preliminary"
and are subject to further refinement as agreed by the parties, within
specified applicable time limits identified herein, in connection with
finalization of the plans and specifications for the Premises;
(ii) the Supplier shall have entered into a construction
agreement in form and terms reasonably satisfactory to the Supplier providing
for the construction of the Northwind Facilities; and
(iii) Financial Closing shall have occurred and the
Customer shall have become the fee owner of the "Aladdin Lands" (as such term
is defined in the Development Agreement), subject to any Customer
obligations to convey portions thereof to Bazaar and Music.
(b) In addition, it shall be a condition precedent to the
initial obligation of the Supplier to deliver any Service hereunder on the
date when such Service is first required to be provided by it hereunder that
(i) the Customer shall have complied in all material respects with all of its
covenants and Agreements contained herein to be complied with during the
period from the date hereof to the date upon which such Service is to be
delivered, and (ii) the Customer shall have provided to the Supplier evidence
reasonably satisfactory to the Supplier that the Customer has obtained or is
or will use all reasonable efforts to obtain all clearances, permits,
licenses and approvals which are necessary for the Customer to construct
<PAGE>
and/or operate the Premises as contemplated hereby and receive such Services
from the Supplier as of such date.
(c) In addition, it shall be a condition precedent to the
initial obligation of the Customer to receive any Service hereunder on the
date when such Service is first required to be provided hereunder or to pay
Contract Capacity Charges or Consumption Charges otherwise required to be
received by it hereunder that: (i) the Supplier shall have complied in all
material respects with all of its covenants and Agreements contained herein
to be complied with during the period from the date hereof to the date when
such Service is to be delivered, and (ii) the Supplier shall have provided to
the Customer evidence reasonably satisfactory to the Customer that the
Supplier has obtained or will use all reasonable efforts to obtain all third
party clearances, permits, licenses and approvals which are necessary for the
Supplier to construct and/or operate the Northwind Facilities as contemplated
hereby.
5.2 INSURANCE. The respective insurance requirements for the
Supplier and the Customer are set forth in Exhibit E attached hereto, and
shall be maintained throughout the term of this Agreement. The liability of
each party under this Agreement to the other party shall not be diminished by
the insurance limitations set forth in said Exhibit E, except as set forth in
below in this Section 5.2. All insurance policies required by this Section
shall provide that such policies may not be cancelled or terminated without
thirty (30) days prior written notice to the Customer, Customer's lenders and
the Supplier. All liability insurance policies of Supplier and all insurance
policies of Customer shall name the Customer's lender as an additional
insured.
Each party hereto agrees that the insurance described above to be
provided by the other party may be provided through blanket coverages which
may be provided in whole or in part through a policy or policies covering
other liabilities and locations of the party obligated to provide such
insurance and its affiliates.
Each party hereby releases, to the extent legally possible for it
to do so without invalidating its insurance coverages, for itself and on
behalf of its insurer, the other party hereto and its respective officers,
directors, agents, members, partners, servants and employees from liability
for any loss or damage to any or all property located on the Aladdin Lands
which loss or damage is of the type and within the limits covered by the
"all-risk" property damage insurance and other property/casualty insurance
which the parties have agreed to obtain and maintain in effect pursuant to
this Section 5.2, irrespective of any negligence on the part of the
<PAGE>
released party and its respective officers, directors, agents, members,
partners, servants or employees, which may have contributed to or caused such
loss or damage. Each party covenants that it will, if available, obtain for
the benefit of the other party and its officers, directors, agents, members,
partners, servants and employees, a waiver of any right of subrogation which
the insurer of such party may acquire against such party by virtue of the
payment of any such loss covered by insurance. In the event a party is by
law, statute or governmental regulation unable to obtain a waiver of the
right of subrogation for the benefit of the other party (and its respective
officers, directors, agents, members, partners, servants and employees), or
its insurance carriers will not give such a waiver, or its property/casualty
insurance will be invalidated or terminated by the waiver and release set
forth in the first sentence of this paragraph, then, during any period of
time when such waiver is unobtainable, said party shall not have been deemed
to have released any subrogated claim of its insurance carrier against such
party (or its respective officers, directors, agents, members, partners,
servants and employees), and during the same period of time, such other party
shall not have been deemed to have released the party which has been unable
to obtain such waiver (or such party's respective officers, directors,
agents, members, partners, servants, or employees) from any claims it or its
insurance carrier may assert which otherwise would have been released
pursuant to this Section 5.2.
5.3 CONFIDENTIAL INFORMATION. The Customer and the Supplier each
agree to treat in confidence all information regarding this Agreement and the
performance by the parties of their obligations hereunder and all information
which either the Customer or the Supplier will have obtained from the other
party in contemplation of entering into, or in the performance of, this
Agreement and not make any use of any of such information for any purpose
other than complying with its obligations under this Agreement and the
Related Agreements. Such information will not be communicated to any Person
other than the Customer, the Supplier, Aladdin Bazaar, LLC and Aladdin Music,
LLC and their respective officers, directors, employees, members, agents,
attorneys and professional consultants, except to the extent disclosure of
such information:
(a) is required by law or governmental authority;
(b) is made by a party pursuant to litigation in which such
party is a party;
<PAGE>
(c) is made to any lender or prospective lender to such party
(PROVIDED such lender or prospective lender agrees in writing to keep such
information confidential on the terms set forth in this Section 5.3); or
(d) is made to a Person under contract with the disclosing party,
or to which the disclosing party wishes to sell or assign all or part of its
business or an equity interest in such Person in a transaction permitted hereby,
which Person has given a confidentiality undertaking which is substantially
similar to this one.
If either party is required to disclose confidential information pursuant to
clause (a) above, such party will take reasonable steps to limit the extent
of the disclosure and to make such disclosure confidential under the
circumstances and will, to the extent it reasonably can do so in the
circumstances, afford the other party hereto notice of such request for
disclosure so as to permit such other party to seek an appropriate protective
order or other means by which such information may be maintained in
confidence pursuant to such disclosure. Information provided by a party
hereunder will remain the sole property of the party providing such
information. The obligation of each party to treat in confidence, and not to
use, information which it will have obtained from the other party will not
apply to any information which (x) is or becomes available to such party from
a source not otherwise under obligations of confidentiality with respect
thereto, other than the party providing such information, or (y) is or
becomes available to the public other than as a result of disclosure by such
party or its agents in breach of this Section 5.3.
5.4 FINANCIAL INFORMATION. The Customer agrees to provide to the
Supplier from time to time the following financial information concerning the
Customer:
(a) copies of all definitive documentation governing
indebtedness incurred by the Customer to finance (or refinance) the
construction of the Premises;
(b) until such time, if ever, as the Customer becomes a
reporting company under the Securities Exchange Act of 1934, as amended (or
any successor statute thereto), copies of all monthly, quarterly and annual
financial statements and forecasts which the Customer is obligated to provide
to its lenders or to the trustee in respect of the 13.5% Senior Discount
Notes Due 2010 to be issued by certain Affiliates of the Customer, which
financial statements and forecasts will be provided concurrently or promptly
after they are provided to such lenders and/or such trustee;
<PAGE>
(c) in the event that the Customer or its parent entity shall
file a registration statement under the Securities Act of 1933, as amended
(or any successor statute thereto), the Customer will provide a copy of such
registration statement (including any preliminary prospectus contained
therein) to the Supplier promptly after the same has been filed with the
United States Securities and Exchange Commission, or any successor entity
thereto (the "SEC"); and
(d) from and after the date, if ever, upon which the Customer
or its parent entity shall become a reporting company under the Securities
Exchange Act of 1934, as amended (or any successor statute thereto), in lieu
of the financial statements required by the preceding clause (b), the
Customer will provide to the Supplier, by hard copy or electronically,
promptly after filing of the same with the SEC, copies of all reports and
financial statements filed with the SEC, including, but not limited to, any
reports on any of Form S-K, Form 10-K or Form 10-Q and any annual reports to
shareholders.
All such financial information, other than information which is contained in
filings with the SEC, shall be received and held in confidence and shall not
be used or disclosed by the Supplier except as permitted by Section 5.3
hereof with respect to the confidential information provided by the Customer
to the Supplier.
5.5 TRANSFER OF INFORMATION TO CUSTOMER PURSUANT TO SALE. The
Supplier hereby agrees that in the event that the Customer acquires the
Northwind Facilities pursuant to Section 6.3, 6.4 or 9.3, the Supplier will
provide the Customer with copies of all specifications, manufacturers'
warranties, design drawings, operating manuals and maintenance records for
the Northwind Facilities, as well as other information concerning the design,
operation and maintenance of the Northwind Facilities which are in the
possession or control of the Supplier and which are relevant or reasonably
necessary to the Customer's ownership or operation of the Northwind
Facilities and will transfer to the Customer all of the Supplier's right,
title and interest in and to such materials and items, which transfer shall
be without recourse and without representation or warranty as to title to any
such materials or items.
5.6 FUEL AND ELECTRICITY ARRANGEMENTS. From time to time, as the
Customer may reasonably request, the Supplier shall provide the Customer with
information concerning the Supplier's arrangements then in effect with
respect to the purchase of fuels for use in providing Services hereunder and
with respect to obtaining electricity from third party providers. The
Supplier agrees that it shall use
<PAGE>
best efforts to obtain economical and reliable sources of fuels and
electricity from third party providers.
5.7 REGULATORY COMPLIANCE RE ELECTRICITY.
(a) The provisions of this Section 5.7 shall not in any way
affect the obligation of the Supplier to construct and demonstrate "Final
Completion" (as such term is defined in the Development Agreement) of the
Northwind Facilities, or to provide Chilled Water Service or Hot Water
Service or to procure and provide to the Customer electricity up to the
Specified Demand Amount applicable from time to time under this Agreement.
The parties acknowledge that the generation, distribution, transmission
and/or sale of Electricity Services by the Supplier hereunder may cause the
Supplier and/or its Affiliates to be subject to compliance with or obtaining
exemption from certain federal and Nevada laws and regulations. The Supplier
agrees, for itself and its Affiliates, subject to Section 5.7(b) hereof, to
comply with, or obtain the necessary exemption from, any applicable laws and
regulations affecting the Supplier's generation, distribution, transmission
and/or sale of Electricity Services hereunder such that, on the Substantial
Completion Date, the Supplier will lawfully be able to provide, or cause to
be provided, such Electricity Services to the Customer. The Customer, in
turn, agrees to comply with any request of the Supplier which the Customer,
in its good faith judgment, deems reasonable in connection with such
regulatory compliance, including, without limitation, a request to amend this
Agreement, the Lease or the Development Agreement in any way reasonably (in
the good faith judgment of the Customer) necessary in the circumstances, so
long as, as a result thereof, (i) the reliability of the Electric Services
provided to the Customer is not adversely affected, (ii) the Supplier's
responsibility to comply with its obligations in accordance with this
Agreement, the Development Agreement and the Lease remains in full force and
effect, (iii) the fees paid by the Customer pursuant to this Agreement are
not increased, and (iv) the Customer's costs and expenses of any such action
will be borne solely by the Supplier, providedthat this subsection (iv) shall
not apply to the extent such action becomes reasonably necessary, in whole or
in part, as a result of a change in the Customer's circumstances.
(b) The Customer agrees that, provided the Supplier uses best
efforts to comply or obtain any necessary exemption from any applicable
federal and Nevada laws and regulations, the Supplier need not become a
"public utility" under Nevada law in order to comply with its obligations
under this Agreement and Unicom Corporation need not, solely as a result of
Supplier's compliance with its obligations under this Agreement, become a
registered holding company pursuant to
<PAGE>
the Public Utility Holding Company Act of 1935 ("PUHCA"), as amended.
Subject to the foregoing, the Customer and the Supplier agree to the
following:
(i) Notwithstanding any other provisions in this Agreement,
from the Substantial Completion Date to March 1, 2000, the Supplier shall
only be obligated to provide the Customer with electricity produced by the
Northwind Facilities;
(ii) The Supplier shall use best efforts to ensure that on or
before March 1, 2000 it will be able to provide to the Customer, pursuant
to the terms of this Agreement, the Electricity Services as defined in
Section 2.1; best efforts shall not include requiring the Supplier to
become a "public utility" under Nevada law, but shall include, if
necessary to meet the Supplier's obligations, certification of the
Northwind Facilities as a "Qualifying Facility" as defined in the Public
Utility Regulatory Policies Act of 1978, as amended, and the regulations
implementing such Act promulgated by the Federal Energy Regulatory
Commission, as amended; provided that in order to certify the Northwind
Facilities as a Qualifying Facility, the Supplier shall be permitted to
transfer a membership interest in the Supplier to a third party, provided
the Supplier obtains the Customer's prior written approval, such approval
not to be unreasonably withheld or delayed, and provided the Supplier
allows the Customer the right of first refusal to acquire the requisite
membership interest in the Supplier;
(iii) For so long as the Supplier is lawfully able to do so
without becoming a "public utility" under Nevada Law, after March 1, 2000,
the Supplier shall provide the Customer its Electricity Services, which
shall include both electricity generated by the Supplier and electricity
otherwise obtained by the Supplier for the Customer; provided, however
that such electricity not generated by the Supplier shall be provided by
the Supplier to the Customer pursuant to and as part of this Agreement; or
(iv) In the event the Supplier, despite its best efforts, is
unable to provide the Electricity Services without becoming a "public
utility" under Nevada Law or a registered holding company under PUHCA,
then after March 1, 2000:
1. the Supplier shall sell to the Customer and the
Customer shall purchase from the Supplier all electricity generated
by the Northwind Facilities;
<PAGE>
2. the Supplier shall be required to obtain on its
own behalf, from a third party, electricity required to serve the
Northwind Facilities;
3. the Customer shall contract with a third party of
its choosing to supply the Customer with the electricity required by
the Customer not generated by the Supplier at the Northwind
Facilities. Such contract shall be of the shortest term practicable
to ensure that the rates, terms and conditions thereof are
commercially reasonable (and the Customer and the Supplier shall use
reasonable efforts to coordinate their purchases under clauses (iv)2
and (iv)3 to seek to obtain advantageous rates);
4. the Supplier guarantees to the Customer that the
blended rate paid by the Customer after March 1, 2000 for
electricity, such blended rate to include the rate paid by the
Customer to the Supplier and by the Customer to the third party
Supplier pursuant to the previous subparagraph 3, shall be lower
than the rate then charged by Nevada Power Company to customers with
a load comparable to the Customer's load (the "Rate Standard"). The
Customer shall provide the Supplier with yearly statements, if
applicable, establishing that the blended rate paid by the Customer
for such year was not lower than the Rate Standard for such year.
In such event, and within thirty (30) days of receipt of such
statement, the Supplier shall make a payment to the Customer
sufficient to give the Customer a blended rate which is lower than
the Rate Standard.
(v) The Customer agrees that in the event the Supplier
subsequently becomes able to provide the total Electric Services to the
Customer without being considered a "public utility" under Nevada law,
then the Customer shall purchase the total Electricity Services from the
Supplier in accordance with the terms of this Agreement upon the
expiration of any third party contract(s) described above in Section
5.7(b)(iv)(3) then in effect.
ARTICLE 6
DEFAULTS AND REMEDIES
6.1 SUPPLIER DEFAULTS.
<PAGE>
(a) PERFORMANCE FAILURES.
(i) the occurrence of any of the following events shall
constitute a "Performance Failure":
1. if, at any time after the Substantial Completion
Date and for any reason other than a Force Majeure Event, chilled
water is not provided to the Supplier's side of the Chilled Water
Delivery Point at 13,905 gallons per minute and 42 degrees
Fahrenheit or lower;
2. if, at any time after the Substantial Completion
Date and for any reason other than a Force Majeure Event, hot water
is not provided to the Supplier's side of the Hot Water Delivery
Point at 2882 gallons per minute and 200 degrees Fahrenheit or
higher; or
3. if, at any time after the Initial Services Date
but prior to the Substantial Completion Date for any reason other
than a Force Majeure Event, chilled water is not provided to the
Supplier's side of a Chilled Water Delivery Point at 4800 gallons
per minute and 46 degrees Fahrenheit or lower.
(ii) ACTIONS TO BE TAKEN. Promptly upon becoming aware of a
Performance Failure (whether by notice thereof from the Customer or by the
Supplier's monitoring of its systems and the operation of the Northwind
Facilities or otherwise) the Supplier shall:
1. immediately seek to determine the cause of such
Performance Failure and shall apprise the Customer of the Supplier's
conclusion as to such cause as quickly as possible and provide the
Customer with a corrective action plan consistent with the
Contingency Plan, which the Supplier will implement at its sole cost
and expense where the Performance Failure is for any reason other
than a Force Majeure Event, except that such implementation with
respect to a Performance Failure described in Section 6.1(a)(i)3
will be at the Customer's expense, and use its best efforts to
accommodate any changes thereto which the Customer reasonably
requests;
<PAGE>
2. commence implementation of such corrective action
plan, using all best efforts to correct or cure such Performance
Failure in the shortest period of time;
(iii) ADDITIONAL MEASURES. In addition to the above,
immediately upon becoming aware of a Performance Failure, Supplier shall allow
Customer or Customer's agents immediate access to the Northwind Facilities and
permit Customer full inspection rights of the Northwind Facilities.
(b) SERVICE FAILURES.
(i) the occurrence of any of the following events shall
constitute a "Service Failure":
1. if, at any time after the Substantial Completion
Date and for any reason other than a Force Majeure Event, chilled
water is not provided to the Supplier's side of the Chilled Water
Delivery Point at 13,905 gallons per minute and 44 degrees
Fahrenheit or lower;
2. if, at any time after the Substantial Completion
Date and for any reason other than a Force Majeure Event, hot water
is not provided to the Supplier's side of the Hot Water Delivery
Point at 2882 gallons per minute and 190 degrees Fahrenheit or
higher;
3. if, at any time after the Substantial Completion
Date and for any reason other than a Force Majeure Event, primary
and secondary AC electricity (up to and including the initial
transformation) delivered to an Electricity Delivery Point is less
than the Specified Demand Amount then in effect;
4. if, at any time after the Initial Services Date
but prior to the Substantial Completion Date for any reason other
than a Force Majeure Event, chilled water is not provided to the
Supplier's side of the Chilled Water Delivery Point at 4800 gallons
per minute and 48 degrees Fahrenheit or lower; or
5. if any Performance Failure exists for any seventy
two (72) hours of any ninety six (96) hour period.
<PAGE>
(ii) ACTIONS TO BE TAKEN. Promptly upon becoming aware of a
Service Failure (whether by notice thereof from the Customer or by the
Supplier's monitoring of its systems and the operation of the Northwind
Facilities or otherwise) the Supplier shall:
1. immediately seek to determine the cause of such
Service Failure and shall apprise the Customer of the Supplier's
conclusion as to such cause as quickly as possible and provide the
Customer with a corrective action plan consistent with the
Contingency Plan, which the Supplier will implement at its sole cost
and expense where the Service Failure is for any reason other than a
Force Majeure Event, except that such implementation with respect to
a Performance Failure described in Section 6.1(b)(i)4 will be at the
Customer's expense, and use its best efforts to accommodate any
changes thereto which the Customer reasonably requests;
2. commence implementation of such corrective action
plan, using all best efforts to correct or cure such Service Failure
in the shortest period of time;
3. if the Supplier believes that correcting or curing
such Service Failure requires or can reasonably be anticipated to
require more than eight (8) hours from the time either party became
aware of the Service Failure, promptly notify the Customer of the
same and advise the Customer of the efforts which the Supplier
believes will be necessary to accomplish such correction or cure,
the probable timetable for doing so and any load management
adjustments which the Supplier believes will be helpful to
minimizing the impact of such Service Failure on the operation of
the Premises; and
4. if the Supplier believes that correcting or curing
such Service Failure requires or can reasonably be anticipated to
require more than twenty four (24) additional hours (thirty two (32)
hours from the time either party became aware of the Service
Failure), and the Customer believes that the Premises cannot be
operated in a reasonably normal manner due to such ongoing Service
Failure, Supplier shall procure, at its own expense (but without
reduction of the Contract Capacity Charges and Consumption Charges
hereunder except to the extent each reduction is mandated by Section
6.1(c)(ii)
<PAGE>
below), substitute Services (meaning, for example, in the case of
Chilled Water Services or Hot Water Services, portable temporary
chillers or boilers) in accordance with the Contingency Plan to be
brought to the site and put into operation as quickly as possible.
(iii) ADDITIONAL MEASURES. In addition to the above,
immediately upon becoming aware of a Service Failure, Supplier shall allow
Customer or Customer's agents immediate access to the Northwind Facilities
and permit Customer full inspection rights of the Northwind Facilities. If
Customer identifies the cause of such Service Failure and requires corrective
action or cure, Supplier shall either promptly take such corrective action or
promptly make such cure, or permit the Customer to take any action reasonably
intended to correct or cure such Service Failure at the Supplier's sole cost
and expense (except that, other than as provided in Section 6.1(c)(ii) below,
the Customer shall remain liable for the Contract Capacity Charge) and/or
assume control of the Northwind Facilities and maintain such control until
the Service Failure has been cured or corrected.
(c) SERVICE DEFAULTS. If any Service Failure other than a
Service Failure under Section 6.1(b)(i)(4) continues for any thirty two (32)
hours of any forty eight (48) hour period, it shall be deemed a "Service
Default" and the following additional provisions shall apply:
(i) CONTROL OF NORTHWIND FACILITIES. The Customer shall
have the right to assume control of the Northwind Facilities and maintain
such control until such Service Default has been cured or corrected and take
any action reasonably intended to correct or cure such Service Default at the
Supplier's sole cost and expense (except that, other than as provided in
Section 6.1(c)(ii) below, the Customer shall remain liable for the Contract
Capacity Charge).
(ii) ABATEMENT. The Customer shall be entitled to an
abatement of the Contract Capacity Charge for the month during which such
Service Default has occurred in an amount equal to (A) the Contract Capacity
Charge then in effect for such month multiplied by a fraction, the numerator
of which shall be the number of days during which such Service Default has
occurred during such month and the denominator of which shall be the number
of days in such months, multiplied by (B) 70% if such Service Default was
with respect to Chilled Water Service, or 9% if such Service Failure was with
respect to Hot Water Service, or 21% if such Service Default was with respect
to Electricity Service. The amount of any applicable abatement of Contract
Capacity Charges under this Section 6.1(b) shall be due and payable on the
first day of the month following the month during which such
<PAGE>
Service Default shall have occurred and may be off-set by the Customer
against the Contract Capacity Charge which is due and payable on such date
with respect to the month then beginning.
(iii) RETAIN CONSULTANTS AND IMPLEMENT CONSULTANTS'
RECOMMENDATIONS. The Customer shall have the right to hire, at the expense
of the Supplier, an independent consultant to review the circumstances
involving the Service Default and make written recommendations as to
reasonable corrective action (the "Consultants' Recommendations"), which
shall be provided to the Supplier and promptly implemented by the Supplier at
its sole expense (or, if the Customer has assumed control of the Northwind
Facilities pursuant to Section 6.1(b)(i), may be implemented by the Customer
at the Supplier's sole expense).
(iv) TERMINATION OF AGREEMENT. In the event that the
Supplier fails to promptly implement the Consultants' Recommendations in
accordance with a reasonable timetable agreed upon by the consultant, or to
otherwise correct any Service Default (or provide substitute services
reasonably acceptable to the Customer for the Services which are the subject
of such Service Default) within the timetable reasonably recommended by such
independent consultants, the Customer shall have the right to terminate this
Agreement by not less than thirty (30) days' prior written notice to the
Supplier specifying the effective date of termination, which shall be the
date upon which Customer acquires the Northwind Facilities pursuant to
Section 6.4.
(d) OTHER DEFAULTS.
(i) In the event of failure, other than a Performance
Failure, a Service Failure or a Service Default, by the Supplier to comply
with or perform any agreement or obligation to be complied with or performed
by the Supplier in accordance with this Agreement, which failure is not the
result of actions or omissions of the Customer and which failure remains
uncorrected or uncured thirty (30) days after notice of such failure is given
to the Supplier by the Customer (or, if such failure is of such a nature that
it cannot reasonably and with due diligence be corrected or cured within such
thirty (30) day period and the Supplier commences action to correct or cure
such default within such thirty (30) day period and thereafter diligently and
without interruption or delay completes the correction or cure of such
failure, such longer time as is necessary to complete such correction or
cure, in no event to exceed one hundred eighty (180) days), the Customer
shall have the right: (1) at the Supplier's sole cost and expense (except
that, other than as provided in Section 6.1(c)(ii) below, the Customer shall
remain liable for the Contract Capacity
<PAGE>
Charge), to take any action reasonably intended to correct or cure such
failure; or (2) to terminate this Agreement by not less than thirty (30)
days' prior written notice to the Supplier specifying the effective date of
termination.
(ii) TERMINATION WITHOUT PREJUDICE. Any election by the
Customer to terminate this Agreement under Section 6.1 shall be without
prejudice to the other rights and obligations of the parties hereunder and
shall not relieve the Supplier of its obligation to provide Services
hereunder until the effective date of termination, but any subsequent
correction by the Supplier of the event which is the basis for such notice of
termination shall not be effective to cause rescission of the effectiveness
of such termination unless the Customer shall otherwise agree at the time of
the subsequent correction, provided that the Customer acquires the Northwind
Facilities pursuant to Section 6.4.
6.2 CUSTOMER DEFAULTS. The occurrence at any time with respect to
the Customer of any of the following events constitutes a Customer Default:
(a) failure by the Customer to make, within twenty five (25)
days after the Due Date, any payment stated herein to be due from it
hereunder (each, a "Payment Default"); provided, however, that failure to
make a payment which results from the Customer's right of abatement pursuant
to Section 6.1 hereof shall not be a Payment Default;
(b) except as otherwise excused pursuant to Section 7.1 hereof,
failure, other than a Payment Default, by the Customer to comply with or
perform any agreement or obligation to be complied with or performed
exclusively by the Customer in accordance with this Agreement, which failure
is not the result of actions or omissions by the Supplier, or Music, if such
failure is not remedied on or before the 30th day after notice of such
failure is given to the Customer and Music by the Supplier, provided if such
default is of such a nature that it cannot reasonably and with due diligence
be cured within such thirty (30) day period and the Customer commences to
cure such default within such thirty (30) day period and thereafter
diligently and without interruption or delay completes the cure of such
default within a reasonable period of time, but in no event to exceed one
hundred eighty (180) days, it will not constitute a Customer Default.
6.3 REMEDIES UPON CUSTOMER DEFAULT.
(a) In addition to any other remedies available at law or in
equity, upon the occurrence of a Payment Default, the Supplier shall have the
right, upon
<PAGE>
providing the Customer with an additional five (5) days' prior written notice
(sixty (60) days from when the invoice was received by the Customer), to
discontinue the supply of Services to the Customer until the Customer
remedies such Payment Default; PROVIDED that if such Payment Default
continues for a period of one hundred fifty (150) consecutive days (one
hundred eighty (180) days from when the invoice was received) or more the
Supplier, by written notice to the Customer, may terminate the Customer's
right to cure such Payment Default by terminating this Agreement, without
prejudice to the Supplier's claims in respect to such Payment Default and
other rights accruing hereunder prior to such termination.
(b) In the event of a Customer Default, other than a Payment
Default, which remains uncorrected or uncured thirty (30) days after notice
of such Customer Default is given to the Customer by the Supplier (or if such
Customer Default is of such a nature that it cannot reasonably and with due
diligence be corrected or cured within such thirty (30) day period and the
Customer commences action to cure or correct such Customer Default within
such thirty (30) day period and thereafter diligently and without
interruption or delay completes the correction or cure such Customer Default,
such longer time as is necessary to complete such connection or cure, in no
event to exceed one hundred eighty (180) days), the Supplier shall have the
right to require the Customer to purchase the Northwind Facilities for a
purchase price equal to the Make Whole Amount at such time.
6.4 CUSTOMER'S OBLIGATION TO PURCHASE UPON TERMINATION. If the
Supplier shall fail to comply with its obligations to correct any Service
Default which it is obligated to correct hereunder and the Customer has given
notice of termination of this Agreement pursuant to Section 6.1(b), Section
6.1(c) or Section 6.1(d), then the Supplier shall thereupon be obligated to
sell, assign and transfer, and the Customer shall thereby be obligated to
purchase and acquire possession and ownership of the Northwind Facilities
upon the effective date of termination for a purchase price (the "Payment
Amount") equal to (a) the Supplier's investment in the Northwind Facilities,
determined in accordance with Exhibit C, multiplied by a fraction the
numerator of which shall be the number of months remaining in the Initial
Term and the denominator of which shall be 240, minus (b) any costs incurred
by Customer for required repair and/or maintenance. The Payment Amount shall
not provide for any return on Supplier's project investment. (See 9.2)
In such event, on such date of termination or as soon as
reasonably possible, the Customer shall pay to the Supplier through escrow
and by wire transfer of immediately available funds, an amount equal to the
Payment Amount and shall, with respect to all contracts approved of by
Customer in advance of their execution
<PAGE>
(which approval the Customer will consider in good faith) concurrently
assume, and agree to indemnify and hold the Supplier harmless from, as of the
date of such termination and for all periods thereafter, all obligations of
the Supplier accruing on or after the date of termination under any contracts
or Agreements with respect to the Northwind Facilities (excluding, however,
at the option of the Customer, any such contract or agreement entered into
with Nevada Power Company (or any wholly-owned subsidiary of Nevada Power
Company), Boston Edison, Ontario Hydro, Houston Industries or UTT or any of
their Affiliates which in Customer's sole discretion is deemed to be
materially more onerous to the Supplier than a third party arm's length
agreement for the same goods or services would be in the circumstances) under
a written assignment and assumption agreement in form and substance
reasonably satisfactory to the Supplier and its counsel, against delivery by
the Supplier of possession of the Northwind Facilities and an executed bill
of sale therefor in form and substance reasonably satisfactory to the
Customer and its counsel.
6.5 LENDERS' RIGHT TO CURE. Each party hereto hereby agrees that in
the event that the other party hereto shall make any assignment of its rights
hereunder to any lender or lenders to whom such party provides a security
interest in such party's right, title and interest in the Premises or the
Northwind Facilities, as applicable, in connection with financing (or
refinancing) the Premises or the Northwind Facilities, respectively, that
each party will provide such lenders or the entity identified to the parties
as having authority to act as the agent for such lenders with all notices
given pursuant to this Agreement and that such lender or lenders shall have
an additional ten (10) days to cure any failure by such party to comply with
its obligations hereunder. The Supplier agrees that it shall afford Music
and Bazaar, and their lenders, identical cure rights.
6.6 REMEDIES NOT EXCLUSIVE. The right of the Customer to terminate
this Agreement pursuant to Section 6.1 and to acquire the Northwind
Facilities pursuant to Section 6.4 and the rights of the Supplier to cease
providing Services and to terminate this Agreement and/or require the
Customer to purchase the Northwind Facilities pursuant to Section 6.3 shall
not be deemed to be exclusive and, except as expressly waived in Section 8.1
and Section 8.2, shall be in addition to any and all other rights either of
them may have at law or in equity for any default under Section 6.1(d) or any
Service Default or Customer Default (as applicable) hereunder after notice
and any opportunity to cure provided for herein. The remedies provided
herein for a Performance Failure or a Service Failure shall be the exclusive
remedies until such failure or failures become a Service Default.
<PAGE>
ARTICLE 7
FORCE MAJEURE
7.1 FORCE MAJEURE.
(a) If either party hereto is prevented from or delayed in
performing any of its obligations hereunder by reason of a Force Majeure
Event, such party will notify the other party in writing as soon as
practicable and will be excused from its obligations hereunder to the extent
of such interference; PROVIDED, that no payment obligation hereunder will be
excused or delayed as the result of a Force Majeure Event.
(b) The party whose performance hereunder is prevented or
delayed as the result of a Force Majeure Event will use reasonable efforts to
remedy its inability to perform; PROVIDED, however, nothing in this Section
7.1(b) will be construed to require the settlement of any strike, walkout or
other labor dispute with its employees on terms which are contrary to its
interest. The Supplier agrees however, that in the event of a strike,
walkout or other labor dispute which may reasonably be expected to interrupt
the providing of Services due to the Supplier's employees participating in or
honoring such strike, walkout or dispute, (i) the Supplier, at Supplier's
sole cost and expense (but without reduction in Contract Capacity Charges),
shall use good faith efforts to operate the Northwind Facilities using
management or other personnel which will not participate in or honor such
strike, walkout or dispute, and (ii) if the Supplier will not be able to
operate the Northwind Facilities using such management or other personnel,
the Supplier will cooperate with the Customer to permit the Customer or its
duly authorized representative, at Supplier's sole cost and expense (without
reduction in Consumption Charges and Contract Capacity Charges), to operate
the Northwind Facilities in such circumstances, PROVIDED that such operation
is carried out by personnel which are, in the Supplier's reasonable judgment,
adequately trained and experienced to operate the Northwind Facilities.
(c) CONDEMNATION. In the event of a condemnation or eminent
domain taking of all or part of the site upon which the Plant is to be
located (a "Taking"), Supplier shall, as soon as practicable, determine
whether it is commercially reasonable and technically feasible in the
circumstances for Supplier to redesign, repair and/or restore the Northwind
Facilities such that the Supplier can meet its obligations to provide
Services to the Customer hereunder. In the event Supplier determines that it
is commercially reasonable and technically feasible, Supplier will so inform
Customer, this Agreement shall remain in force and, to the
<PAGE>
extent set forth in Section 8.2 of the Northwind Lease, Supplier shall be
entitled to the award or awards from such Taking and the Contract Capacity
Charges payable hereunder thereafter shall be adjusted downward in an amount
corresponding to any such award paid to the Supplier. In the event that
Supplier determines that it is not commercially reasonable or technically
feasible in the circumstances to redesign, repair or restore the Northwind
Facilities, then Supplier shall so notify Customer and such notice shall also
constitute termination of this Agreement, effective on the date when such
Taking shall effectively prevent Supplier from complying with its obligations
to provide Services hereunder, and, to the extent set forth in Section 8.1 of
the Northwind Lease, Supplier shall be entitled to the award or awards from
such Taking. Notwithstanding the foregoing, in the event Supplier and
Customer disagree as to whether it is commercially reasonably and technically
feasible in the circumstances for Supplier to redesign, repair or restore the
Northwind Facilities, then Supplier and Customer shall promptly meet and use
their best efforts to resolve such dispute. If the Parties are unable to
resolve such dispute within ten (10) days, then the Parties shall refer such
dispute to the "Independent Engineer"(as defined in the Development
Agreement). The Independent Engineer's conclusion as to whether it is
commrcially reasonable and technically feasible in the circumstances for
Supplier to redesign, repair or restore the Northwind Facilities shall be
accepted by and binding upon the Parties.
(d) In the event of a Force Majeure Event of a nature such
that, by implementation of the Contingency Plan (or a part thereof), Services
may be provided to the Customer during the interruption caused by such Force
Majeure Event, then, upon the Customer's request and at the Customer's
expense, except as set forth in Section 7.1(b) above, the Supplier shall use
its best efforts to implement the Contingency Plan (or portion thereof which
is applicable) to mitigate the interruption of Services caused by such Force
Majeure Event.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE SUPPLIER. The Supplier agrees to protect,
indemnify and hold harmless the Customer Group Member from and against any
and all Loss and/or Expense, other than lost business, lost profits and other
special and/or consequential damages, whether direct or indirect (all claims
for which are hereby irrevocably waived), incurred by the Customer Group
Member in connection with or arising from:
(a) any breach by the Supplier of its obligations hereunder;
<PAGE>
(b) the installation, maintenance, operation, repair, removal,
replacement or alteration of any portion of the Northwind Facilities or the
Supplier's metering and other equipment and piping on the Premises, including
the Supplier Interconnection Equipment, or any acts or omissions of the
Supplier or those Persons under its direction or control in connection
therewith; PROVIDED such Loss or Expense does not result from actions or
omissions of the Customer or those Persons under its direction or control
(including its agents and those which it has authorized or knowingly
permitted to act on its behalf);
(c) any unauthorized operation, maintenance or alteration of,
or action affecting, the Customer's equipment, or any component thereof, by
the Supplier or those Persons under its direction or control (including its
agents and those which it has authorized or knowingly permitted to act on its
behalf); or
(d) any claims, obligations, damages, expenses or liabilities
to third parties for personal injury or property damage to the extent they
arise out of any legally actionable action of the Supplier or its agents,
contractors or employees, or those Persons under its direction or control,
PROVIDED that this indemnity shall not apply to the extent that the claim,
obligation, damage, expense or liability arises from the negligence or
willful misconduct of, or a breach of the Customer's obligations under this
Agreement by, the Customer, its agents, contractors or employees, or those
Persons under its direction or control;
but excluding any Loss or Expense arising from interruption of Services
permitted by Section 6.3(a) or Section 7.1.
8.2 INDEMNIFICATION BY THE CUSTOMER. The Customer agrees to protect,
indemnify and hold harmless the Supplier Group Member from and against any
and all Loss and/or Expense incurred by the Supplier Group Member in
connection with or arising from:
(a) any breach by the Customer of its obligations hereunder;
(b) any acts or omissions of the Customer or those Persons
under its direction or control; PROVIDED such Loss or Expense does not result
from the acts or omissions of the Supplier or those Persons under its
direction or control (including its agents and those which it has authorized
or knowingly permitted to act on its behalf) or, other than as set forth in
clause (c) below, any third Persons; or
<PAGE>
(c) any claims, obligations, damages, expenses or liabilities
to third parties for personal injury or property damage to the extent they
arise out of any legally actionable action of the Customer or its agents,
contractors or employees, or those Persons under its direction or control,
PROVIDED that this indemnity shall not apply to the extent that the claim,
obligation, damage, expense or liability arises from the negligence or
willful misconduct of, or a breach of the Supplier's obligations under this
Agreement by, the Supplier, its agents, contractors or employees, or those
Persons under its direction or control.
8.3 NOTICE OF CLAIMS.
(a) If a claim is asserted or action brought against an
Indemnified Party and the Indemnified Party believes that it is entitled to
indemnification under this Article 8, the Indemnified Party shall promptly
notify the Indemnitor, in writing, of such claim or action. Such notice
shall be provided in sufficient time to enable the Indemnitor to assert and
prosecute appropriate defenses to the claim or action; PROVIDED, that failure
to give such notice shall not relieve the Indemnitor of its obligations
hereunder except to the extent it will have been prejudiced by such failure.
Upon the receipt of such notice, the Indemnitor shall make a prompt
determination of whether it believes it is required to indemnify the
Indemnified Party, and shall promptly notify the Indemnified Party, in
writing, of its determination. If the Indemnitor determines that it is
required to indemnify, it shall assume the defense of the Indemnified Party,
including the employment of counsel, and shall thereafter pay all costs and
expenses relative to the defense of the claim or action. The Indemnified
Party shall cooperate with the Indemnitor in all reasonable aspect in this
defense. The Indemnified Party shall also have the right, at its own
expense, to employ separate counsel in any such action and to participate in
the defense thereof. The Indemnitor shall not be liable for any settlement
of any claim or action made without its consent.
(b) In calculating any Loss or Expense there will be deducted
(i) the amount of any insurance recovery by the Indemnified Party in respect
thereof (and no right or subrogation will accrue hereunder to any insurer)
or, in the event that the Indemnified Party has failed to maintain any
insurance coverage required by this Agreement to be maintained by such party
or fails to make a timely claim under any applicable insurance, the amount of
the insurance recovery which would reasonably be expected to have been
received had such insurance been maintained and/or such claim been timely
filed, and (ii) the amount of any tax benefit to the Indemnified Party (or
any of its Affiliates) with respect to such Loss or Expense (after giving
effect to the tax effect of receipt of the indemnification payments).
<PAGE>
(c) After any Claim Notice has been given pursuant hereto, the
amount of indemnification to which an Indemnified Party will be entitled
under this Article 8 will be determined: (i) by the written agreement
between the Indemnified Party and the Indemnitor; (ii) by a final judgment or
decree of any court of competent jurisdiction; or (iii) by any other means to
which the Indemnified Party and the Indemnitor agree.
ARTICLE 9
TERM
9.1 TERM.
(a) Unless the Supplier has been given by Customer the Notice
to Proceed on or before May 1, 1998 and the conditions precedent set forth in
Section 5.1 hereof have been met to the Supplier's reasonable satisfaction on
or before such date (or, with respect to any condition which the Supplier is
willing to waive on or before such date, waived in a writing delivered to the
Customer on or before such date), at any time thereafter the Supplier may
terminate this Agreement and its obligations hereunder by written notice to
the Customer, such termination to be effective immediately; provided,
however, that upon Supplier's acceptance of the Notice to Proceed, Supplier's
right to terminate this Agreement pursuant to this section shall be null and
void, and no longer in effect. In the event that the Development Agreement
is terminated by Aladdin pursuant to Section 10(b) thereof, or by the
Supplier pursuant to Section 2(k), Section 10(d) or Section 10(c) thereof,
then this Agreement shall concurrently terminate and be of no further force
or effect.
(b) Unless sooner terminated pursuant to clause (a) above or
any of Section 6.1 or Section 6.4, Section 7.1(c) or Section 9.3, this
Agreement will remain in effect for the Initial Term, and will continue in
effect for each Renewal Term, if any; PROVIDED that there shall not be more
than three (3) Renewal Terms hereunder. Unless written notice that this
Agreement will terminate on the last day of the then current Initial Term or
Renewal Term is provided by either party at least twelve (12) months prior to
the end of the then current Initial Term or Renewal Term, this Agreement will
continue for an additional Renewal Term.
9.2 EFFECT OF TERMINATION. Upon the expiration or termination of this
Agreement:
<PAGE>
(a) unless the Customer purchases the Northwind Facilities
pursuant to Section 9.3 or directs the Supplier to remove the Northwind
Facilities pursuant to Section 9.2(b) (in which case the Supplier shall so
disconnect and remove the Northwind Facilities), the Supplier shall abandon
the Northwind Facilities as is and where is and shall have no further
obligations under this Agreement or the Lease in respect thereof;
(b) if the Customer directs the Supplier to remove the
Northwind Facilities, then the Supplier, at the Customer's expense (less any
net proceeds of salvage or other disposition of the Northwind Facilities),
will remove the Northwind Facilities and all Supplier Interconnection
Equipment and any other property of the Supplier on the Premises in a prudent
and workmanlike manner, and will repair and restore in a manner reasonably
satisfactory to the Customer all damage to the Premises caused by such
removal (and pay for such damage where caused by Supplier's negligence or
wilful misconduct), and the Customer will provide the Supplier access to the
Premises reasonably requested by the Supplier to allow the Supplier to remove
such property in a timely fashion;
(c) the Customer will pay the Supplier all amounts then payable
to the Supplier hereunder (including costs of removal under clause (b) above
or, in the event the Customer is purchasing the Northwind Facilities under
any of Sections 6.3, 6.4, or 9.3, the purchase price payable); and
(d) the Customer and the Supplier will have no further
obligations hereunder other than (i) obligations accruing prior to the date
of such termination or expiration, (ii) Customer's obligations to provide
access rights pursuant to Section 9.2(b) and (iii) obligations under Section
5.3 and Article 8, all of which will survive the expiration or termination of
this Agreement.
9.3 THE CUSTOMER'S OPTION TO PURCHASE.
(a) Each of the Customer and the other Customer Group Members
shall have a continuing non-exclusive option to purchase the Northwind
Facilities at any time prior to termination of this Agreement, exercisable by
the Customer alone or together with one or both Customer Group Members by
written notice given to the Supplier not less than one (1) year prior to the
date upon which such purchase shall close as specified in such notice (the
"Closing Date"), which notice shall state that the option under this Section
9.3 is being exercised. The purchase price payable upon such exercise shall
equal the Make Whole Amount as of the date of such purchase. The option
granted hereby shall expire and be of no further force or effect
<PAGE>
on the earliest of (i) the expiration of the Term hereof, or (ii) the date
upon which any other entity which has an option to purchase the Northwind
Facilities effectively exercises such option.
It shall be a condition to the Supplier's obligation to
consummate the sale hereunder that concurrently with closing the Customer
shall assume, and indemnify and hold the Supplier harmless from, all
obligations of the Supplier accruing after the Closing Date under all
contracts and Agreements with respect to the Northwind Facilities under which
any performance obligations will continue following such sale and at the
closing the Supplier shall assign and the Customer shall assume all such
contracts and Agreements under a written assignment and assumption agreement.
(b) In the event that the Customer gives notice that it is
exercising its option under this Section 9.3 to acquire the Northwind
Facilities, then:
(i) not less than ten (10) days nor more than six (6)
months prior to the Closing Date, the Supplier shall obtain and deliver to
the Customer payoff letters, in form and substance reasonably satisfactory to
the Customer, from the holders of any Facilities Debt or any trustee or agent
with power to act for such holders stating the principal amount of such
Facilities Debt as of the Closing Date, any accrued interest thereon through
such date, and any other amounts which shall be payable in respect thereof as
of the Closing Date;
(ii) not less than ten (10) days prior to the Closing
Date, the Supplier shall provide to the Customer a written statement of the
Make Whole Amount, determined as of the Closing Date, accompanied by
appropriate detail. The Customer and its advisors shall be deemed to have
accepted such statement unless written objection thereto is delivered to the
Supplier within three (3) days after the date of receipt thereof by the
Customer. Any such written objection shall specify in reasonable detail the
reasons therefor. In the event of such objection, the Supplier and the
Customer shall meet and try to reach agreement as to the Make Whole Amount,
but if such agreement is not reached within five (5) days after the date upon
which such written objections are received by the Supplier, then such matter
shall be submitted to three outside accounting firms, one of which shall be
the Customer's outside accounting firm, one of which shall be the Supplier's
outside accounting firm, and the third of which shall be chosen by the first
two firms, and such accounting firms shall each determine the Make Whole
Amount and the two determinations which are closest together shall then be
averaged and the average of such two determinations shall be the Make Whole
Amount;
<PAGE>
(c) Closing of the purchase shall occur on the Closing Date
(or, if such day is not a business day, on the next following business day)
or such other date as the parties may agree upon through an escrow
established by the Parties. At the closing, the Supplier shall execute and
deliver to the Customer such bills of sale and instruments of assignment
(including the assignment and assumption agreement referred to in clause (a)
above) as are necessary or appropriate to transfer to the Customer all of the
Supplier's right, title and interest in and to the Northwind Facilities and
any contracts or Agreements to be assigned, on an "as is, where is" basis,
without representation or warranty other than as to the Supplier's due
authorization and legal capacity to execute and deliver such instruments,
documents and Agreements, and the Customer shall deliver to the Supplier the
purchase price, by wire transfer of immediately available funds or by other
payment means acceptable to the Supplier, and shall execute and deliver such
assignment and assumption agreement.
(d) In the event that the Customer exercises its option to
purchase under this Section 9.3, effective upon closing of the purchase, this
Agreement and the Lease shall automatically terminate.
(e) In the event that the Customer exercises the option granted
by this Section 9.3 but shall fail to consummate the purchase pursuant to
such option, such failure shall be a breach of the Customer's obligation to
purchase the Northwind Facilities arising pursuant to exercise of such option
and the Supplier shall be entitled to any remedies therefor which may be
available at law or in equity.
ARTICLE 10
GENERAL PROVISIONS
10.1 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing addressed to the respective party as
set forth below and shall be personally served, telecopied or sent by
reputable overnight courier service and shall be deemed to have been given:
(a) if delivered in person, when delivered; (b) if delivered by telecopy, on
the date of transmission if transmitted on a Business Day before 4:00 p.m.
Chicago time, otherwise on the next Business Day (PROVIDED, in either case,
that receipt of such transmission is confirmed); and (c) if delivered by
overnight courier, one (1) day after delivery to courier properly addressed.
Notices and other communications shall be addressed to the applicable party
as follows:
<PAGE>
If to the Customer, to:
Aladdin Gaming, LLC
c/o Aladdin Management Corporation
280 Park Avenue, 38th Floor
New York, New York 10017
Attention: Ronald Dictrow
Fax: (212) 661-0844
If to the Supplier, to:
Northwind Aladdin, LLC
c/o Unicom Thermal Technologies Inc.
30 West Monroe Street
Suite 500
Chicago, IL 60603
Attention: President
Fax: 312-346-3201
If to the Customer's Lender(s), to such addresses as Customer specifies to
Supplier in writing.
If to the Supplier's Lender(s), to such addresses as Supplier specifies to
Customer in writing.
Any party hereto may change its address for notices and other communications
hereunder by a notice delivered to the other party hereto in accordance with
this Section 10.1 as then in effect.
10.2 SUCCESSORS AND ASSIGNS.
(a) Neither party shall assign its interest or delegate its
duties under this Agreement without the prior written consent of the other
party, (which consent shall not be unreasonably withheld), except:
(i) the Supplier may assign its right, title and interest
under this Agreement, or any part thereof, to any wholly-owned subsidiary of
Unicom Corporation;
<PAGE>
(ii) the Customer may assign its right, title and interest
under this Agreement, or any part thereof, to any Affiliate, or to Music.
Upon any such assignment by the Customer, the Supplier will provide any such
assignee with all Notices given by the Supplier pursuant to this Agreement
and such assignee (and its lenders) shall have the same respective rights to
cure any failure by the Customer to comply with its obligations hereunder
that the Customer and its lenders have hereunder. In addition, if such
assignee (or its lenders) assumes the Customer's rights and obligations
hereunder, unconditionally and in a writing delivered to the Supplier, then,
upon a request in writing from all such assignees stating that they desire
the Supplier to sell some or all of the Services to third parties and
specifying the portions of Services which they wish to have the Supplier sell
to third parties and expressly and unconditionally committing to relinquish
back to the Supplier such portions of the Services to effect such sale (the
"Relinquished Services") as of a date specified in such request (but without
any reduction in Contract Capacity Charges or Consumption Charges payable
hereunder), and provided that such assignees pay all reasonable costs and
expenses thereof, then the Supplier will use commercially reasonable efforts
to sell any or all of the Relinquished Services to third parties on terms and
conditions acceptable to such assignees, and any amounts which the Supplier
receives from third parties in respect of Relinquished Services (if any)
shall be applied to the Contract Capacity Charges and Consumption Charges
payable hereunder (such application to be determined by the Supplier
reasonably and in good faith and consistent with the concepts reflected in
Exhibit C hereto and subject to such assignees' approval, not to be
unreasonably withheld).
(iii) the Customer may assign its right, title and interest
in this Agreement to any lender or lenders to whom the Customer provides a
security interest in the Customer's right, title and interest in the Premises
in connection with financing (or refinancing) the Premises;
(iv) the Customer may assign, without the Supplier's
consent, the Customers's right, title and interest in this Agreement to any
purchaser of the Premises or all of the interests in the Customer; and
(v) the Supplier may assign its right, title and interest
in this Agreement to any lender or lenders to whom the Supplier provides a
security interest in the Supplier's right, title and interest in the
Northwind Facilities in connection with financing (or refinancing) the
Northwind Facilities.
In connection with any such financing or refinancing, from time to time, upon
request, each party will provide one or more estoppel certificates in form
and
<PAGE>
substance reasonably satisfactory to the other or such lender. No consent by
either party to any assignment or delegation by the other party shall be
deemed to be a novation or otherwise to relieve the transferring party of its
obligations hereunder unless otherwise expressly so stated in such consent.
(b) The Supplier agrees not to permit any transfer of any
membership interest in the Supplier, and not to issue any new membership
interests in the Supplier without the prior written consent of the Customer
(such consent not to be unreasonably withheld); provided, however that the
Customer hereby agrees to any such transfer or issuance to Nevada Power
Company (or any wholly-owned subsidiary of Nevada Power Company), Boston
Edison, Ontario Hydro, Houston Industries, or to any entity which is
beneficially owned solely by Unicom Corporation and one of Nevada Power
Company, Boston Edison, Ontario Hydro or Houston Industries (or any wholly
owned subsidiary of Unicom Corporation); provided further that Unicom
Corporation (or any wholly-owned subsidiary of Unicom Corporation) at all
times holds at least a 51% share in the Supplier, unless such percentage
requirement needs to be modified in order for Supplier to comply with Section
5.7 hereof.
(c) This Agreement will be binding upon and inure to the
benefit of the parties hereto and their successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended or will be
construed to confer upon any Person (other than the parties and successors
and assigns permitted by this Section 10.2 and Persons expressly benefitted
by the provisions of Sections 8.1 and 8.2) any right, remedy or claim under
or by reason of this Agreement.
10.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Annex, the
Exhibits and Schedules referred to herein, the Development Agreement, the
Guaranty the Lease and the Energy Services Coordination Agreement and the
documents delivered pursuant hereto and thereto contain the entire
understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior Agreements or
understandings between or among any of the parties hereto. This Agreement
will not be amended, restated, modified or supplemented except by a written
instrument signed by an authorized representative of each of the parties
hereto.
10.4 INTERPRETATION. Article titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
<PAGE>
10.5 WAIVERS. Any term or provision of this Agreement may be waived,
or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver will be validly and
sufficiently authorized for the purposes of this Agreement if, as to any
party, it is authorized in writing by an authorized representative of such
party. The failure of any hereto to enforce at any time any provision of
this Agreement will not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the
right of any party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement will be held to constitute a waiver of
any other or subsequent breach.
10.6 EXPENSES. Except as otherwise set forth herein, each party
hereto will pay all costs and expenses incident to its negotiation and
preparation of this Agreement and to its performance and compliance with all
Agreements and conditions contained herein on its part to be performed or
complied with, including the fees, expenses and disbursements of its counsel
and accountants.
10.7 PARTIAL INVALIDITY. Wherever possible, each provision hereof
will be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained
herein will, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such provision will be ineffective to the extent, but only to
the extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or unenforceable
provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable. Upon any such determination that any
term or other provision hereof is invalid, illegal or unenforceable, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner, to the end that the transactions contemplated hereby are
fulfilled to the extent possible in the circumstances.
10.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be considered an original
instrument, but all of which will be considered one and the same agreement,
and will become binding when one or more counterparts have been signed by
each of the parties hereto and delivered to the Supplier and the Customer.
10.9 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws and decisions of the State of Nevada.
<PAGE>
10.10 TIME. Time is of the essence hereof.
10.11 NO PARTNERSHIP. This Agreement does not and shall not be
construed to create or establish a partnership, agency, joint venture, lease,
license or any other relationship between the parties hereto, nor constitute
either party as an agent of the other. Neither party hereto shall hold
itself out to others, by act or omission, contrary to the terms of this
Section 10.11.
10.12 ARBITRATION. In the event of any dispute hereunder between the
parties, 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.
[Balance of page intentionally left blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first written above.
ALADDIN GAMING, LLC
By: /s/ Ronald Dictrow
Name: Ronald Dictrow
Title: Executive Vice President
NORTHWIND ALADDIN, LLC
By: /s/ John Mitola
Name: John Mitola
Title: Vice President & General Manager
<PAGE>
ANNEX A
DEFINITIONS
The following terms shall have the meanings specified or referred
to herein:
"ADDITIONAL PROJECT INVESTMENT" means capital expenditures,
finance costs and other related costs and expenses incurred by the Supplier
for the purposes of the Northwind Facilities at any time after original
completion thereof, determined on an "all costs" basis and inclusive of all
financing costs through the date of determination, but shall not include
Development Expenses or Total Project Investment.
"ADDITIONAL SERVICES" shall have the meaning set forth in Section
2.1(c).
"ADDITIONAL SERVICES REQUEST" shall have the meaning set forth in
Section 2.1(c).
"AFFILIATE" means (i) Bazaar and Music and (ii) with respect to
any Person, any other Person which directly or indirectly controls, is
controlled by or is under common control with such Person.
"BUSINESS DAY" means a weekday which is not a statutory legal
holiday in the city of Las Vegas, Nevada.
"CHILLED WATER DELIVERY POINT" means the Delivery Point for
chilled water, as further set forth in Exhibit A.
"CHILLED WATER INTERCONNECTION EQUIPMENT" means Supplier
Interconnection Equipment used for the transfer of Energy from chilled water.
"CHILLED WATER RETURN POINT" means a Return Point for chilled
water after it has passed through the Chilled Water Interconnection Equipment
for return to the Northwind Facilities.
"CHILLED WATER SERVICES" has the meaning set forth in Section
2.1(a).
<PAGE>
"CLAIM NOTICE" means a notice by a Customer Group Member or a
Supplier Group Member seeking indemnification pursuant to Article 8.
"COMMENCEMENT DATE" means the earlier of (a) the date upon which
the Premises is first opened for business to the public, or (b) March 1,
2000.
"COMPLEX" is defined in the Recitals hereto.
"CONSULTANT'S RECOMMENDATIONS" has the meaning set forth in
Section 6.1.
"CONSUMER PRICE INDEX" means the U.S. City Average Consumer Price
Index, all items other than food and Energy, not seasonably adjusted, as it
appears in the "News" as published monthly by the United States Department of
Labor, Bureau of Labor Statistics; PROVIDED, however, that if said Consumer
Price Index shall cease to exist or is changed, then the term "Consumer Price
Index" shall mean such other or similar index or formula as Supplier
reasonably selects to measure change in the purchasing power of the U.S.
dollar.
"CONSUMPTION CHARGE" has the meaning set forth in Section 2.5(b).
"CONTRACT CAPACITY CHARGE" has the meaning set forth in Section
2.5(a).
"CONTRACT YEAR" means a one year period to time beginning on the
Commencement Date or any anniversary thereof and ending one day less than one
year later.
"CUSTOMER" means the Person identified as the "Customer" in the
first paragraph of this Agreement, and the successors and permitted assigns
of such Person.
"CUSTOMER AGREEMENT" means each agreement under which the
Customer agrees to provide to any third Person any Services to be obtained
from the Supplier hereunder, as any such agreement may be in effect from time
to time.
"CUSTOMER DEFAULT" means the events described in Section 6.2.
<PAGE>
"CUSTOMER ENERGY REQUIREMENTS" means those energy requirements of
the Customer as set forth in Exhibit B.2.
"CUSTOMER GROUP MEMBER" means the Customer, its successors and
permitted assigns, its officers, directors, employees and agents, and its
Affiliates and their respective successors and permitted assigns.
"CUSTOMER INDEMNIFIABLE EVENT" means the events described in
Section 8.2.
"CUSTOMER INTERCONNECTION EQUIPMENT" means that equipment owned
and operated by the Customer to receive Services, as shown on EXHIBIT D
hereto.
"DELIVERY POINT" means a point at which the Supplier delivers
Services, as shown on EXHIBIT A hereto.
"DEVELOPMENT AGREEMENT" means that certain Development Agreement
dated as of December 3, 1997, between the Customer and the Supplier, as the
same may be amended, restated, modified or supplemented and in effect from
time to time.
"DEVELOPMENT COSTS" means the aggregate of: (a) all costs and
expenses of the Supplier, the Customer, and Music incurred prior to December
3, 1997 for outside engineering work in connection with the design and
construction of the Northwind Facilities and the matters set forth in this
Agreement and the Related Agreements and the documentation thereof; (b) all
costs and expenses of the Supplier incurred on or after December 3, 1997 in
connection with the design and construction of the Northwind Facilities and
the matters set forth in this Agreement and the Related Agreements and the
documentation thereof, provided that internal legal and engineering costs and
expenses shall only be included to the extent that the same do not exceed, in
the aggregate, $375,000; and (c) all costs and expenses of the Customer, and
Music incurred on or after December 3, 1997 for outside engineering work in
connection with the design and construction of the Northwind Facilities and
the matters set forth in this Agreement and the Related Agreements and the
documentation thereof; but only to the extent that the same, when aggregated
with all of the costs and expenses of Customer and Music for outside
engineering work prior to December 3, 1997, in the aggregate do not exceed an
amount reasonably agreed to, in writing, by Customer and Supplier.
"DUE DATE has the meaning set forth in Section 2.8.
<PAGE>
"ELECTRICITY DELIVERY POINT" means any point in the Premises at
which electricity is to be received by the Customer, as shown on EXHIBIT A
hereto.
"ELECTRICITY SERVICES" has the meaning set forth in Section 2.1(a).
"ENERGY" means any or all of chilled water, hot water and/or
electricity, as the context may require.
"EXPENSES" means any and all expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals).
"FINANCIAL CLOSING" has the meaning given such term in the
Development Agreement.
"FORCE MAJEURE EVENT" means any act, event, cause or condition
that is beyond the control of the party hereto which is affected thereby,
that is not caused by such party's fault or negligence, to the extent by the
exercise of reasonable diligence such party is unable to overcome or prevent,
including, but not limited to: acts of God, war, civil commotion, embargoes,
epidemic, fires, cyclones, droughts or floods, emergencies (other than those
caused by the negligence or willful misconduct of the party claiming the
Force Majeure Event), change in applicable law and Takings under the terms of
this Agreement.
"HOT WATER DELIVERY POINT" means the Delivery Point for hot
water, as further described in Exhibit A.
"HOT WATER INTERCONNECTION EQUIPMENT" means Supplier
Interconnection Equipment used for the transfer of Energy from hot water.
"HOT WATER RETURN POINT" means a Return Point for hot water after
it has passed through the Hot Water Energy Transfer Stations for return to
the Northwind Facilities.
"HOT WATER SERVICES" has the meaning set forth in Section 2.1(a).
<PAGE>
"INDEMNIFIED PARTY" means a Customer Group Member or a Supplier
Group Member seeking indemnification pursuant to Section 8.3.
"INDEMNITOR" means a Supplier Group Member or a Customer Group
Member from which indemnification is sought pursuant to Section 8.3.
"INITIAL CUSTOMER ENERGY REQUIREMENTS" shall have the meaning set
forth in Exhibit B.
"INITIAL SERVICES" means the delivery of chilled water from the
Initial Services Date to the Commencement Date at the capacity and
temperature specified in Exhibit B under the heading "Initial Services".
"INITIAL SERVICES DATE" means the date nine months from the date
on which the Notice to Proceed is received by the Supplier.
"INITIAL TERM" means the period of time beginning on and
including the Commencement Date and ending on and including the day
immediately prior to the twentieth (20th) anniversary of the Commencement
Date.
"O&M SPECIFICATIONS" means the Operation and Maintenance
Specifications to be agreed upon by the parties prior to Final Completion and
initialed by the parties and attached hereto as EXHIBIT F, as the same may be
amended, restated, modified or supplemented and in effect from time to time.
"LOSS" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges, but excluding in any event any lost profits
and other special or consequential damages, which result from any Customer
Indemnifiable Event or Supplier Indemnifiable Event.
"MAKE WHOLE AMOUNT" means, as of any date of determination
thereof, an amount equal to the aggregate of (a) the Debt Amount, plus (b)
the Equity Amount.
For purposes of this definition of "Make Whole Amount":
(a) "Debt Amount" shall mean, as of any date of determination
thereof, the aggregate of:
<PAGE>
(i) the then outstanding Debt Service Amount as finally
determined pursuant to Exhibit C; plus
(ii) any prepayment penalty, premium or other charge payable
in connection with the payment or prepayment of such indebtedness,
provided that, unless the Customer has approved the terms of the
indebtedness, the amount(s) under this clause (iii) shall be limited
to such prepayment penalty, premium or charge as would be payable in
a comparable financing negotiated at arm's length with unrelated
parties; provided, however, that if, in connection with the purchase
of the Northwind Facilities, the Customer is permitted by the
holders of such indebtedness to assume the Supplier's obligations in
respect thereof and the Supplier is released of its obligations in
respect thereof concurrently with such assumption, then the Debt
Amount shall be zero (0). (The Supplier agrees to use reasonable
efforts to obtain the consent of such holders to any such rights of
assumption.); and
(b) "Equity Amount" shall mean, as of any date of
determination thereof, an amount equal to "Return on Equity Amounts"
for all remaining Contract Years or portions thereof in the Initial
Term discounted by, for each monthly payment thereof, the interest
rate applicable to the U.S. Treasury bill, bond or note (as
applicable) having a maturity comparable (or as nearly comparable as
there may be) to the date when such payment is scheduled to be due,
plus (ii) 250 basis points.
"NORTHWIND FACILITIES" has the meaning given in the Recitals of
this Agreement.
"NORTHWIND LEASE" means that certain ground lease of the Site
dated as of December 3, 1997, between the Supplier, as lessee, and the
Customer as lessor, as the same may be amended, restated, modified or
supplemented and in effect from time to time.
"NOTICE OF EXERCISE" has the meaning set forth in Section 2.1(c).
"NOTICE TO PROCEED" means a written notice from the Customer to
the Supplier given in accordance with the Development Agreement and stating
that the
<PAGE>
Supplier shall commence the design and construction of the Northwind
Facilities under the Development Agreement.
"OFFER" has the meaning set forth in Section 2.1(c).
"PAYMENT AMOUNT" has the meaning set forth in Section 6.4.
"PAYMENT DEFAULT" has the meaning set forth in Section 6.2(a).
"PERFORMANCE FAILURE" has the meaning set forth in Section 6.1.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or governmental authority or regulatory body.
"PLANT ENERGY REQUIREMENTS" means the full requirements of the
Northwind Facilities as set forth in Exhibit B.1.
"PROJECT SCOPE" has the meaning set forth in Section 2.1(a).
"PREMISES" has the meaning set out in the Recitals to this
Agreement.
"PPI" means the Producer Price Index-Commodities for Western
South Central Region for commercial natural gas, as it appears in the
Producer Price Index published by the United States Department of Labor,
Bureau of Labor Statistics; PROVIDED, however, that if said Producer Price
Index shall cease to exist or is changed, then the term "PPI" shall mean such
other or similar index or formula as Supplier reasonably selects to measure
change in the price for commercial natural gas in the Southwestern United
States.
"RELATED AGREEMENTS" means collectively, the Northwind Lease and
the Development Agreement.
"RETURN POINT" means, with respect to Chilled Water Services, the
point at which chilled water returns to Supplier's pipes after it has passed
through an Energy transfer station, as shown on EXHIBIT A hereto, and, with
respect to Hot Water Services, the point at which hot water returns to
Supplier's pipes after it has passed through an Energy transfer station, as
shown on EXHIBIT A hereto.
"RENEWAL TERM" means, in the event that no party has given the
notice of termination described in Section 9.1 with respect to the Initial
Term or any
<PAGE>
Renewal Term, the period of time beginning on and including the day
immediately after the last day of such Initial Term or Renewal Term and
ending on and including the day immediately prior to the fifth (5th)
anniversary of the last day of such Initial Term or Renewal Term.
"SEC" means the United States Securities Exchange Commission.
"SERVICE DEFAULT" has the meaning set forth in Section 6.1(b).
"SERVICE FAILURE" has the meaning set forth in Section 6.1(b).
"SERVICES" has the meaning set forth in Section 2.1(a).
"SITE" means the real property in Las Vegas, Nevada, which is
leased to the Supplier and is subject to the Northwind Lease and which is
described in EXHIBIT G hereto.
"SPECIFIED DEMAND AMOUNT" means, as of any date of determination,
the amount of Electricity Service which the Supplier is then obligated to
provide to the Customer under this Agreement, which amount shall be 4.9
megawatts (or 4.1 megawatts in the event one generating unit is shut down
during required maintenance) for the period from the Substantial Completion
Date to March 1, 2000, and thereafter shall be 20 megawatts but which amount
may, after March 1, 2000, be decreased from time to time by the Customer by
giving not less than thirty (30) days prior written notice thereof to the
Supplier; provided that if a reduction is requested, then such reduction can
only be made if notice is in accordance with notice required under any
applicable third party electricity supply Agreements and the Customer pays
any corresponding charges under such electricity contracts attributable to
such reduction.
"SUBSTANTIAL COMPLETION DATE" means the date of "Substantial
Completion" as such term is defined in the Development Agreement.
"SUPPLIER" means the Person identified as the "Supplier" in the
first paragraph of this Agreement, and the successors and permitted assigns
of such Person.
"SUPPLIER GROUP MEMBER" means Supplier, its successors and
permitted assigns, and its officers, directors, employees and agents, and its
Affiliates and their respective successors and permitted assigns.
<PAGE>
"SUPPLIER INDEMNIFIABLE EVENT" means the events described in
Section 8.1.
"SUPPLIER INTERCONNECTION EQUIPMENT" means the equipment and
related piping and apparatus between the Supplier's distribution system and
the Customer's equipment, including, without limitation, a plate frame heat
exchanger assembly or equivalent device, piping, valves, metering equipment
and controls and additional equipment, if any, described in the O&M
Specifications, installed by the Supplier on the Premises pursuant to the
terms of this Agreement for use in providing the Services to the Customer,
and all replacements and additions thereto from time to time.
"TAKINGS" has the meaning set forth in Section 7.1(c).
"TAX" means any present or future tax (including all sales and
use taxes), levy, impost, duty, charge, assessment or fee of any nature
(including interest, penalties and additions thereto) that is imposed by any
federal, provincial or local taxing authority on Services provided by
Supplier or on the Northwind Facilities or the Supplier's operations in
respect thereof, or any payments made by Customer under this Agreement,
excluding taxes on the income of the Supplier.
"TOTAL PROJECT INVESTMENT" means the aggregate investment of the
Supplier in the Northwind Facilities and all related equipment and piping,
when completed, determined on an "all costs" basis and inclusive of all
financing costs and Development Costs through the date of determination,
including Pre-Commencement Capacity Charge, as defined in Exhibit C.
<PAGE>
EXHIBIT A
PROJECT SCOPE
<PAGE>
EXHIBIT B
ENERGY REQUIREMENTS
[Describe, including peak requirements and load profiles.]
<PAGE>
EXHIBIT C
CONTRACT CAPACITY CHARGE AND CONSUMPTION CHARGE
<PAGE>
EXHIBIT D
CUSTOMER INTERCONNECTION EQUIPMENT
<PAGE>
EXHIBIT E
INSURANCE
<PAGE>
EXHIBIT F
INSTALLATION, OPERATION AND MAINTENANCE SPECIFICATIONS
<PAGE>
EXHIBIT G
LEGAL DESCRIPTION OF THE SITE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
ARTICLE 1 DEFINITIONS 2
1.1 Definitions 2
ARTICLE 2 ENERGY SERVICE 2
2.1 Services; Exclusivity; Right of First Refusal; Performance;
Customer Agreements 2
2.2 Chilled Water 7
2.3 Hot Water 8
2.4 Electricity 8
2.5 Charges 8
2.6 Adjustments 9
2.7 Service Invoices 9
2.8 Payment 10
2.9 Taxes 10
ARTICLE 3 MAINTENANCE OF EQUIPMENT, SYSTEMS AND METERS 10
3.1 Maintenance of Supplier Interconnection Equipment 10
3.2 Customer's Equipment 11
3.3 Metering 11
ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS 13
4.1 Mutual Representations 13
4.2 Supplier Representations 13
4.3 Supplier Covenants. 14
ARTICLE 5 ADDITIONAL AGREEMENTS 15
5.1 Conditions Precedent To Effectiveness 15
5.2 Insurance 16
5.3 Confidential Information 17
5.4 Financial Information 18
5.5 Transfer of Information to Customer Pursuant to Sale 19
5.6 Fuel and Electricity Arrangements 19
5.7 Regulatory Compliance Re Electricity 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 6 DEFAULTS AND REMEDIES 22
6.1 Supplier Defaults 22
6.2 Customer Defaults 28
6.3 Remedies Upon Customer Default. 28
6.4 Customer's Obligation to Purchase Upon Termination 29
6.5 Lenders' Right to Cure 30
6.6 Remedies Not Exclusive 30
ARTICLE 7 FORCE MAJEURE 31
7.1 Force Majeure 31
ARTICLE 8 INDEMNIFICATION 32
8.1 Indemnification by the Supplier 32
8.2 Indemnification by the Customer 33
8.3 Notice of Claims 34
ARTICLE 9 TERM 35
9.1 Term 35
9.2 Effect of Termination 35
9.3 The Customer's Option to Purchase 36
ARTICLE 10 GENERAL PROVISIONS 38
10.1 Notices 38
10.2 Successors and Assigns 40
10.3 Entire Agreement; Amendments 41
10.4 Interpretation 42
10.5 Waivers 42
10.6 Expenses 42
10.7 Partial Invalidity 42
10.8 Execution in Counterparts 43
10.9 Governing Law 43
10.10 Time 43
10.11 No Partnership 43
10.12 Arbitration 43
</TABLE>
ii
<PAGE>
AMENDMENT NO. 1 TO FACILITIES AGREEMENT
THIS AMENDMENT NO. 1 TO FACILITIES AGREEMENT (this "Amendment") is made as
of the 2nd day of September, 1998, between GENERAL ELECTRIC CAPITAL CORPORATION,
FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS ("GE Capital"), and ALADDIN
GAMING, LLC ("Aladdin Gaming").
The parties have heretofore executed that certain Facilities Agreement
dated as of June 22, 1998 (the "Agreement"), and desire to amend the Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties agree as follows:
1. In Annex A to the Agreement, the definition of "Premium Percentage" is
deleted and the following substituted in lieu thereof.
"Premium Percentage" shall mean the following specified percentages:
if prepayment occurs on the 4th through 7th payment date, 2%; if
prepayment occurs on the 8th through 15th payment date, 1%; and if
prepayment occurs on or after the 16th payment date, 0%."
2. Except as expressly set forth herein, the terms and conditions of the
Agreement remain unmodified and in full force and effect.
3. THIS ASSIGNMENT AND THE RIGHTS AND OBLIGTIONS OF THE PARTES HEREUNDER
SHALL BE COVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE.
IN WITNESS WHEREOF, this Amendment No. 1 to Facilities Agreement has been
duly executed as of the date first above written.
ALADDIN GAMING, LLC
By: /s/ Cornelius T. Klerk
-------------------------------------
Name: Cornelius T. Klerk
Title: Senior Vice President,
Chief Financial Officer
GENERAL ELECTRIC CAPITAL CORPORATION,
FOR ITSELF AND AS AGENT FOR CERTAIN
PARTICIPANTS
By: /s/ Daniel Gioia
----------------------------
Name: Daniel Gioia
Title: Senior Risk Manager
1
<PAGE>
PURSUANT TO SECTION 5.1(c) OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF
JUNE 30, 1998, BY AND AMONG THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT,
GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN
PARTICIPANTS, AND ALADDIN GAMING, LLC, THE UNERSIGNED CONSENTS TO THE EXECUTION
OF THEFOREGOING AMENDMENT BY ALADDIN GAMING, LLC.
THE BANK OF NOVA SCOTIA,
As Administrative Agent
By: /s/ Alan Pendergast
---------------------------
Name: Alan Pendergast
Title: Relationship Manager
2
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF ALADDIN GAMING HOLDINGS, LLC
Aladdin Capital Corp., a Nevada corporation
Aladdin Gaming, LLC, a Nevada limited liability company
Aladdin Music Holdings, LLC, a Nevada limited liability company
Aladdin Music, LLC, a Nevada limited liability company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,248
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 60
<CURRENT-ASSETS> 9,111
<PP&E> 128,449
<DEPRECIATION> 17
<TOTAL-ASSETS> 402,761
<CURRENT-LIABILITIES> 298,146
<BONDS> 114,353
0
0
<COMMON> 0
<OTHER-SE> (13,860)
<TOTAL-LIABILITY-AND-EQUITY> 402,761
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,203
<INCOME-PRETAX> (42,468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,468)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
