<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NO. 333-49715
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALADDIN GAMING ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 6719 88-0379695
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
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831 PILOT ROAD
LAS VEGAS, NEVADA 89119
(702) 736-7114
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
RICHARD J. GOEGLEIN
ALADDIN GAMING ENTERPRISES, INC.
831 PILOT ROAD
LAS VEGAS, NEVADA 89119
(702) 736-7114
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
WALLACE L. SCHWARTZ, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
[LOGO]
2,215,000 WARRANTS TO PURCHASE SHARES OF CLASS B COMMON STOCK OF
ALADDIN GAMING ENTERPRISES, INC.
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This Prospectus relates to the 2,215,000 warrants (the "Warrants") of
Aladdin Gaming Enterprises, Inc., a Nevada corporation (the "Issuer") to
purchase Class B non-voting common stock, no par value, (the "Common Stock") of
the Issuer. The Warrants are exercisable at any time on or after the Separation
Date (as defined herein) at an exercise price of $0.001 per Warrant Share (as
defined herein), subject to adjustment, and, unless exercised, will expire on
March 1, 2010. The Warrants were originally issued and sold on February 26, 1998
(the "Issue Date") to the Initial Purchasers (as defined herein) pursuant to an
offering (the "Offering") by Aladdin Gaming Holdings, LLC, a Nevada
limited-liability company ("Holdings"), Aladdin Capital Corp., a Nevada
corporation ("Capital" and together with Holdings, the "Note Issuers") and the
Issuer, (the Issuer, together with the Note Issuers, the "Aladdin Parties") of
221,500 Units (the "Units") each consisting of $1,000 principal amount at
maturity of 13 1/2 Senior Discount Notes (the "Notes") due 2010 of the Note
Issuers and 10 Warrants, and were simultaneously sold by the Initial Purchasers
in transactions exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act") in the United States to persons
reasonably believed to be qualified institutional buyers as defined in Rule 144A
under the Securities Act.
The number of shares of Common Stock purchasable upon the exercise of the
Warrants and the Exercise Price (as defined herein) will be subject to
adjustment on the occurrence of certain events (subject to certain exceptions)
including (i) the payment by the Issuer of dividends (and other distributions)
in shares of any class of the Issuer's capital stock ("Issuer Stock"), (ii)
subdivisions, combinations and reclassifications of Issuer Stock, (iii)
issuances to all holders of Issuer Stock of rights, options, or warrants
entitling them to subscribe for Issuer Stock or of securities convertible into
or exchangeable for Issuer Stock for a consideration per share of Issuer Stock
which is less than the current market price per share of Issuer Stock and (iv)
the distribution to all holders of Issuer Stock of any of the Issuer's assets,
debt securities or any rights or warrants to purchase such securities (excluding
those rights and warrants referred to in clause (iii) above and excluding cash
dividends less than a specified amount).
The net proceeds from the Offering together with the proceeds from the other
Funding Transactions (as defined herein), including the new $410.0 million Bank
Credit Facility (as defined herein) entered into by Aladdin Gaming, LLC (the
"Company"), a Nevada limited-liability company and a wholly-owned subsidiary of
Holdings and $80.0 million available under the FF&E Financing (as defined
herein), will be used to finance the development, construction and opening of a
hotel and casino, the Aladdin Hotel and Casino in Las Vegas, Nevada (the
"Aladdin"). Pursuant to the Disbursement Agreement (as defined herein), all of
the proceeds from the Offering must be expended before any of the proceeds of
the Bank Credit Facility may be disbursed. The security interests in the
Company's assets relate to substantially all of the Company's assets and such
assets are therefore subject to liens, pledges and other encumbrances for the
benefit of third parties.
The Company is in the development stage and has no assets or operations
other than its interests in the Aladdin, and activities in connection with the
Aladdin's development. Therefore, the Company will have no significant revenues
until the Aladdin becomes operational. It is expected that the Aladdin will
become operational in the first four months of the year 2000. Upon completion of
the Aladdin, the Company will be highly leveraged with substantial fixed debt
service obligations in addition to operating expenses, and is expected to have
$430.0 million of outstanding indebtedness on a consolidated basis, including
$410.0 million outstanding under the Bank Credit Facility and an aggregate of
$20.0 million outstanding under the loan portion of the FF&E Financing. The FF&E
Financing will also consist of $60.0 million of operating leases. Upon the
opening of the Aladdin, the Company is also expected to have an aggregate of
$10.0 million available under a working capital facility. The indebtedness of
Holdings and the Company, including the Notes, collectively, is expected to
represent 95% of their total capitalization as of the opening of the Aladdin.
The Issuer's sole material asset is its interest in the Holdings Group (as
defined herein), which has substantial leverage and so could experience
difficulties servicing its indebtedness.
Following the Registration Statement (as defined herein) being declared
effective by the Securities and Exchange Commission (the "Commission") the
Warrants and Warrant Shares may be offered and sold from time to time by holders
thereof or by their transferees, pledgees, donees, or successors (collectively
the "Selling Holders") pursuant to this Prospectus. The Warrants and the Warrant
Shares may be sold by the Selling Holders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Plan of
Distribution". If required, the names of any such agents or underwriters
involved in the sale of the Warrants and the Warrant Shares and the applicable
agent's commission, dealer's purchase price or underwriters' discount, if any,
will be set forth in an accompanying supplement to this Prospectus. The Selling
Holders will receive all of the net proceeds from the sale of the Warrants and
the Warrant Shares and will pay all underwriting discounts, selling commissions
and transfer taxes, if any, applicable to any such sales. In accordance with the
terms of the Warrant Registration Rights Agreement (as defined herein) the
Issuer will pay other expenses incident to any such registration of the Warrants
and the Warrant Shares. The Selling Holders and any broker dealers, agents or
underwriters that participate in the distribution of the Warrants and the
Warrant Shares may be deemed to be "underwriters" within the meaning of the
Securities Act. See "Plan of Distribution" for a description of indemnification
arrangements.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE WARRANTS OR WARRANT
SHARES.
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THE WARRANTS AND THE WARRANT SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL BOARD
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT
MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
-----------------------
The date of this Prospectus is July 23, 1998.
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-1, including exhibits thereto, (collectively, the "Registration Statement")
under the Securities Act, with respect to the Warrants and the Warrant Shares to
which this Prospectus relates. This Prospectus does not contain all the
information set forth in the Registration Statement to which reference is hereby
made. Any statements made in this Prospectus concerning the provisions of
certain documents are not necessarily complete and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement.
The Registration Statement may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Issuer is
not currently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon the Commission
declaring the Registration Statement effective, the Issuer will become subject
to such requirements, and in accordance therewith will file periodic reports and
other information with the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as the Issuer, that file electronically with the
Commission and the address of such site is http://www.sec.gov.
No person has been authorized to give any information or to make any
representation concerning the Warrants or the Warrant Shares other than those
contained herein and, if given or made, such other information or representation
should not be relied upon as having been authorized by the Issuer.
------------------------
DISCLOSURE REGARDING FORWARD
LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward looking
statements." Those statements include, among other things, the discussions of
the business strategies of the Aladdin Parties and the Company (as defined
herein) and expectations concerning future operations, margins, profitability
and liquidity and capital resources. Forward looking statements are included in
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Prospectus. Although
the Issuer believes that the expectations reflected in such forward looking
statements are reasonable, the Issuer does not give any assurance that such
expectations will prove to be correct. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies of the Aladdin Parties and the Company
or financial projections involving anticipated revenues, expenses, earnings,
levels of capital expenditures or other aspects of operating results. All phases
of the operations of the Aladdin Parties and the Company are subject to a number
of uncertainties, risks and other influences, many of which are outside the
control of the Aladdin Parties and the Company and any one of which, or a
combination of which, could materially affect the results of operations of the
Aladdin Parties and the Company and whether the forward looking statements made
herein ultimately prove to be accurate. Important factors that could cause
actual results to differ materially from the Issuer's expectations are disclosed
in "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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CERTAIN DEFINITIONS
REFERENCES IN THIS PROSPECTUS TO (I) "HOLDINGS" REFER TO ALADDIN GAMING
HOLDINGS, LLC, A NEVADA LIMITED-LIABILITY COMPANY; (II) "CAPITAL" REFER TO
ALADDIN CAPITAL CORP., A NEVADA CORPORATION WHOLLY-OWNED BY
i
<PAGE>
HOLDINGS; (III) "ISSUER" REFER TO ALADDIN GAMING ENTERPRISES, INC., A NEVADA
CORPORATION, THE SOLE ASSET OF WHICH IS A 25% MEMBERSHIP INTEREST IN HOLDINGS;
(IV) "NOTE ISSUERS" REFER TO HOLDINGS AND CAPITAL, COLLECTIVELY; (V) "ALADDIN
PARTIES" REFER TO HOLDINGS, THE ISSUER AND CAPITAL, COLLECTIVELY; (VI) THE
"COMPANY" REFER TO ALADDIN GAMING, LLC, A NEVADA LIMITED-LIABILITY COMPANY WHICH
PLANS TO DEVELOP, CONSTRUCT AND OPERATE THE ALADDIN; (VII) "HOLDINGS GROUP"
REFER TO EACH OF HOLDINGS AND ITS SUBSIDIARIES; (VIII) "LONDON CLUBS" REFER TO
LONDON CLUBS INTERNATIONAL, PLC, A UNITED KINGDOM PUBLIC LIMITED COMPANY AND
(IX) "LCNI" REFER TO LONDON CLUBS NEVADA INC., AN INDIRECT WHOLLY OWNED
SUBSIDIARY OF LONDON CLUBS. ALADDIN HOLDINGS, LLC ("AHL"), WHICH IS 95% OWNED BY
THE TRUST UNDER ARTICLE SIXTH U/W/O SIGMUND SOMMER (THE "TRUST"), DIRECTLY OWNS
98.7% OF THE MEMBERSHIP INTERESTS OF SOMMER ENTERPRISES, LLC ("SOMMER
ENTERPRISES"), A NEVADA LIMITED-LIABILITY COMPANY, AND INDIRECTLY OWNS
APPROXIMATELY 71% OF THE MEMBERSHIP INTERESTS OF HOLDINGS PRIOR TO THE EXERCISE
OF THE WARRANTS.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION (INCLUDING FINANCIAL
INFORMATION) APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE ISSUER
The Issuer is an indirect subsidiary of AHL and was incorporated for the
sole purpose of issuing the Warrants and Warrant Shares. The sole material asset
of the Issuer is 25% of the Holdings Common Membership Interests (as defined
herein). 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 the Company (the "Series A Preferred Interests"). The
Warrants entitle the holders thereof to purchase an aggregate of 2,215,000
shares of Common Stock of the Issuer, representing a 40% economic interest in
the Issuer, at an exercise price of $0.001 per Warrant Share, subject to
adjustment, and representing an indirect interest of 10% of the outstanding
Holdings Common Membership Interests on a fully-diluted basis as of the Issue
Date, after giving effect to such issuance. The Warrants are exercisable at any
time on or after the Separation Date and, unless exercised, will expire on March
1, 2010.
THE COMPANY
The Company plans to develop, construct and operate a new hotel and casino,
the Aladdin, as the centerpiece of an approximately 35 acre world-class resort,
casino and entertainment complex (the "Complex") located on the site of the
original Aladdin hotel and casino in Las Vegas, Nevada, a premier location at
the center of Las Vegas Boulevard (the "Strip"). The Aladdin has been designed
to include a luxury themed hotel of approximately 2,600 rooms (the "Hotel"), an
approximately 116,000 square foot casino (the "Casino"), an approximately
1,400-seat production showroom and seven restaurants. The Casino's main gaming
area will contain approximately 2,800 slot machines, 87 table games, keno and a
race and sports book facility. Included on a separate level of the Casino will
be a 15,000 square foot luxurious gaming section (the "Salle Privee") which is
expected to contain an additional 20 to 30 high limit table games and
approximately 100 high limit slot machines. The Salle Privee will cater to
wealthy clientele and be operated and marketed in conjunction with London Clubs,
a prestigious, multi-national casino operator which caters to international
premium players. The Complex, which has been designed to promote Casino traffic
and to provide customers with a wide variety of entertainment alternatives, will
comprise (i) the Aladdin; (ii) a themed entertainment shopping mall with
approximately 522,000 square feet of retail space (the "Desert Passage"); (iii)
a second hotel and casino, with a music and entertainment theme, expected to be
known as "Sound Republic Hotel and Casino" (the "Music Project"); (iv) a newly
renovated 7,000-seat Theater of the Performing Arts (the "Theater"); and (v) an
approximately 4,800-space car parking facility (the "Carpark" and, together with
the Desert Passage, the "Mall Project"). The Mall Project and the Music Project
will be separately owned by affiliates of the Company. The Company's business
and marketing strategies are expected to capitalize on the Complex's premier
location, its superior designed, mixed-use, themed development, and strong
strategic partnering with highly successful public companies. The grand opening
date for the Aladdin and the Mall Project is currently anticipated to occur
during the first four months of the year 2000, with the opening of the Music
Project expected to occur within six months after the opening of the Aladdin.
The Company's management team is led by Chief Executive Officer Richard J.
Goeglein, the former President and Chief Executive Officer of Harrah's Hotels
and Casinos and President and Chief Operating Officer of Holiday Corp., who
during his term at Harrah's oversaw the expansion of the Harrah's brand,
including the development of Harrah's Hotel and Casino in Atlantic City.
Assisting Mr. Goeglein as Senior Vice President of the Company and
President/Chief Operating Officer of the Aladdin Hotel and Casino is James H.
McKennon, who as President and Chief Operating Officer of Caesars Tahoe was
instrumental in its financial turnaround and as President of Caesars World
International Marketing Corp. was responsible for the global marketing of the
Caesars brand.
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It is expected that approximately $75 million will be spent on theming in
the Aladdin and the Desert Passage, of which approximately $35 million will be
spent by the Company on the Aladdin. This theming will create an environment in
the Aladdin that will be based upon the Legends of the 1001 Arabian Nights,
including the intriguing tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad
and other legendary stories woven around ancient wealth and wonders. The
Aladdin's exterior will be designed to include a highly articulated streetscape,
a themed Casino exterior shaped like a Bedouin tent, fountains, walkways,
sculptures and an outdoor restaurant. The sophisticated interior of the Aladdin
will utilize rich colors, textures and design, enhancing the fantasy of a
mystical romantic time and place. A significant feature of the Desert Passage
will be the themed area to be known as the "Lost City." The "Lost City" is
expected to contain a re-creation of an ancient mystical mountain city and will
house a variety of specialty shops and restaurants underneath a 10-story high
ceiling. The Company believes that the Aladdin, with its unique theme, together
with the Desert Passage, will ensure its place as a "must-see" destination in
one of the world's largest entertainment cities.
The Company believes that upon completion, the Aladdin, the Mall Project and
the Music Project together will constitute one of the largest and best-planned
integrated, mixed-use entertainment resorts in the world. Aladdin Bazaar
Holdings, LLC ("Bazaar Holdings"), a subsidiary of the Trust, and TH Bazaar
Centers Inc. ("THB"), a subsidiary of TrizecHahn Centers Inc. ("TrizecHahn"),
have entered into a joint venture agreement and formed Aladdin Bazaar, LLC
("Bazaar") to develop, construct, own and operate the Mall Project. TrizecHahn
is the principal retail subsidiary of TrizecHahn Corporation, one of the largest
publicly-traded real estate companies in North America. The Desert Passage is
expected to include an array of high-fashion specialty stores, exotic boutiques,
themed restaurants, cafes and other entertainment offerings. The Desert Passage
will be directly connected to the Casino to maximize Casino traffic.
Aladdin Music Holdings, LLC ("AMH"), a wholly owned subsidiary of the
Company, and a subsidiary of Planet Hollywood International, Inc. ("Planet
Hollywood") have entered into a memorandum of understanding (the "Music Project
Memorandum of Understanding") and formed Aladdin Music, LLC ("Aladdin Music"),
which will own and develop the Music Project. The Music Project Memorandum of
Understanding is subject to the finalization of financing commitments. Planet
Hollywood is a creator and worldwide developer of themed restaurants and
consumer brands, most notably "Planet Hollywood" and the "Official All Star
Cafe." Planet Hollywood has announced that it intends to position a brand of
music-themed entertainment venues as its third major brand. The Music Project,
which will be managed by the Company, is expected to include an approximately
1,000 room hotel, a 50,000 square foot casino, four restaurants, including a
music-themed restaurant which will feature its own 1,000-person nightclub, a
health spa and an outdoor swimming pool. As part of the development of the
Complex, the Company expects to indirectly contribute to Aladdin Music $21.3
million in cash and land having an appraised fair market value of $15.0 million
in exchange for a preferred membership interest in Aladdin Music and to lease to
Aladdin Music the existing 7,000-seat Theater for a nominal amount. It is
anticipated that Aladdin Music will carry out an approximately $8 million
renovation of the Theater, improving its decor, light and sound systems and
other facilities. A further distinguishing feature of the Music Project is the
anticipated active involvement of famous artists and celebrities, some of whom
are expected to be stockholders of Planet Hollywood (or its affiliates),
participate in the marketing of Planet Hollywood's music-themed brand and
perform at the Theater or make other personal appearances at the Music Project.
The Music Project, with its music and entertainment theme, will complement the
Aladdin and it is expected that together the two hotels will offer an excitement
and variety of entertainment alternatives that will further distinguish the
Complex from other venues on the Strip.
The development of the Aladdin commenced during the first quarter of 1998.
The original Aladdin hotel and casino closed for business on November 25, 1997
and the original facility was demolished on April 27, 1998. The development of
the Mall Project is expected to commence during the second quarter of 1998,
followed thereafter by the expected commencement of the development of the Music
Project in the second half of 1998. There can be no assurance, however, that
either of the Mall Project or the Music Project will, in fact, be completed. If
the Mall Project is not completed, the Company will need to expend
2
<PAGE>
additional amounts (expected to be approximately $23 million) with respect to
the completion of shared structural space and the cost of surface parking. See
"Risk Factors--Completion of the Mall Project and the Music Project."
STRENGTHS
The Company believes that several important advantages will contribute
significantly to the success of the Aladdin:
PREMIER LOCATION. The Aladdin's 800 feet of Strip frontage is located on
the section of the Strip between Flamingo Road at the north and Tropicana
Boulevard at the south. Based upon independent research and assuming completion
of the Bellagio, Paris and Venetian development projects, the average vehicular
traffic that will pass the Complex each day is expected to be up to
approximately 54,000.
Another major feature of the Complex will be its easy access from Las Vegas'
McCarran International Airport ("McCarran Airport"), only 2.5 miles away.
According to the Las Vegas Convention and Visitors Authority (the "LVCVA"), the
number of visitors to Las Vegas has increased at a steady and significant rate
for the last 15 years, growing from approximately 10 million in 1980 to
approximately 19 million in 1990 to over 30 million in 1997, with approximately
47% of these visitors in 1997 arriving by air through McCarran Airport. McCarran
Airport, the tenth busiest airport in the United States, is currently in the
process of expanding its capacity through the addition of 26 new gates, and it
is expected that following completion thereof, the number and percentage of
visitors arriving in Las Vegas by air will further increase, making easy access
from McCarran Airport to Las Vegas' resorts even more crucial.
MASTER-PLANNED, MIXED-USE DEVELOPMENT. The Aladdin has been carefully and
strategically designed to promote Casino traffic. Each element of the Complex
has been sited and planned in a manner that maximizes pedestrian and vehicular
traffic so as to facilitate access to and from the Complex, as well as
circulation between the different parts of the Complex, with the Casino being
the nexus for the vast majority of pedestrian traffic. Significant portions of
the Desert Passage and all of the Theater's entrances and exits will be accessed
through, or be adjacent to, the Casino. The Casino will be located in front of
the Hotel, and unlike many of the newer projects on the Strip, will provide easy
access for pedestrians without requiring long walks into the Complex. Pedestrian
visitors to the Aladdin entering from the Aladdin's 800 feet of Strip frontage
will be able to enter the Hotel directly through the Casino or through the
Desert Passage entrances. Through the use of a circular internal roadway, guests
arriving by limousine, car service, taxi or private vehicle will be able to
enter the Complex directly and easily from the Strip and Harmon Avenue.
Furthermore, by the use of bridges and access ways, pedestrians will not be
required to cross roadways while moving between different attractions on the
Complex, thus facilitating ease of movement between the various parts of the
Complex and the Strip.
UNIQUE ENTERTAINMENT FACILITIES. The Aladdin is expected to benefit from
the Casino traffic generated from the broad variety of entertainment facilities
located throughout the Complex. The Aladdin will be adjacent to the existing
Theater, which is expected to continue to be used to hold major concerts and
theatrical performances and is one of the few venues of its size and type in
Nevada. The Theater's approximately $8 million renovation is expected to
transform it into a first-class venue and provide an additional source of
visitor traffic to the Complex.
The Aladdin will include a 1,400-seat showroom featuring a 1001 Arabian
Nights-themed production show on its mezzanine level, with elegant, exotic
costuming, music, lighting and choreography. In addition, the Desert Passage
will be designed to engage the customer in a themed shopping, entertainment and
dining experience. Of the approximately 522,000 square feet of retail space
within the Desert Passage, it is anticipated that approximately 25% will be
devoted to high pedestrian traffic generating food, beverage and entertainment
experiences. Furthermore, the Music Project is expected to contain a
1,000-person nightclub featuring regular live performances.
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PRESTIGIOUS STRATEGIC PARTNERS.
The Company and the Complex will benefit from important relationships with
several prominent public companies, as follows:
- - LONDON CLUBS INVESTMENT. London Clubs, a prestigious multi-national casino
operator, indirectly owns 25% of the outstanding common membership interests
of Holdings ("Holdings Common Membership Interests"). London Clubs had an
equity market capitalization of over $461 million on May 29, 1998. London
Clubs has extensive experience in the international marketing of casinos to
premium players and maintains a strong presence in the United Kingdom (where
it controls the largest share of the London casino market), Europe, Asia and
the Middle East. In addition to its 25% ownership of the outstanding
Holdings Common Membership Interests, London Clubs, through LCNI, will
direct the operations of, and act as marketing consultant to, the Salle
Privee. The Company believes that the Salle Privee will be the first of its
kind in the United States managed by a European operator and based on the
European concept of full service gaming areas for premium players. The Salle
Privee's primary business and marketing focus will be to access London
Clubs' worldwide base of upscale casino clientele.
- - JOINT VENTURE WITH PLANET HOLLYWOOD. Through a subsidiary, Planet Hollywood
has agreed to be a 50% partner (on a fully diluted basis) in the Music
Project. Planet Hollywood is a creator and worldwide developer of consumer
brands, most notably "Planet Hollywood" and the "Official All Star Cafe,"
that capitalize on the universal appeal of the high energy environment of
movies, sports and other entertainment-based themes. The Company believes
that the exposure generated by the Music Project will enhance the Aladdin by
providing immediate excitement and press coverage for the Complex. On July
21, 1998, Planet Hollywood announced that it has retained financial advisors
in connection with a review of Planet Hollywood's financial and strategic
alternatives and is continuing with an operational plan to address current
financial and operational performance issues. There can be no assurance that
the Music Project will proceed with Planet Hollywood. See "Risk
Factors--Completion of the Mall Project and the Music Project."
- - STRATEGIC RELATIONSHIP WITH TRIZECHAHN. The Mall Project will be owned,
developed and operated by Bazaar, a joint venture between Bazaar Holdings
and THB, a subsidiary of TrizecHahn. TrizecHahn is a wholly-owned subsidiary
of TrizecHahn Corporation, one of the largest publicly traded real estate
companies in North America. TrizecHahn was the developer of Horton Plaza in
San Diego, Bridgewater Commons in New Jersey, Valley Fair in San Jose and
Park Meadows in Denver. Investors should note that TrizecHahn has announced
that it is considering selling its operating portfolio of regional shopping
centers and on April 6, 1998 announced the sale of 20 regional shopping
centers for over $2.5 billion. See "Risk Factors--Completion of the Mall
Project and the Music Project." While TrizecHahn's announcement is limited
to the sale of its current operating portfolio of regional shopping centers,
there can be no assurance that TrizecHahn will not similarly decide to sell
its interest in the Desert Passage. Accordingly, investors cannot be assured
that TrizecHahn will own and operate the Desert Passage once it becomes
operational, and as a result, pedestrian traffic to the Aladdin may
decrease.
STRATEGY
The Company's business and marketing strategies are expected to capitalize
on the Complex's premier location, its superior designed, mixed-use themed
development and strong strategic partnering with highly successful public
companies.
CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin,
with its unique design, together with the Desert Passage and the Music Project
will ensure its place as a "must-see" destination in one of the fastest growing
entertainment cities in the world. The Aladdin theme will be supported by a
sophisticated interior design enhancing the fantasy of a mystical and romantic
time and place. The Aladdin's main Casino traffic will be driven not only by
Hotel guests, but also by the customers directly
4
<PAGE>
attracted from the Strip. Visitor traffic to the Aladdin will also be enhanced
by the Desert Passage and the adjoining Music Project.
TARGETED MARKET POSITIONING. The Company intends to focus on three
different market segments to attract customers to the Aladdin:
- - UPSCALE CLIENTELE. The Hotel will be designed to appeal to an upscale
clientele, providing the amenities and level of service such high-end guests
expect. Each of the Hotel's approximately 2,600 guest rooms will have an
area of not less than 450 square feet--exceeding that of the average Las
Vegas hotel room of approximately 360 to 400 square feet--and 24% of the
Hotel's guest rooms will have an area exceeding 620 square feet. The Hotel's
room inventory for the upscale market is expected to include 624 "king
parlors" and suites, ranging from 585 to 1,162 square feet. The Hotel will
provide extensive recreational facilities and amenities for its guests,
including a 20,000 square foot health spa with steam, sauna and massage
services and an outdoor swimming-pool complex surrounded by gardens and
fountains. The Company intends to promote the Aladdin's many features to the
upscale market through a variety of media, including high-end print
publications, travel agents and events sponsorships. A targeted-relationship
marketing program is expected to ensure clientele retention and repeat
visitation.
- - INTERNATIONAL PREMIUM PLAYER CLIENTELE. The focus of the Salle Privee's
business will be the wealthy clientele that form the core of London Clubs'
business in London and elsewhere. The Hotel will include 30 suites primarily
for use by Salle Privee clientele, including 25 "Salle Privee suites"
(ranging from 815 to 930 square feet) and five "mega-suites" (ranging from
2,125 to 3,500 square feet). The Company will maintain the Salle Privee's
premium player atmosphere through more sophisticated dining options, higher
table limits and more formal levels of service and dress.
- - UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms, six of its
seven restaurants and the 1,400-seat production showroom, combined with the
heavily themed Casino, Theater and Desert Passage, are expected to appeal
broadly to the upper-middle market guest. Additionally, cooperative
advertising and promotion through various media, such as television, radio
and print, will be used to promote the Complex to the upper-middle market.
Furthermore, the Music Project is expected to attract younger, affluent
customers to the Complex through, among other things, its music and
entertainment-based theme.
LEVERAGE FROM STRATEGIC RELATIONSHIPS. The Company and its affiliates have
chosen as strategic partners an experienced team of retail, casino and themed
entertainment developers and operators. The Company intends to utilize the
unique expertise of its partners from the preliminary development stages of the
Complex through its promotion and operation.
- - DEVELOPMENT EXPERTISE. In establishing a strategic relationship with
TrizecHahn, the Company has obtained the knowledge, skills and capital of a
partner who has expertise in the coordination, construction and completion
in a timely manner of large, high quality projects.
- - MANAGEMENT AND OPERATING ABILITIES. The Complex is expected to benefit from
the experience of TrizecHahn, London Clubs and Planet Hollywood in its
operations. Through its management and ownership of shopping centers,
TrizecHahn has demonstrated its ability to successfully design, configure
and attract high quality tenants to its retail shopping projects. London
Clubs has extensive experience in the international marketing and operation
of casinos, in particular to premium players. In addition, Planet Hollywood
has successfully grown its concepts to 87 company-owned and franchised
Planet Hollywood and Official All Star Cafe units (as of December 31, 1997)
since commencing business in 1991.
- - CAPITALIZING ON BRAND NAMES. With access to some of the most well-known names
in their respective markets, the Company expects to capitalize on the
worldwide brand recognition of Planet Hollywood, London Clubs and
TrizecHahn, creating unique opportunities for the Complex.
5
<PAGE>
- - ACCESSING NEW CLIENT BASE. London Clubs and Planet Hollywood are expected to
provide the Complex with access to market segments which the Company
believes have not been extensively penetrated by other hotel/casinos in Las
Vegas. London Clubs provides the Aladdin with a substantial network of
international premium players and superb promotional opportunities.
Furthermore, it is expected that Planet Hollywood will introduce a younger,
affluent clientele to the Complex through, among other things, celebrity
involvement in the Music Project.
CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS. The Company anticipates the
total cost of developing, financing, constructing and opening the Aladdin to be
approximately $790 million (excluding the Company's $21.3 million planned
indirect cash contribution and $15.0 million appraised fair market value land
contribution to Aladdin Music as part of the development funds for the Music
Project). As part of the Company's strategy of carefully managing construction
costs and risks, the Company has hired Tishman Construction Corporation of
Nevada ("Tishman"), to be the construction manager. Tishman is a subsidiary of
Tishman Realty & Construction Co. Inc., a privately held company with extensive
experience in building quality hotels and casinos. As construction manager,
Tishman will advise with respect to scheduling, administration and reporting in
connection with the construction activities of the Design/ Builder (as defined
herein). In addition, the following arrangements have been made to ensure the
full and timely completion of the Aladdin.
- - BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY. London Clubs,
the Trust and Bazaar Holdings have entered into a completion guaranty (the
"Bank Completion Guaranty") for the benefit of the lenders under the Bank
Credit Facility (the "Bank Lenders"), under which they have agreed to
guarantee, among other things, the completion of the Aladdin. The Bank
Completion Guaranty, is not subject to any maximum dollar limitations.
London Clubs, the Trust and Bazaar Holdings have also entered into a limited
completion guaranty for the benefit of the holders of the Notes (the
"Noteholder Completion Guaranty"), under which they have guaranteed
completion of the Aladdin, subject to certain important exceptions,
limitations and qualifications. None of Holdings, the Issuer nor the holders
of Warrants or Warrant Shares is a party to the Bank Completion Guaranty or
the Noteholder Completion Guaranty. No financial information regarding the
Trust is available for the purpose of evaluating the Trust's
creditworthiness and, accordingly, purchasers of Warrants or Warrant Shares
should not rely upon the Trust's performance under the Bank Completion
Guaranty of Noteholder Completion Guaranty when making their investment
decision. See "Risk Factors--Lack of Available Information on the Trust's
Ability to Perform Its Obligations Under Certain Agreements," "--Limitations
Under Bank Completion Guaranty and Noteholder Completion Guaranty,"
"Description of Noteholder Completion Guaranty and Disbursement
Agreement--Noteholder Completion Guaranty" and "Description of Certain
Indebtedness and Other Obligations--Completion Guaranty."
- - DESIGN/BUILD CONTRACT. Fluor Daniel, Inc. (the "Design/Builder") is the
design/builder for the Aladdin. The Design/Builder has entered into a
guaranteed maximum price design/build contract (subject to increases based
on scope changes) with the Company to design and construct the Aladdin (the
"Design/Build Contract"). The Design/Build Contract provides the
Design/Builder with incentives for completing the Aladdin ahead of schedule
and within budget and for payment of liquidated damages to the Company for
certain delays. The Design/Build Contract is guaranteed by Fluor Corporation
("Fluor"), the parent of the Design/Builder, pursuant to the Fluor Guaranty
(as defined herein). See "Certain Material Agreements--Design/Build
Contract."
- - MALL FINANCING AND MALL GUARANTY. Bazaar has entered into a building loan
agreement with Fleet National Bank ("Fleet," and together with any other
lenders in a financing syndicate to be formed, the "Mall Lenders"), and
Fleet as administrative agent for a credit facility to fund the construction
of the Mall Project (the "Mall Financing"). Furthermore, TrizecHahn,
TrizecHahn Office Properties, Inc. ("THOP"), an affiliate of TrizecHahn, the
Trust, Bazaar Holdings and AHL have agreed to guarantee completion of the
Mall Project and Bazaar's indebtedness to the Mall Lenders until certain
earnings and loan to value targets have been met (collectively, the "Mall
Guaranty"). Investors should note
6
<PAGE>
that TrizecHahn has announced that it is considering selling its operating
portfolio of regional shopping centers and on April 6, 1998, announced the
sale of 20 regional shopping centers for over $2.5 billion. While
TrizecHahn's announcement is limited to the sale of its current operating
portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert
Passage. Accordingly, investors cannot be assured that TrizecHahn will own
and operate the Desert Passage once it becomes operational, and as a result,
pedestrian traffic to the Aladdin may decrease. See "Risk
Factors--Completion of the Mall Project and the Music Project."
MANAGEMENT AND DEVELOPMENT TEAM
The Complex is being developed by a team with broad expertise in each of the
elements of the Complex and which, collectively, have a proven track record in
constructing, completing and operating significant hotel casino projects.
MANAGEMENT TEAM. The management team of the Company, which will develop and
operate the Aladdin and the Music Project, comprises a unique combination of
executives with an average of more than 20 years' experience in the management
of hotels, casinos, restaurants and large real estate projects. The team
includes:
- - Jack Sommer, Chairman of the Company, who has been a full-time resident of
Las Vegas since 1988 and has more than 25 years of experience as a developer
of real estate including luxury projects such as North Shore Towers, in
Queens County, New York, The Sovereign at 425 East 58th Street in Manhattan
and 280 Park Avenue, an 820,000 square foot office building in Manhattan
formerly owned and currently partially occupied by the Bankers Trust
Company.
- - Richard J. Goeglein, Chief Executive Officer, President and a director of the
Company who has spent over 28 years in the hotel/casino and food service
industries. Mr. Goeglein has served as President and Chief Executive Officer
of Harrah's Hotels and Casinos and as President and Chief Operating Officer
of Holiday Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns
and Embassy Suites). Mr. Goeglein oversaw the acquisition of Harrah's and
the development of some of Harrah's most successful projects, including
Harrah's Hotel and Casino in Atlantic City, and its expansion into Southern
Nevada.
- - James H. McKennon, Senior Vice President of the Company and President/Chief
Operating Officer of the Aladdin Hotel and Casino, whose career spans over
21 years in the hotel and casino industry in a variety of executive
positions, including as President and Chief Operating Officer of Caesars
World International Marketing Corp. Mr. McKennon was also President and
Chief Operating Officer of Caesars Tahoe for 4 years and was instrumental in
its financial turnaround.
- - Cornelius T. Klerk, Senior Vice President/Chief Financial Officer of the
Company, has over 19 years experience in the hotel and casino industry both
at the corporate and property level, including as Vice President/Finance of
the Hilton Hotels Gaming Division from 1993 to 1997. Mr. Klerk also served
in a variety of senior financial management positions during the development
and operation of Harrah's Hotel and Casino in Atlantic City and Harrah's
Trump Plaza (now Trump Plaza) in Atlantic City.
DEVELOPMENT TEAM. The Company and its affiliates have been involved in the
design of the Complex for over 24 months and have assembled a development team
with proven experience in the development of high quality resort projects. The
team includes:
- - Tishman, the construction manager for the Aladdin. Tishman or its affiliates
have developed or built over 30,000 hotel rooms nationwide, including the
Golden Nugget and the Trump Castle Hotel and Casino in Atlantic City, the
400-room expansion of Harrah's Hotel and Casino in Atlantic City, the 2,300
room Walt Disney World Dolphin and Swan Hotel and Convention Complex and the
1,200 room Sheraton Chicago Hotel.
7
<PAGE>
- - The Design/Builder, a subsidiary of Fluor. The Design/Builder is recognized
internationally as an industry leader in providing architectural,
engineering and construction services, including resort projects such as the
Guest Inn Timika in Indonesia, the Pan Pacific Hotel in Malaysia and the
Hyatt Regency Greenville Hotel.
- - ADP/FD of Nevada, Inc. ("ADP"), the Complex architect and an indirect
subsidiary of Fluor. ADP is wholly owned by ADP Marshall, Inc. ("ADP
Marshall"), which is well-known for its architecture work and mixed-use
projects. Its architecture client list includes Princess Hotels, Inc.
(Scottsdale and Acapulco) and Carefree Resorts (The Boulders, The Peaks,
Carmel Valley Ranch).
- - THB, a wholly-owned subsidiary of TrizecHahn and the joint venture partner of
ABH in the Mall Project. Prior to its recently announced sale of 20 regional
shopping centers, TrizecHahn owned and managed 27 regional shopping centers
in major markets throughout the United States, comprising over 25 million
square feet.
- - Brennan Beer Gorman Monk/Interiors ("BBGM"), the interior designer for the
Aladdin. BBGM specializes in hospitality design and has experience in
casinos, restaurants, retail, spa/fitness centers and specialty theme
projects, including the recently renovated and expanded Caesars Atlantic
City hotel, Mohegan Sun Casino and TropWorld. BBGM's hotel projects have
included the St. Regis, the Plaza and the Sheraton Hotel & Towers in New
York City.
8
<PAGE>
[CHART]
9
<PAGE>
USE OF PROCEEDS
No proceeds will be received by the Issuer from the registration or sale of
the Warrants or the Warrant Shares pursuant to the Registration Statement. The
gross proceeds from the sale of the Units were $115.0 million. The net proceeds
(net of discounts for Initial Purchasers (as defined herein) and estimated
Offering expenses) together with the proceeds from the other Funding
Transactions are being used to develop, construct, equip and open the Aladdin
and to fund the Company's cash contribution to Aladdin Music with respect to the
Music Project.
Upon or prior to consummation of the Offering, (i) the proceeds from the
sale of the Units were allocated between the Notes and the Warrants, (ii) Sommer
Enterprises (a) contributed a portion of the Contributed Land (as defined
herein) and $7.0 million consisting of the benefit of certain predevelopment
costs incurred by AHL to the Issuer in exchange for Class A Common Stock in the
Issuer and (b) contributed a portion of the Contributed Land to Holdings in
exchange for Holdings Common Membership Interests, (iii) the Issuer contributed
the portion of the Contributed Land, the benefit of the predevelopment costs
received from Sommer Enterprises and the net proceeds allocable from the sale of
the Warrants to Holdings in exchange for Holdings Common Membership Interests,
(iv) Holdings contributed the Contributed Land appraised at $150.0 million,
approximately $42 million in cash from the London Clubs Contribution (as defined
herein) and the $7.0 million consisting of the benefit of certain predevelopment
costs incurred by AHL to the Company in exchange for Common Membership Interests
of the Company, and (v) Holdings contributed $115.0 million in cash, consisting
of the net proceeds of the sale of the Units and approximately $8 million from
the London Clubs Contribution, to the Company in exchange for Series A Preferred
Interests of the Company ((iv) and (v) collectively, the "Equity and Series A
Preferred Interest Financing"). The London Clubs Contribution, together with a
portion of the net proceeds of the Offering, were expended on the Issue Date (as
defined herein) to repay certain existing indebtedness assumed by the Company in
connection with the Sommer Equity Financing (as defined herein) and to pay
certain accrued expenses and certain fees and expenses incurred in connection
with the Funding Transactions. The remaining net proceeds from the Offering
(approximately $35 million) were deposited in a segregated escrow account ("the
Note Construction Disbursement Account") which was pledged as collateral for the
benefit of the holders of the Notes, pending disbursement of such funds pursuant
to the Disbursement Agreement (as defined herein). The liquidation preference of
the Series A Preferred Interests held by Holdings will at all times equal the
Accreted Value (as defined herein) of the Notes.
Prior to or contemporaneously with the Offering, the following other
arrangements (together with the Offering, the "Funding Transactions") for the
financing by the Company of the Aladdin were consummated: (i) the Sommer Equity
Financing and the indirect equity contribution to Holdings by London Clubs of
$50.0 million in cash (the "London Clubs Contribution") in exchange for Holdings
Common Membership Interests; (ii) the closing of the $410.0 million Bank Credit
Facility between the Company and the funding of the Term B Loan (as defined
herein) and the Term C Loan (as defined herein) thereunder into the Cash
Collateral Account (as defined herein) and (iii) execution and delivery of a
commitment letter by the Company for one or more leases or loans in the
aggregate amount of $80.0 million, covering the Specified Equipment and the
Gaming Equipment (each as defined herein), to be used in the Aladdin (the "FF&E
Financing"). See "Controlling Stockholders--Equity and Series A Preferred
Interest Financing," "Description of Certain Indebtedness and Other
Obligations--Bank Credit Facility" and "--FF&E Financing."
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SOURCES AND USES OF FUNDS
The estimated sources and uses of funds raised for the development,
construction, equipping and opening of the Aladdin are as follows (in millions):
<TABLE>
<CAPTION>
SOURCES USES
- --------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C>
Bank Credit Facility(1)....................... $ 410.0 Hotel and Casino(7)........................... $ 295.6
FF&E Financing(2)............................. 80.0 Off-Site Improvements(8)...................... 6.8
Senior Discount Notes due 2010(3)............. 115.0 Reimbursable Site Work Expenses(6)............ 14.2
Land Contribution(4).......................... 150.0 Furniture, Fixtures and Equipment and
Cash Contribution(5).......................... 57.0 Gaming Equipment(9)........................... 107.5
Anticipated Site Work Land(10)...................................... 135.0
Reimbursement(6)............................ 14.2 Retire Existing Debt(11)...................... 74.5
Capitalized Interest, Net(12)................. 44.0
Pre-Opening Costs and Expenses................ 16.9
Reimbursement of Pre-development Costs(13).... 3.9
Working Capital(14)........................... 15.0
Construction and FF&E Contingency(15)......... 31.8
Land Investment in Music Project(16).......... 15.0
Cash Equity Investment in Music Project(17)... 21.3
Financing Fees and Expenses(18)............... 44.7
--------- ---------
Total Sources................................. $ 826.2 Total Uses.................................... $ 826.2
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The Company entered into the Bank Credit Facility with the Bank Lenders. The
Bank Credit Facility, which closed concurrently with the closing of the
Offering, consists of: (a) a term loan of $136.0 million ("Term A Loan")
which matures seven years after the initial borrowing date; (b) a term loan
of $114.0 million ("Term B Loan") which matures eight and one-half years
after the initial borrowing date; and (c) a term loan of $160.0 million
("Term C Loan", and collectively with the Term A Loan and the Term B Loan,
the "Loans") which matures ten years after the initial borrowing date. The
Term B Loan and Term C Loan were funded into the Cash Collateral Account on
the Issue Date, and in June, 1998, the Company began to use a portion of
such funds in the construction of the Aladdin. The use of the remaining
proceeds of the Term B Loan and Term C Loan in the construction of the
Aladdin is subject to satisfaction of the conditions in the Disbursement
Agreement. It is anticipated that the Company will begin to draw down the
Term A Loan, subject to satisfaction of the conditions in the Disbursement
Agreement, in December 1999 (being approximately 21 months after the Issue
Date). See "Risk Factors--Conditions to Draw Down of Funds Under Funding
Transactions." All of the Loans will convert from construction loans into
amortizing loans on the Conversion Date (as defined herein), with
substantial amounts due during the final six quarters of the Term B Loan and
the Term C Loan. The Company has the option to pay interest at either LIBOR
or the alternate base rate ("ABR") published by The Bank of Nova Scotia
("Scotiabank"), in each case plus certain margins. See "Description of
Certain Indebtedness and Other Obligations--Bank Credit Facility."
(2) The Company has entered into an agreement with the FF&E Lender (as defined
herein) for provision of the FF&E Financing. The FF&E Financing consists of
$60.0 million of operating leases and $20.0 million in loans and will be
used by the Company to obtain the Gaming Equipment and Specified Equipment.
See "Description of Certain Indebtedness and Other Obligations--FF&E
Financing."
(3) Represents the gross proceeds of the Offering, which, net of expenses of
approximately $8 million, were contributed, together with approximately $8
million in cash received pursuant to the London Clubs Contribution, by
Holdings to the Company in exchange for Series A Preferred Interests.
(4) The land on which the Aladdin, the Music Project and the Plant (as defined
herein) will be built, including adjacent land of approximately 0.8 acres,
comprises a total of approximately 22.75 acres (the "Contributed Land") and
was contributed to the Company by Holdings in exchange for Common Membership
Interests. The Contributed Land has an appraised fair market value of $150.0
million (book value of $33.6 million as of December 31, 1997). Approximately
18 acres of the Contributed Land, having an appraised fair market value of
$135.0 million, have been retained by the Company
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and approximately 4.75 acres of the Contributed Land, having an appraised
fair market value of $15.0 million, will be contributed to Aladdin Music for
the Music Project.
(5) Represents (i) a $50.0 million cash contribution by London Clubs in exchange
for 25% of the Holdings Common Membership Interests and (ii) a $7.0 million
deemed equity contribution by the Issuer in exchange for Holdings Common
Membership Interests, consisting of certain pre-development costs incurred
by AHL in 1996, 1997 and 1998.
(6) Pursuant to the Site Work Agreement, the Company has agreed to complete the
construction of, among other things, certain shared structural space (the
"Mall Shared Space"), construction of which will commence prior to the
initial funding of the Mall Financing. Bazaar has agreed to reimburse the
Company for up to $14.2 million (including interest) of the costs associated
with such construction upon the completion of the Mall Shared Space. See
"Certain Material Agreements--Construction, Operation and Reciprocal
Easement Agreement and Related Agreements."
(7) Represents (i) the guaranteed maximum price of construction of the Aladdin
pursuant to the Design/ Build Contract of $267.0 million, less the
contingency allowance of $6.8 million and expected reimbursement from Bazaar
of $13.6 million (net of approximately $0.6 million of interest) as set
forth in note (6) above; (ii) approximately $35 million for theming the
Aladdin; (iii) $11.7 million for professional fees and disbursements; and
(iv) $2.3 million for permits and taxes. See "Risk Factors-- Completion of
the Mall Project and the Music Project." The Design/Build Contract contains
financial incentives for the Design/Builder to complete the Aladdin within
the construction budget and in a timely manner, as well as liquidated
damages payable to the Company for certain unexcused delays. See "Risk
Factors--Risks of New Construction," "--Risks Under Design/Build Contract
and Fluor Guaranty" and "Certain Material Agreements--Design/Build
Contract."
(8) Represents the cost of off-site improvements, including overhead pedestrian
walkways and widening of certain streets, for those parts of the Project
Site (as defined herein) on which the Aladdin will be built.
(9) Includes $26.5 million of gaming equipment and $81.0 million of furniture,
fixtures and other equipment (including the Specified Equipment consisting
of new furniture and equipment other than gaming equipment).
(10) Represents the appraised fair market value of the land on which the Aladdin
and the Plant will be built, together with adjacent land of approximately
0.8 acres.
(11) Represents the retirement on the Issue Date of $68.7 million of existing
indebtedness on the Contributed Land (with an interest rate of LIBOR plus
650 bps) and $5.8 million of existing debt owed by the Trust to GW Vegas LLC
("GW Vegas"), assumed by the Company as part of Holdings' equity
contribution to the Company.
(12) Represents capitalized gross interest under the Bank Credit Facility of
$57.4 million and capitalized gross interest of $2.4 million from leasing
expenses in connection with the FF&E Financing, from the date of the
Offering until the estimated completion of the Aladdin in the first four
months of the year 2000, net of interest income anticipated to be earned
upon the investment in cash equivalents of the funds (assumed to be at 5%
per annum) from the proceeds of the Offering and the proceeds of the Term B
Loan and Term C Loan.
(13) Represents $3.0 million of certain predevelopment costs incurred by AHL and
reimbursed on the Issue Date and up to $0.9 million of certain
predevelopment costs expected to be incurred and reimbursed over the
expected construction period.
(14) Represents cash on hand, inventories, deposits and other cash balances
required for the opening of the Aladdin.
(15) Comprises (i) the $6.8 million contingency included in the guaranteed
maximum price set forth in the Design/Build Contract and (ii) the $25.0
million general project contingency (collectively, the "Contingency").
(16) Represents the appraised fair market value of the approximately 4.75 acres
of land on which the Music Project will be built, which land will be
contributed by the Company to AMH in exchange for common membership
interests in AMH.
(17) Represents cash to be contributed by the Company to AMH in exchange for
common membership interests in AMH.
(18) Represents fees in connection with the organization of the Company and the
financing of the Aladdin, including approximately $8 million in expenses
incurred in connection with the Offering.
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<PAGE>
THE WARRANTS AND WARRANT SHARES
The Warrants were originally issued by the Issuer in the Offering, pursuant
to which 221,500 Units were issued and sold. Each Unit consists of $1,000
principal amount of Notes and 10 Warrants. The Notes and the Warrants will be
separately transferable, in accordance with the Indenture (as defined herein),
upon the filing of the Registration Statement at the option of the holders
thereof. The Registration Statement applies solely to the Warrants and the
Warrant Shares. The registration of the Warrants and the Warrant Shares is
intended to satisfy certain obligations of the Issuer under a registration
rights agreement with respect to the Warrants (the "Warrant Registration Rights
Agreement") among the Issuer and Merrill Lynch, Pierce, Fenner and Smith
Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and
Scotia Capital Markets (USA) Inc. (the "Initial Purchasers"), dated the Issue
Date. There will be no proceeds to the Issuer from the registration or
subsequent sale of the Warrants or Warrant Shares.
<TABLE>
<S> <C>
Issuer....................... Aladdin Gaming Enterprises, Inc.
Number of Warrants........... The Warrants entitle the holders thereof to acquire an
aggregate of 2,215,000 shares of Common Stock of the Issuer
(40% of the economic interest in the Issuer) representing an
indirect interest in 10% of the outstanding Holdings Common
Membership Interests on a fully-diluted basis after giving
effect to such issuance.
Exercisability; Expiration... The Warrants are exercisable at any time on or after the
Separation Date (as defined herein) and prior to March 1,
2010.
Exercise Price............... Each Warrant entitles the holder thereof to purchase one
share of Common Stock of the Issuer at an exercise price of
$0.001 per share, subject to adjustment.
Anti-Dilution Provisions..... The Warrants have customary anti-dilution provisions. Such
anti-dilution provisions are also reflected in the documents
pertaining to the Holdings Common Membership Interests.
Warrant Shares............... The Warrants entitle the holders thereof to acquire
non-voting Common Stock of the Issuer. Shares of Common
Stock of the Issuer or any successor entity and any other
securities or property issuable or deliverable upon exercise
of the Warrants are collectively referred to herein as the
"Warrant Shares." The Issuer is a corporation, the sole
material asset of which is 25% of the outstanding Holdings
Common Membership Interests. The Warrants represent an
effective 10% interest in the outstanding Holdings Common
Membership Interests, on a fully-diluted basis after giving
effect to such issuance, and the Trust (through Sommer
Enterprises) owns interests which represent an effective
58.5% interest in the outstanding Holdings Common Membership
Interests on a fully-diluted basis, (44.5% held by a direct
ownership and 14.0% held by an indirect equity ownership
through the Issuer).
Equity Participation The Issuer, the Warrant Agent for and on behalf of the
Agreement.................. holders of the Warrants and Warrant Shares, the Trust,
London Clubs and Holdings have entered into the Equity
Participation Agreement (as defined herein) which provides
(among other things) (a) for the grant of certain
"tag-along" rights to the holders of Warrant Shares in
respect of sales by Sommer Enterprises or LCNI, directly or
indirectly, of Holdings Common Membership Interests; (b) for
rights of holders of the Warrant Shares to participate in an
initial public offering on the same terms and conditions as
LCNI and Sommer Enterprises and (c) that the Warrant holders
will have the right to convert their Warrant Shares into
Common Membership Interests in the Company in the event that
the Issuer takes certain actions, including certain mergers
</TABLE>
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<TABLE>
<S> <C>
or consolidations, disposition of all or substantially all
of the Issuer's assets, transfers of the Issuer's Holdings
Common Membership Interests, certain recapitalizations of
the Issuer, voluntary dissolution or liquidation of the
Issuer, repurchases of the Issuer's stock which is not
pro-rata among the stockholders, and certain issuances of
the Issuer's stock. See "Certain Material Agreements--Equity
Participation Agreement."
Tag Along.................... The Equity Participation Agreement provides, among other
things, that upon certain sales by Sommer Enterprises or
LCNI of Holdings Common Membership Interests, the holders of
Warrant Shares will be permitted to sell a pro rata share of
their Warrant Shares on the same terms and conditions as the
sale by Sommer Enterprises, LCNI or Holdings, as the case
may be.
Holdings Common Membership
Interests.................. The Holdings Operating Agreement (as defined herein)
contains provisions mirroring the "tag-along" rights set
forth in the Equity Participation Agreement and the
anti-dilution provisions set forth in the Warrant Agreement.
Holders of Warrant Shares do not have any voting rights
through the Issuer's ownership of Holdings Common Membership
Interests. Upon a default under the Keep-Well Agreement (as
defined herein) a resulting decrease or increase in the
percentage interest in Holdings indirectly held by the Trust
or London Clubs will not affect the percentage of Holdings
Common Membership Interests held by the Issuer.
Qualified Public Offering.... A Qualified Public Offering is a public offering of common
stock registered under the Securities Act and resulting in
proceeds of at least $50.0 million. The Issuer, Holdings or
another entity which controls the Company (each, an "IPO
Entity") may effect a public offering of common stock
registered under the Securities Act so long as prior to such
public offering, London Clubs, the Trust, or the
beneficiaries of the Trust (whether current or contingent)
as of the date hereof which control AHL or Sommer
Enterprises, and holders of the Warrants and Warrant Shares
each hold, directly or indirectly, their respective equity
interests in the IPO Entity. London Clubs, the Trust, or the
beneficiaries of the Trust (whether current or contingent)
as of the date hereof which control AHL or Sommer
Enterprises, and the IPO Entity will use their reasonable
best efforts to effect such public offering such that
holders of the Warrants and Warrant Shares will not
recognize income gain or loss for federal income tax
purposes (other than as a result of a sale of their Warrant
Shares in such public offering) and holders of the Warrants
and the Warrant Shares will be subject to federal income tax
in the same manner and at the same times as would have been
the case if the Warrants were originally issued by the IPO
Entity.
</TABLE>
For additional information regarding the Warrants and Warrant Shares see
"Description of the Warrants," "Description of Capital Stock" and "Certain
United States Federal Income Tax Considerations."
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RISK FACTORS
PROSPECTIVE INVESTORS ARE STRONGLY CAUTIONED THAT AN INVESTMENT IN THE
WARRANTS AND THE WARRANT SHARES INVOLVES A HIGH DEGREE OF RISK. THE ABILITY OF
THE ALADDIN PARTIES TO CAUSE THE COMPLETION OF AND TO SUCCESSFULLY OPERATE THE
ALADDIN IS SUBJECT TO AN UNUSUAL NUMBER OF MATERIAL RISKS AND UNCERTAINTIES. THE
CONTINGENCIES AND OTHER RISKS DISCUSSED BELOW COULD AFFECT THE ALADDIN PARTIES
IN WAYS NOT PRESENTLY ANTICIPATED AND THEREBY MATERIALLY AFFECT THE VALUE OF THE
SECURITIES OFFERED HEREBY. A CAREFUL REVIEW AND UNDERSTANDING OF EACH OF THE
RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, IS ESSENTIAL FOR AN INVESTOR SEEKING TO MAKE AN INFORMED INVESTMENT
DECISION WITH RESPECT TO THE WARRANTS AND THE WARRANT SHARES.
SUBSTANTIAL LEVERAGE
The Issuer's sole material asset is its interest in the Holdings Group,
which has substantial leverage and so could experience difficulties servicing
its indebtedness.
The Issuer does not have any material assets other than its ownership of 25%
of the Holdings Common Membership Interests. Holdings does not and may not in
the future have any material assets other than its ownership of 100% of the
Common Membership Interests in the Company and its ownership of 100% of the
Series A Preferred Interests in the Company, and does not and may not in the
future have any material operations or revenues (other than income derived from
its interest in the Company). Accordingly, the ability of the Holdings Group to
pay principal, interest, premium, if any, or any other payment obligations on
its indebtedness will be completely dependent on the operations of the Company.
The Holdings Group is, and upon completion of the Aladdin will be, highly
leveraged with substantial fixed debt service obligations in addition to
operating expenses, and is expected upon completion of the Aladdin to have
approximately $583 million of outstanding indebtedness, including $410.0 million
outstanding under the Bank Credit Facility, approximately $153 million
outstanding under the Notes (representing the approximate Accreted Value (as
defined in the Indenture) thereof on April 30, 2000) and an aggregate of $20.0
million outstanding under the loan portion of the FF&E Financing. Such
indebtedness is expected to represent 95% of the total capitalization of the
Holdings Group as of the opening of the Aladdin and require annual debt service
payments ranging from $58.9 million to $91.6 million, depending on the year. Of
such aggregate indebtedness, approximately $430 million will be indebtedness of
the Company and not Holdings. The FF&E Financing also consists of $60 million of
operating leases. The Company is required to pay $13.6 million in minimum lease
payments annually under the lease portion of the FF&E Financing. Upon the
opening of the Aladdin, the Company is expected to have an aggregate of $10
million available under a working capital facility. In addition, the Indenture
allows the Company to incur additional indebtedness under certain circumstances.
See "Description of Certain Indebtedness and Other Obligations--Senior Discount
Notes." The degree to which the Holdings Group is leveraged could have important
consequences to the holders of the Warrants and Warrant Shares, including, but
not limited to, the following: (i) increasing the Holdings Group's vulnerability
to adverse general economic and industry conditions; (ii) affecting the
proportion of the Holdings Group's operating cash flow required to pay
principal, interest and other amounts on indebtedness, thereby reducing the
funds available for operations and dividends or distributions to equity holders;
and (iii) impairing the Holdings Group's ability to obtain additional financing
for future working capital expenditures, acquisitions or other general corporate
purposes.
INABILITY TO REPAY DEBT
The Holdings Group will be entirely dependent on the operations of the
Aladdin in order to repay its debt.
Pending the opening of the Aladdin, which is expected to occur in the first
four months of the year 2000, it is currently anticipated that the Company will
have no operations other than activities in connection with the development of
the Aladdin. The ability of the Holdings Group to pay principal, interest and
other amounts payable under its various debt facilities will be dependent upon
the successful completion of the Aladdin and the Company's future operating
performance which is dependent upon a
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<PAGE>
number of factors, many of which are outside the Holdings Group's control,
including the successful completion of the Mall Project, prevailing economic
conditions and financial, business, regulatory and other factors affecting the
Company's operations. If the Company is unable to complete the Aladdin within
its construction budget or, once operating, is unable to generate sufficient
cash flow, it could be required to adopt one or more alternatives, such as
obtaining additional financing to the extent permitted by the Indenture and the
Bank Credit Facility, reducing or delaying planned construction or capital
expenditures, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these alternatives could be effected on
satisfactory terms, and the inability to acquire additional financing could
materially and adversely affect the Holdings Group and the Issuer and so the
value of the Warrants and the Warrant Shares.
Additionally, there can be no assurance that the Aladdin will be able to
attract a sufficient number of patrons to achieve the level of activity
necessary to permit the Holdings Group to meet its payment obligations in
connection with the Funding Transactions and any other indebtedness or
obligations of the Holdings Group. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Description of Certain
Indebtedness and Other Obligations."
CONDITIONS TO DRAW DOWN OF FUNDS UNDER FUNDING TRANSACTIONS
There are significant conditions to the draw down of funds under the terms
of the various Funding Transactions. The aggregate amount of financing subject
to conditions was $496 million as of May 29, 1998, comprising $410 million under
the Bank Credit Facility, $6 million from the proceeds of the Offering and $80
million under the FF&E Financing. Failure by the Company to meet any of these
conditions could have a material adverse effect on its ability to complete the
Aladdin.
Financing for the construction and development of the Aladdin and of the
other components of the Complex has been provided by multiple parties,
including, with respect to the Aladdin, the holders of the Notes, the Bank
Lenders and the FF&E Lender, and with respect to the Mall Project, the Mall
Lenders.
Concurrent with the closing of the Offering, the Company and Holdings
entered into the Disbursement Agreement with the Trustee (for the benefit of the
holders of the Notes) and Scotiabank, as Administrative Agent under the Bank
Credit Facility, Disbursement Agent on behalf of the Bank Lenders and the
holders of the Notes, and as securities intermediary (the "Securities
Intermediary") and U.S. Bank National Association as servicing agent (the
"Servicing Agent"). Pursuant to the Disbursement Agreement, the proceeds from
the Offering of the Notes that were not expended on the Issue Date (being
approximately $35 million) were deposited in the Note Construction Disbursement
Account, which was pledged to the Disbursement Agent for the benefit of the
holders of the Notes. Disbursements from the Note Construction Disbursement
Account are subject to the conditions established in the Disbursement Agreement.
On the Issue Date, the proceeds of the Term B Loan and Term C Loan were
deposited in the Cash Collateral Account, which was pledged to the Disbursement
Agent for the benefit of the Bank Lenders. Disbursements from the Cash
Collateral Account and advances of the Term A Loan are also subject to
conditions established in the Disbursement Agreement. The significant conditions
on the Bank Lenders' obligations to fund or provide advances, include, among
other things, (i) that all of the proceeds of the Offering have been disbursed,
(ii) the absence of any material adverse change in the financial condition,
business, property or prospects and the ability of the Company and the Project
Parties (as defined herein) to perform in all material respects their respective
obligations under the Operative Documents (as defined herein) to which they are
a party, (iii) the absence of any default or an event of default with respect to
material Operative Documents which would be reasonably likely to cause a
material adverse effect on the financial condition, business, property or
prospects of the Company or to the Company's knowledge, of the Project Parties
and their ability to perform in all material respects their respective
obligations under the Operative Documents to which they are a party, (iv) there
being no failure on the part of the Company to keep the Bank Credit Facility In
Balance (as defined herein), and (v) compliance by the Guarantors (as defined
herein) under the Bank Completion Guaranty and London Clubs and AHL, as Sponsors
(as
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<PAGE>
defined herein), under the Keep-Well Agreement. See "Description of the
Noteholder Completion Guaranty and Disbursement Agreement--Disbursement
Agreement."
The Company does not expect to draw down any funds under the Bank Credit
Facility until June 1998 (approximately four months after the Issue Date). If
the Company fails to satisfy the conditions to the draw down of funds under the
Bank Credit Facility, alternative sources of funding will need to be obtained
and/ or the Trust, Bazaar Holdings and London Clubs will be required to make
cash contributions to the Company pursuant to the Bank Completion Guaranty in
order for the Company to complete the Aladdin. The failure of the Company to
satisfy the conditions to the drawdown of funds under the Bank Credit Facility
could have a material and adverse effect on the Company's ability to complete
the Aladdin and so the value of the Warrants and Warrant Shares.
General Electric Capital Corporation (the "FF&E Lender") and the Company
have entered into an agreement to provide the $80.0 million of aggregate
financing required to acquire the Specified Equipment and Gaming Equipment. The
availability of the FF&E Financing is subject to certain conditions. If the
Company is unable to finalize the FF&E Financing for any reason, the financial
position and results of operations of the Company, and so the Aladdin Parties
and holders of Warrants or Warrant Shares, could be materially and adversely
affected.
There can be no assurance that each lender will perform its obligations or
observe the limitations on the exercise of remedies as set forth under such
agreements. Failure of any one or more of the lenders to perform under the
Disbursement Agreement could materially and adversely affect the Company, the
Aladdin Parties and holders of Warrants or Warrant Shares. In addition,
financing by multiple lenders with security interests that are interrelated by
use or location of the underlying collateral may result in increased complexity
in a debt restructuring or other workout of the Company.
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
The Bank Credit Facility and the Indenture impose substantial restrictions
on the ability of the Company and Holdings, respectively, to make distributions
to their equity holders. Accordingly, holders of Warrant Shares are limited in
their ability to receive dividends and other distributions from Enterprises.
The Issuer does not have any material assets other than its ownership of 25%
of the Holdings Common Membership Interests. Holdings is a holding company, and
its ability to make distributions to the Issuer is dependent upon the receipt of
distributions from its direct and indirect subsidiaries. Holdings does not have
and may not in the future have any material assets other than its ownership of
100% of the Common Membership Interests and 100% of the Series A Preferred
Interests of the Company.
The Company is a party to the Bank Credit Facility which imposes substantial
restrictions, including the satisfaction of certain financial conditions, on the
Company's ability to make distributions to Holdings. Holdings is a party to the
Indenture which imposes substantial restrictions, including the satisfaction of
certain financial covenants, on Holdings' ability to make distributions to the
Issuer. The ability of the Company to comply with such conditions in the Bank
Credit Facility and of Holdings to comply with such conditions in the Indenture
may be affected by events that are beyond the control of Holdings. If the
maturity of loans under the Bank Credit Facility or the Notes were to be
accelerated, all indebtedness outstanding thereunder would be required to be
paid in full before the Company or Holdings, as applicable, would be permitted
to distribute any assets or cash to its members. In addition, certain remedies
available to the Bank Lenders under the Bank Credit Facility could constitute
Events of Default under the Indenture and so cause acceleration of the Notes. In
such circumstances there can be no assurance that the assets of the Company
would be sufficient to repay all of such outstanding debt and then to make
distributions to Holdings to enable Holdings to meet its obligations under the
Indenture. Future borrowings by the Company can also be expected to contain
restrictions or prohibitions on distributions by the Company to Holdings and by
Holdings to the Issuer.
The Holdings Operating Agreement and the Company Operating Agreement (as
defined herein) also contain restrictions on distributions on the Holdings
Common Membership Interests and the Common
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Membership Interests, respectively. In particular, no distributions, other than
distributions to cover any tax liability in respect of any Holdings Interests
(as defined herein) may be made on Holdings Common Membership Interests while
any Holdings Series A Preferred Interests (as defined herein) or Holdings Series
B Preferred Interests (as defined herein) are outstanding. Further,
distributions by the Company (other than distributions to cover tax liability)
on Common Membership Interests are also limited while Series A Preferred
Interests are outstanding. Such restrictions could materially and adversely
affect holders of Holdings Common Membership Interests such as the Issuer, and
holders of Common Stock (such as the Warrant Shares) and the Warrants. In
addition, the Indenture contains limitations on Holdings' ability to make
distributions to its members. As a result, the amount of distributions made to
the Issuer, and therefore dividends to the holders of Warrant Shares and other
stockholders, will effectively be restricted by the terms of the Indenture. Such
restrictions could materially and adversely affect returns available to holders
of Warrant Shares and so the value of the Warrants and Warrant Shares.
Any right of Holdings to receive assets of any of its subsidiaries upon such
subsidiary's liquidation or reorganization will be effectively subordinated to
the claims of that subsidiary's creditors, except to the extent, if any, that
Holdings itself is recognized as a creditor of such subsidiary, in which case
the claims of Holdings would still be subordinate to the claims of such
creditors who hold security in the assets of such subsidiary to the extent of
such assets and to the claims of such creditors who hold indebtedness of such
subsidiary senior to that held by Holdings.
CONTROLLING STOCKHOLDERS; LACK OF VOTING POWER FOR WARRANT SHARES
The Warrant Shares will have no voting power, and accordingly decisions in
relation to Enterprises will be made by its other shareholders.
AHL owns 98.7% of the common membership interests of Sommer Enterprises, a
Nevada limited-liability company. Sommer Enterprises owns 100% of the issued and
outstanding Class A Common Stock (as defined herein) and the Common Stock of the
Issuer, prior to the exercise of the Warrants, and the Issuer holds 25% of the
Holdings Common Membership Interests. The remaining Holdings Common Membership
Interests are held approximately 47.0% by Sommer Enterprises, 25.0% by LCNI and
3.0% by GAI, LLC ("GAI"), a Nevada limited-liability company 100% beneficially
owned by Richard J. Goeglein, the Chief Executive Officer and a director of the
Company. Accordingly, AHL, through Sommer Enterprises, indirectly owns 98.7% of
the Issuer (prior to the exercise of the Warrants) and approximately 71.1% of
the Holdings Common Membership Interests. London Clubs, through LCNI, owns 25%
of the Holdings Common Membership Interests. Accordingly, AHL and London Clubs
(the "Controlling Stockholders") control the business, policies and affairs of
Holdings, and so the Company, including the election of directors and managers
and major corporate transactions of the Company.
If all of the Warrants are exercised, the holders of Warrant Shares will own
50% of the issued and outstanding Common Stock, representing an indirect
economic interest in 10% of the outstanding Holdings Common Membership
Interests. However, the holders of the Common Stock are not entitled to vote on
any matter submitted to the Issuer's shareholders, including the election of
directors of the Issuer, and will receive limited minority shareholder
protections. Accordingly, holders of Class A Common Stock will be able, without
the approval of the holders of the Common Stock, subject to applicable law, to
(i) amend the Issuer's Articles of Incorporation and Bylaws; (ii) effect mergers
and certain other major corporate transactions; (iii) elect the Issuer's
directors and (iv) otherwise control the outcome of virtually all matters
submitted to a general shareholder vote. Accordingly, even if all of the
Warrants are exercised, the Trust, through AHL and Sommer Enterprises, will
nevertheless continue to retain control of the Issuer and the Controlling
Stockholders will nevertheless continue to retain control of Holdings, and so
the Company, and the holders of Warrant Shares will be limited in their ability
to exercise any degree of control whatsoever over the Issuer, and so Holdings
and the Company. See "Certain Material Agreements--Equity Participation
Agreement."
Under the Holdings Operating Agreement, if the Trust fails to make its
required 75% contribution for any amounts required to be made under the Bank
Completion Guaranty, LCNI (rather than Sommer
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Enterprises through the Issuer) will have certain rights to control the Board of
Managers of Holdings and LCNI and Sommer Enterprises will each have equal direct
or indirect voting rights in deciding matters with respect to Holdings.
Furthermore, if AHL fails to make its required 75% contributions for any amounts
required to be made under the Keep-Well Agreement, LCNI (in addition to any
rights London Clubs may have against AHL and Sommer Enterprises, which may
include the ability of London Clubs to obtain ownership of Sommer Enterprises'
equity interests in the Issuer) through the Issuer or otherwise will have the
right to control the Board of Managers of Holdings and increase its Holdings
Common Membership Interests up to a total of 72% of the Holdings Common
Membership Interests, and Sommer Enterprises' Holdings Common Membership
Interests will correspondingly decrease, subject to receipt of Gaming Approvals.
For a description of certain relationships between the Company, AHL and LCNI,
see "Controlling Stockholders" and "Certain Transactions."
ABSENCE OF DIVIDENDS AND DISTRIBUTIONS
The Company currently intends to retain all earnings for reinvestment.
Consequently, none of the Issuer, Holdings, or the Company plans to pay any
dividend or make any distributions on its common stock or membership interests.
None of the Issuer, Holdings or the Company has ever paid any dividends or
distributions on its common stock or membership interests and (except for
distributions to cover any tax liability in respect of Holdings Interests and
distributions on the Series A Preferred Interests) none of the Issuer, Holdings
or the Company has any plans to pay any dividends or distributions on its common
stock or membership interests in the foreseeable future. Except as stated in the
preceding sentence, the Company currently intends to retain all earnings for
reinvestment in its business and repayment of indebtedness. The Bank Credit
Facility, the Indenture, the Company Operating Agreement and the Holdings
Operating Agreement restrict the payment of distributions by the Company and
Holdings. Such restrictions could materially and adversely affect the Issuer's
ability to pay dividends on, and the value of, the Warrant Shares and so the
value of the Warrants. See "Dividends and Distributions", "Certain Material
Agreements--Holdings Operating Agreement" and "--Company Operating Agreement"
and "Description of Certain Indebtedness and other Obligations--Bank Credit
Facility" and "--Senior Discount Notes."
RISKS OF NEW CONSTRUCTION
Most large scale construction projects involve significant risks and
unforeseen contingencies. As a result, the estimated cost of the Aladdin project
may exceed current projections.
Major construction projects (and particularly one of the anticipated size
and scale of the Aladdin) entail significant risks, including shortages of
materials or skilled labor, unforeseen engineering, environmental and/or
geological problems, work stoppages, weather interference, unanticipated cost
increases and unavailability of construction equipment. Construction, equipment
or staffing problems or difficulties in obtaining any of the requisite licenses,
permits, allocations or authorizations from regulatory authorities could
increase the total cost, delay, or prevent the construction or opening of the
Aladdin or the other components of the Complex or otherwise affect their
respective design and features.
The anticipated costs and opening dates for the Aladdin are based on
budgets, conceptual design documents (not all of which will be finalized at the
commencement of construction) and schedule estimates prepared by the Company
with the assistance of the architects and contractors described herein. See
"Business--Design and Construction Team." Under the terms of the Design/Build
Contract, the Design/Builder is responsible for all construction costs covered
by the Design/Build Contract that are in excess of the guaranteed maximum price
of $267.0 million, subject to certain qualifications. Pursuant to the Fluor
Guaranty, Fluor has made certain guarantees regarding the Design/Builder's
performance under the Design/Build Contract. However, the Design/Build Contract
provides that the guaranteed maximum price will be equitably adjusted on account
of (i) changes in the design documents at the request of the Company; (ii)
changes requested by the Company in the scope of the work to be performed
pursuant to the Design/Build Contract; and (iii) natural disasters, casualties
and certain other "force majeure" events
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beyond the reasonable control of the Design/Builder. If any such events occur,
the construction costs which must be borne by the Company may increase. As a
result, the actual price paid for the construction of the Aladdin may increase.
The Design/Build Contract requires that all subcontractors engaged by the
Design/ Builder to perform work and/or supply materials in connection with the
construction of the Aladdin post bonds, at the discretion of the Company and the
Design/Builder, guaranteeing timely completion of work and payment for all labor
and materials. Nevertheless, there can be no assurance that the Aladdin will
commence operations on schedule, that construction costs for the Aladdin will
not exceed budgeted amounts or that the Design/Builder will not challenge
aspects of the guaranteed maximum price. Failure to complete the Aladdin on
budget or on schedule may have a material adverse effect on the Company, and so
the Aladdin Parties. The Aladdin is expected to be completed in the first four
months of the year 2000.
COMPLETION OF THE MALL PROJECT AND THE MUSIC PROJECT
There can be no assurance that the Mall Project or the Music Project will be
completed. While the Aladdin Parties believe that the Aladdin would still be
viable even without such projects, the failure of such projects to be completed
could have a material adverse effect on the Aladdin and so Enterprises and the
holders of Warrant Shares.
A principal part of the Complex will be the Mall Project, which is comprised
of the Desert Passage and the Carpark, and the Music Project (including the
Theater). The Company's business plan assumes that the Desert Passage and the
Music Project will attract a substantial flow of pedestrian traffic to the
Casino and that the Carpark will provide essential parking facilities for both
overnight and casual guests at the Aladdin. However, the Company will neither
develop nor own the Desert Passage, the Carpark or the Music Project and the
completion of the Aladdin is not contingent on their completion. Failure of the
Mall Project or the Music Project to be developed or to become operating in a
timely manner will have a material adverse effect on the Company and the Aladdin
Parties. Investors should note that the funding arrangements for the completion
of the Music Project have not been finalized, and there can be no assurance that
such funding arrangements will be finalized at any time, or that the Mall
Project or Music Project will be completed.
The Mall Project will be developed and owned by Bazaar. Bazaar is
37.5%-owned by Bazaar Holdings, which is indirectly controlled by the Trust and
therefore is an affiliate of the Issuer. Bazaar Holdings and THB have entered
into an operating agreement (as amended, the "Bazaar LLC Operating Agreement")
under which each party has agreed to cooperate in the development and operation
of the Mall Project, and Bazaar Holdings, THB and THOP have provided certain
undertakings to effect the development of the Mall Project in an agreed manner
and time frame. See "Certain Material Agreements--Bazaar LLC Operating
Agreement."
Bazaar and the Mall Lenders have entered into a building loan agreement for
the Mall Financing. Funding under the Mall Financing is subject to certain
conditions. If Bazaar fails to satisfy the conditions to the draw down of funds
under the Mall Financing, alternative sources of funding will need to be
obtained. TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL have agreed to
guarantee the completion of the Mall Project and Bazaar's indebtedness to the
Mall Lenders pursuant to the Mall Guaranty. Neither the Company nor any of the
Aladdin Parties is a party to the Bazaar LLC Operating Agreement, the Mall
Guaranty or the Mall Financing and so neither the Company nor any of the Aladdin
Parties may enforce or prevent the amendment or cancellation of any of the
rights or obligations thereunder. In addition, there can be no assurance that
TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL will be in a position to
comply with their obligations under the Mall Guaranty. If the Mall Project is
not completed, the Company believes that it may need to incur additional costs
to complete the construction of the Aladdin, depending on the Aladdin's stage of
construction. If the Mall Project is abandoned after the construction of certain
shared structural space has begun, the Company believes that the costs of
completing the shared structural space (which would be used as retail space) and
demolition and construction expenses necessary to convert the site of the Mall
Project into surface parking would be
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approximately $23 million (including the $14.2 million, including interest, no
longer being reimbursed by Bazaar pursuant to the Site Work Agreement).
The success of the Mall Project, which is expected to be completed in the
first four months of the year 2000, will depend significantly on the skills and
experience of TrizecHahn in the management of entertainment shopping malls such
as the Mall Project. However, under the Bazaar LLC Operating Agreement, THB is,
in certain circumstances, entitled to dispose of its interests in the Mall
Project on or after the opening of the Mall Project. Accordingly, there can be
no assurance that, after such date, TrizecHahn will continue to manage, or hold
an equity interest in, the Mall Project. In addition, on March 5, 1998,
TrizecHahn announced that it is considering the sale of its operating portfolio
of regional shopping centers and on April 6, 1998 announced the sale of 20
regional shopping centers for over $2.5 billion. TrizecHahn has indicated that
its planned sales will not include TrizecHahn's portfolio of development
projects, including the Desert Passage. Although TrizecHahn has indicated that
it will proceed with and have sufficient financial resources to complete the
Desert Passage even if a sale of its entire operating portfolio were to be
consummated, no assurance can be made that TrizecHahn will be in a position to
satisfy its obligations under the Bazaar LLC Operating Agreement. While
TrizecHahn's announcement is limited to the sale of its current operating
portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert Passage.
Accordingly, investors cannot be assured that TrizecHahn will own and operate
the Desert Passage once it becomes operational, and as a result, pedestrian
traffic to the Aladdin may decrease.
The Music Project is expected to be completed by October of the year 2000
and developed and owned by Aladdin Music. Pursuant to the London Clubs Purchase
Agreement, London Clubs, through its wholly owned subsidiary LCNI, has agreed
that so long as Aladdin Music obtains financing for the Music Project on terms
satisfactory to LCNI and provided that certain other conditions are met, Aladdin
Music may develop and own the Music Project in accordance with the terms
described herein. If such conditions are not met, LCNI has the right to select
the method in which it will participate in the Music Project, if at all. There
can be no assurance that the conditions will be satisfied. If the conditions are
not satisfied, there can be no assurance that the Music Project will proceed as
described herein, or at all.
As currently anticipated, the Company and Planet Hollywood intend to operate
the Music Project in a manner conducive to the joint achievement of the
Company's and Aladdin Music's business objectives. While the Company has signed
the Music Project Memorandum of Understanding with Planet Hollywood in
connection with the development, construction and operation of the Music
Project, final documentation for the Music Project has not been entered into,
funding for the Music Project has not yet been finalized and certain significant
matters, such as the appointment of a general contractor to construct the Music
Project, remain incomplete. In addition, certain significant economic issues
concerning Planet Hollywood's obligations in connection with the Music Project
financing are currently being negotiated between the Company and Planet
Hollywood and there can be no assurance that the Company will satisfactorily
resolve such issues. If the Mall Project is not completed, it may not be
feasible to develop the Music Project. If the Music Project is not completed,
the Company intends to apply a portion of the funds which it has allocated for
its equity contribution to Aladdin Music to the renovation of the Theater.
However, without the support of Planet Hollywood through the Music Project, the
Company may not be able to attract the same quality of performers to the Theater
as it may otherwise have been able to attract. Further, even if the Music
Project is completed, there can be no assurance that the Music Project will be
operated in a manner conducive to the achievement of the Company's business
objectives. In addition, the Music Project and its owners must receive all
required Gaming Approvals (as defined herein) from the Nevada Gaming Authorities
(as defined herein) in order to conduct gaming operations.
The failure of Bazaar to complete the Mall Project would not be an Event of
Default under the Notes or the Indenture. An Event of Default would only occur
if less than 200,000 square feet of retail space (all of which retail space is
already included in the plans for the Aladdin) is built and the Note Issuers
fail to meet the fixed charge coverage ratio specified in the Indenture. The
Aladdin Parties believe that even if TrizecHahn and Planet Hollywood abandoned
the Mall Project and the Music Project, respectively, the
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Issuers would, nevertheless, have sufficient cashflow to meet such coverage
ratio, there would consequently be no Event of Default under the Notes and the
Aladdin would continue to be viable.
There can be no assurance (i) that Bazaar or Aladdin Music will have or
obtain sufficient funding to finance the development and operation of the Mall
Project or the Music Project, respectively; (ii) that the Desert Passage or the
Music Project will be completed; (iii) that if completed, the Desert Passage or
the Music Project will attract the number and types of customers expected by the
Company; or (iv) that if completed, the Music Project and its owners will obtain
all required Gaming Approvals or that if obtained, they will be obtained on a
timely basis. While the Aladdin Parties believe that the Aladdin would still be
viable even without the Mall Project or the Music Project, the failure of Bazaar
or Aladdin Music to develop and operate the Mall Project or the Music Project,
respectively, in the manner currently expected could materially and adversely
affect the success of the Aladdin and the financial position and results of
operations of the Company, and so the Aladdin Parties.
On July 21, 1998, Planet Hollywood announced that it has retained financial
advisors in connection with a review of Planet Hollywood's financial and
strategic alternatives and is continuing with an operational plan to address
current financial and operational performance issues.
In Planet Hollywood's Form 10-Q filed with the Commission for the first
quarter of 1998, Planet Hollywood reported an approximately 92% decline in first
quarter profits and an approximately 5% decline in first quarter revenue
compared to the first quarter of 1997. There can be no assurance that the Music
Project will proceed with Planet Hollywood. If the Music Project does not
proceed with Planet Hollywood, the Company may consider other alternatives,
including proceeding with another partner or partners or not proceeding with the
Music Project at all.
COMPLETION OF ENERGY PLANT
Although the obligations of the Energy Provider (as defined herein) to
complete the Plant in accordance with the Development Agreement (as defined
herein) are guaranteed by Unicom (as defined herein), there can be no assurance
that the Energy Provider will perform its obligations under the Development
Agreement (as defined herein) or that Unicom will perform its obligations under
the Unicom Guaranty (as defined herein).
Energy will be provided to certain parts of the Complex by an energy plant
to be developed and constructed pursuant to the Development Agreement. The
Company has entered into the Development Agreement with Northwind Aladdin LLC
(the "Energy Provider"), a subsidiary of UT Holdings Inc. ("UTH"). UTH is a
subsidiary of Unicom Corporation ("Unicom"). Pursuant to the Development
Agreement, the Energy Provider will develop and construct the Plant (as defined
herein) to serve the energy requirements of certain parts of the Complex. See
"Certain Material Agreements--Development Agreement." The design and
construction of the Plant will be at the sole cost and expense of the Energy
Provider, however, the Energy Provider shall not be responsible for costs in
excess of $40.0 million unless agreed to by the Energy Provider. The obligations
of the Energy Provider to complete the Plant in accordance with the Development
Agreement and in a manner capable of delivering the energy requirements of such
parts of the Complex in accordance with the Energy Service Agreement (as defined
herein) are guaranteed by the Energy Provider's ultimate parent, Unicom. Unicom
has agreed that if for any reason the Energy Provider shall fail or be unable to
punctually and fully perform or cause to be performed any of its obligations
under the Development Agreement, Unicom shall perform or cause to be performed
such obligations promptly upon demand. Unicom's obligations are limited to an
amount equal to $30.0 million (or, under certain circumstances, an amount less
than $30.0 million) and shall not be reduced until Substantial Completion (as
defined herein) of the Plant.
There can be no assurance that the Energy Provider will perform its
obligations under the Development Agreement, or that Unicom will perform its
obligations under the Unicom Guaranty. Failure of the Energy Provider or Unicom
to perform its obligations under the Development Agreement and Unicom Guaranty
or failure of the Energy Provider to perform its obligations under the Energy
Service Agreement, could materially and adversely affect the Company, the
Aladdin Parties and holders of the securities
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offered hereby. In addition, the Company may have to make alternative
arrangements for the provision of energy for the Complex. Due to the fact that a
number of other energy suppliers were willing to construct the Plant prior to
the Company selecting Unicom and that the payback period for the Plant is the
period following the opening of the Aladdin, the Company believes that such
alternative arrangements for the completion of the Energy Project could be made.
However, there can be no assurance that such arrangements could, in fact, be
made, or if made, on terms favorable to the Company.
RISKS OF NEW VENTURE
The Company is a development stage company with no prior history. Therefore,
there can be no assurance that it will be able to manage and operate a
hotel/casino on a profitable basis.
The Issuer's sole material asset is its 25% interest in the Holdings Common
Membership Interests. Holdings' material assets are its interests in the
Company. Accordingly, the Issuer's sole material asset is its indirect ownership
of 25% of the interests in the Company. The Company is a development stage
company formed to develop and operate the Aladdin. The Company has no history of
operations and has never been involved in developing, constructing or operating
a hotel/casino project. Although certain members of the Company's management
have experience developing and operating large scale hotels and casinos, none of
these individuals has developed or operated a development of the anticipated
size of the Aladdin, and only certain of these individuals have worked together
with certain other members of the Company's management team in developing or
operating similar projects, none of such projects being the anticipated size of
the Aladdin. See "Management."
The operation of the Aladdin will be subject to significant business,
economic, regulatory and competitive uncertainties and contingencies, many of
which will be beyond the control of the Company and the Aladdin Parties. No
assurances can be given that the Company will be able to manage the Aladdin on a
profitable basis or attract a sufficient number of guests, gaming customers and
other visitors to the Aladdin to make its various operations profitable
independently or as a whole or to enable the Note Issuers and the Company to pay
the principal of and interest on the Notes and the Bank Credit Facility. The
Company will need to recruit a substantial number of new employees prior to the
opening of the Aladdin at a time when other major facilities may be approaching
completion and also recruiting employees. There can be no assurance that the
Company will be able to recruit a sufficient number of qualified employees.
Furthermore, it is not known to what extent such employees will be covered by
collective bargaining agreements, as that will be a determination ultimately
made by such employees. See "Business--Employees."
The opening and operation of the Aladdin will be contingent upon the receipt
of all regulatory licenses, permits, approvals, registrations, findings of
suitability, orders and authorizations from the Nevada Gaming Authorities (as
defined herein) (collectively, "Gaming Approvals") by the Company, Holdings and
its owners. The scope of the approvals required to construct and open the
Aladdin is extensive, and the failure to obtain or maintain such approvals could
prevent or delay the completion or opening of all or part of such facilities or
otherwise affect the design and features of the Aladdin. In particular, the
Company will be required to apply for and obtain approvals from the Nevada
Gaming Authorities with respect to the construction, design and operational
features of the Casino related to surveillance of gaming areas. In addition, the
Company will need to apply for and obtain, prior to commencement of gaming
activities at the Casino, a nonrestricted gaming license and Gaming Approvals
from the Nevada Gaming Authorities with respect to the operation of the Casino
and no assurances can be given that such Gaming Approvals will be obtained, or
that if obtained, they will be obtained on a timely basis. Failure by the
Company to obtain any such Gaming Approvals could materially and adversely
affect the Company's financial position and results of operations. In connection
with the Company's receipt of Gaming Approvals, its members and their owners and
affiliates will also have to obtain applicable Gaming Approvals and no
assurances can be given that such Gaming Approvals will be obtained or if
obtained, that they will be obtained on a timely basis. See "--Government
Regulation" and "Regulation and Licensing." Capital will also be subject to
being called forward for a finding of suitability as a co-issuer of the Notes
and the New Notes (as defined herein) in the discretion of the Nevada Gaming
Authorities.
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LACK OF EXPERIENCE BY THE TRUST AND RELATED ENTITIES IN CASINO OPERATION AND
DEVELOPMENT
None of the Trust, AHL or Mr. Jack Sommer have had any prior experience in
the development or operation of casinos. Their experience is in the ownership
and/or development of office and apartment buildings and other real estate.
While London Clubs has substantial experience in the ownership and operation of
casinos and certain members of the Company's management have substantial
experience in both the development and operation of casinos, there can be no
assurance that such experience will be sufficient to compensate for the Trust's,
AHL's and Mr Sommer's lack of experience in the developement and operation of
casinos.
LACK OF DIVERSIFICATION; DEPENDENCE ON SINGLE SITE
Neither the Issuer, Holdings nor the Company anticipates having material
assets or operations other than their respective interests in the Aladdin.
Accordingly, they are subject to greater risks than a geographically diversified
gaming operation.
The Issuer does not currently anticipate having material assets and
operations other than its interest in Holdings and Holdings does not currently
anticipate having material assets and operations other than its interests in the
Company. In addition, the Company does not currently anticipate having material
assets and operations other than the Aladdin and its membership interests in and
advances to AMH, a wholly owned subsidiary of the Company which will own a 50%
interest in the Music Project (on a fully diluted basis) through Aladdin Music.
Accordingly, the Aladdin Parties and the Company will be subject to greater
risks than a geographically diversified gaming operation, including, but not
limited to, risks related to local economic and competitive conditions, changes
in local and state governmental laws and regulations (including changes in laws
and regulations affecting gaming operations and taxes) and natural and other
disasters. The Company's, and so the Issuer's, principal sources of income
following completion of the Complex will be the Aladdin, and, to a lesser
extent, fees received from Aladdin Music for the provision of management
services with respect to the Music Project. Accordingly, the ability of the
Issuer to pay dividends to holders of Warrant Shares will be directly dependent
on the success of the Aladdin and, to a lesser extent, the Music Project.
CERTAIN BANKRUPTCY CONSIDERATIONS
The structure of the Holdings Group and the fact that Holdings and the
Company are limited-liability companies provides certain bankruptcy risks to
holders of securities.
SUBSTANTIVE CONSOLIDATION
Under the Bankruptcy Code, it is possible that if AHL, the Company, the
Issuer, London Clubs, the Trust, Holdings or Capital, or any of their affiliates
(the "Affiliated Parties") becomes a debtor under applicable bankruptcy law, a
bankruptcy court could order substantive consolidation of the assets and
liabilities of any or all Affiliated Parties. Substantive consolidation is an
equitable, fact-based remedy, not prescribed by statute, with respect to which
the court has considerable discretion. While the separate legal existence of
each Affiliated Party and its observance of certain formalities and operating
procedures could effectively preclude, based on the present state of the case
law (i) a finding that the assets of an Affiliated Party is property of the
bankruptcy estates of any of the other Affiliated Parties and (ii) the
substantive consolidation of the assets and liabilities of an Affiliated Party
with those of any of the other Affiliated Parties, there can be no assurance
that substantive consolidation would not occur. In addition, there can be no
assurance that during litigation of such issues, delays will not occur in
payments of indebtedness, even if the court ultimately rules against substantive
consolidation, or that parties in interest might determine to settle such issues
to avoid the expense and delay of litigation. If the court concludes there is
substantive consolidation, however, payments of indebtedness could be delayed or
reduced, which in turn could delay distributions (if any) to equity holders,
including holders of Warrant Shares.
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LIMITED-LIABILITY COMPANIES
Holdings and the Company are limited-liability companies organized under the
laws of the State of Nevada. Limited-liability companies ("LLCs") are relatively
recent creations not only under the laws of the State of Nevada but also under
the laws of other jurisdictions. Generally stated, LLCs are intended to provide
both the limited liability of the corporate form for their members and certain
advantages of partnerships, including "pass-through" income tax treatment for
members, and thus have attributes of both corporations and partnerships. Given
their recent creation, LLCs and their members have been involved in relatively
few bankruptcy cases as debtors, and there has been little reported judicial
authority addressing bankruptcy issues as they pertain to LLCs. Moreover, the
existing judicial authority on such issues in bankruptcies of analogous entities
(e.g. partnerships) is not well settled. Consequently, a bankruptcy of Holdings
or the Company, its members or any of their affiliates, may be litigated and
decided in the absence of dispositive judicial precedent, and thus, no assurance
can be made as to any particular outcome.
COMPLEXITIES RELATING TO MULTIPLE SECURED LENDERS
All of the Company's assets are subject to first priority liens, either to
the Bank Lenders under the Bank Credit Facility or the FF&E Lender under the
FF&E Financing. The FF&E Lender's security interests relate to assets to be used
in the Aladdin, which is pledged to the Bank Lenders. The existence of multiple
secured lenders could cause complexities in and prolong the duration of
bankruptcy proceedings or a debt restructuring of the Company, which in turn
could delay distributions to the direct and indirect holders of membership
interests in the Company, such as Holdings, Enterprises and holders of Warrant
Shares.
RISKS UNDER DESIGN/BUILD CONTRACT AND FLUOR GUARANTY
Certain obligations of the Design/Builder under the Design/Build Contract
are guaranteed by Fluor (the "Fluor Guaranty"). A default by either the
Design/Builder under the Design/Build Contract or Fluor under the Fluor Guaranty
could result in the Aladdin not being completed on schedule and have a material
adverse effect on the Company and the Aladdin Parties. If a bankruptcy case were
to be commenced voluntarily by or involuntarily against Fluor, remedies
available under the Fluor Guaranty would be limited or unavailable. The Fluor
Guaranty does not cover cost increases caused by certain acts commonly referred
to as "force majeure."
CHANGE OF CONTROL
Upon a Change of Control (as defined in the Indenture), each holder of the
Notes will have the right, at such holder's option, to require the Note Issuers
to purchase the Notes owned by such holder at a price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, and Liquidated
Damages (as defined in the Indenture), if any, to the date of purchase. There
can be no assurance that the Note Issuers will have sufficient funds to purchase
the Notes after such a Change of Control. In addition, upon a change of control
(as defined in the Bank Credit Facility) all amounts outstanding under the Bank
Credit Facility will immediately become due and payable. There can be no
assurance that the Company will have sufficient funds to repay the Bank Credit
Facility or any other indebtedness that becomes due as a result of such event.
See "Description of Certain Indebtedness and Other Obligations--Bank Credit
Facility."
OPERATING RESTRICTIONS
The terms of the Indenture, the Bank Credit Facility and the other
agreements governing the indebtedness of the Company impose significant
operating and financial restrictions on the Company and the Aladdin Parties.
Such restrictions significantly limit or prohibit, among other things, the
incurrence of certain additional debt, distributions, transactions with
affiliates of the Company and Holdings and the sale
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of certain assets. These restrictions, in combination with the degree to which
the Company is leveraged, could limit the ability of the Company to respond to
market conditions or meet extraordinary capital needs or could otherwise
restrict corporate activities. There can be no assurances that such restrictions
will not materially and adversely affect the ability of the Company to finance
its future operations or capital needs and the operation of its business. See
"Description of Certain Indebtedness and Other Obligations."
POSSIBLE CONFLICTS OF INTEREST
Potential for conflicts of interest exists between the Aladdin, on the one
hand, and the other businesses to be operated on the Complex, and such conflicts
may adversely effect the Company, Holdings and Enterprises.
The Trust is expected to hold significant interests in all of these
businesses. Mr. Jack Sommer, who is Chairman and a director of the Company and
Holdings and President of the Issuer, Mr. Ronald Dictrow, who is Executive Vice
President/Secretary and a director of the Company and Holdings and a Secretary
and director of the Issuer, are also directors of Bazaar. In addition, certain
directors and executives of the Company and Holdings are currently and are
likely to continue to be, directors and executives of Aladdin Music, which will
develop and own the Music Project. Further, it is expected that in addition to
managing the Aladdin, the Company or one of its affiliates, will also manage the
Music Project. The objectives for each of these businesses may at times differ
and such differences may be material. In addition, all such businesses will
share the use of certain facilities on the Complex, including vehicular and
pedestrian traffic ways, the Carpark and certain utilities (such as the Plant,
which will provide energy to the Complex). For these reasons, potential exists
for conflicts of interest, including in relation to the division of management
time between each of these businesses, splitting of costs of shared facilities
and the sharing of future business opportunities arising in connection with the
Complex.
For example, certain directors of Holdings may be faced with a potential
conflict of interest arising from their interests in and relationship with the
Aladdin and the other projects at the Complex. These include the following:
- decisions to direct customers to the Aladdin, the Music Project or the
Mall Project
- allocations of costs and expenses relating to the REA (as defined herein)
and Energy Services Agreement
- cost allocations during construction for areas such as the Carpark, the
Plant and pedestrian traffic ways
- cost allocations for shared general and administrative services such as
accountancy, purchasing and warehousing, human resources and legal
To the Issuer's knowledge, there is no Nevada authority addressing the issue
of whether a person acting as a promoter (in this case, AHL), owes fiduciary
duties to the entity, its owners or investors.
In addition, Planet Hollywood, which is a 50% shareholder in Aladdin Music
(on a fully diluted basis) and the developer of the Music Project, is not
contractually restricted or otherwise prevented from developing other music or
entertainment theme hotel casinos in Las Vegas. The development of a competing
Planet Hollywood-owned hotel in Las Vegas could give rise to conflicts of
interest for Planet Hollywood and could materially and adversely affect the
Music Project and so Aladdin Music, the Company and the Aladdin Parties.
London Clubs may have a potential conflict of interest arising from its
relationship with the Company. This includes possibly directing clientele to its
other interests worldwide instead of the Aladdin and focusing resources on its
other projects.
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The Issuer believes that the agreements executed by London Clubs in
connection with the Aladdin deal with this conflict by providing London Clubs
with financial incentives which are dependent on certain financial goals being
obtained by the Company.
SHARED FACILITIES
Because the Aladdin, the Mall Project and the Music Project will share
certain operational facilities (the "Shared Facilities"), the construction of
all such projects will include the construction of the Shared Facilities in
sizes and/or capacities that will be sufficient for all such projects together,
but are in excess of what is minimally required for the Aladdin. The Shared
Facilities will include certain shared structural space, the Strip facade and
related retail areas of the Complex. The Company will bear the full cost of
constructing the Shared Facilities. However, Bazaar will be obligated to
reimburse the Company for a portion of the construction costs related to the
Shared Facilities if the Mall Project is completed. It is estimated that
Bazaar's share of the cost of constructing the Shared Facilities will be $14.2
million, including interest. If Bazaar is unable to obtain financing for the
Mall Project, it is unlikely that Bazaar will be able to reimburse the Company
for its share of the construction costs related to the Shared Facilities
pursuant to the Site Work Agreement.
LIMITATIONS UNDER BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY
London Clubs, the Trust and Bazaar Holdings have entered into the Bank
Completion Guaranty and the Noteholder Completion Guaranty for the benefit of
the Bank Lenders and the Noteholders, respectively. Failure by the parties to
perform their obligations under these agreements could result in the Aladdin not
being completed in a timely manner, or at all.
Pursuant to the Bank Completion Guaranty, London Clubs, the Trust and Bazaar
Holdings have agreed among other things jointly and severally to guarantee the
development, construction and equipping of the Aladdin for the benefit of the
Bank Lenders. None of the holders of the Warrants, Warrant Shares, Holdings or
the Issuer is a party to the Bank Completion Guaranty, however, London Clubs,
the Trust and Bazaar Holdings have entered into the Noteholder Completion
Guaranty for the benefit of the holders of the Notes, subject to certain
important qualifications, limitations and exceptions. The Noteholder Completion
Guaranty contains certain intercreditor provisions which significantly limit the
rights of the State Street Bank and Trust Company, as trustee under the
Indenture (the "Trustee") and the holders of the Notes, including certain
standstill periods during which the Trustee and the holders of the Notes may not
enforce the Noteholder Completion Guaranty or seek remedies thereunder, even if
there is a default under the Bank Completion Guaranty and the Bank Lenders are
no longer advancing funds. See "Description of Noteholder Completion Guaranty
and Disbursement Agreement--Noteholder Completion Guaranty."
The Bank Completion Guaranty entered into by London Clubs, the Trust and
Bazaar Holdings requires that if the Company has insufficient funds available to
complete the Aladdin, London Clubs, the Trust and Bazaar Holdings must
contribute cash to the Company to enable such completion, subject to certain
qualifications. None of the holders of Warrants or Warrant Shares, Holdings or
the Issuer is party to the Bank Completion Guaranty and, accordingly, none of
them may enforce any rights thereunder. In addition, none of the holders of
Warrants or Warrant Shares, Holdings or the Issuer is party to the Noteholder
Completion Guaranty and, accordingly, none of them may enforce any rights
thereunder. The parties to the Bank Completion Guaranty have limited obligations
under the Bank Completion Guaranty until and unless the proceeds of the Funding
Transactions are, in the aggregate, insufficient to cover the construction cost
increases covered by the Bank Completion Guaranty. The Bank Completion Guaranty
terminates upon the indefeasible payment and performance of the Guaranteed
Obligations (as defined herein). See "Description of Certain Indebtedness and
Other Obligations--Bank Completion Guaranty."
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Neither the Bank Completion Guaranty nor the Noteholder Completion Guaranty
contain restrictions on the ability of the parties thereto to incur indebtedness
junior in respect of right of payment to the Guaranteed Obligations (excluding
certain types of indebtedness). While such parties have informed the Company
that they believe they will be able to perform their respective obligations
thereunder, no assurance can be given that they will have available the
financial resources if they are called on under the Bank Completion Guaranty or
the Noteholder Completion Guaranty. If the Trust and Bazaar Holdings fail to
perform their obligations under the Bank Completion Guaranty or the Noteholder
Completion Guaranty, London Clubs is, in certain circumstances, entitled
(through its affiliates) to exercise equal voting power to the Trust and its
affiliates in the affairs of Holdings. If the parties under the Bank Completion
Guaranty or the Noteholder Completion Guaranty are unable to perform their
respective obligations thereunder, it may be an Event of Default under the
Indenture and the Bank Credit Facility and the Aladdin may not be completed. In
addition, should certain London Clubs specified exceptional events (a "Specified
Event") under the Bank Completion Guaranty occur, at the option of the required
lenders, such Specified Event shall constitute an event of default under the
Bank Completion Guaranty and consequently under the Bank Credit Facility, and
the Bank Lenders, without any further notice to a Guarantor, shall be entitled
to exercise all rights and remedies available under the Bank Completion Guaranty
and any other Loan Documents. See "Description of Certain Indebtedness and Other
Obligations--Bank Completion" for a description of such Specified Events.
Certain historical financial information concerning London Clubs is included
herein to assist investors in evaluating the ability of London Clubs to perform
its obligations under the Bank Completion Guaranty and the Noteholder Completion
Guaranty. Such information has been prepared in accordance with United Kingdom
generally accepted accounting principles ("U.K. GAAP"), which principles are not
consistent with, and materially differ from, United States generally accepted
accounting principles ("U.S. GAAP"). With respect to the historical financial
information of London Clubs included herein, such differences relate (among
other things) to depreciation and amortization, valuation of fixed assets,
recognition of deferred taxes, accounting for employee stock options, and
accounting for pension costs. In making their investment decision, investors
should consider that if such financial information of London Clubs was restated
in accordance with U.S. GAAP, there are likely to be material differences from
such information as stated in accordance with U.K. GAAP. Such differences would
have no material effect on London Clubs' cash flows or liabilities and,
accordingly, also would have no material impact on its ability to meet its
obligations.
The U.K. Chancellor of the Exchequer has proposed to increase the highest
marginal rate of gaming duty (tax on casino betting profits) from 33 1/3% to
40%. If the proposed tax increase were to be enacted into law, London Clubs
could suffer a reduction of profits. The proposed tax increase is not certain to
be enacted, or if enacted, in the form in which it has been proposed.
The Trust, which is indirectly a controlling stockholder of Enterprises,
Holdings, Capital and the Company, is a joint and several guarantor (together
with London Clubs and Bazaar Holdings) under each of the Bank Completion
Guaranty and the Noteholder Completion Guaranty. In addition, the Trust and AHL
are guarantors of all Bazaar's obligations under the Mall Financing.
Furthermore, the Trust is expected to be an obligor under a keep-well agreement
expected to be entered into with respect to the Music Project (the "Music
Keep-Well Agreement"). See "--Lack of Available Information on the Trust's
Ability to Perform Its Obligations Under Certain Agreements."
Bazaar Holdings was formed in September, 1997 and as of the Issue Date, had
no material assets, liabilities or earnings. Bazaar Holdings holds a 37.5%
membership interest in Bazaar and, as part of the Mall Financing, has provided
certain guarantees and indemnifications to the Mall Lenders. Except for the
foregoing, Bazaar Holdings has no material assets, liabilities or earnings and
is not expected to have any material assets, liabilities or earnings until the
Mall Project is completed and operating. Consequently, no financial information
regarding Bazaar Holdings has been included herein and, accordingly, purchasers
of
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the Warrants and Warrant Shares should not rely on Bazaar Holdings' performance
under the Bank Completion Guaranty and the Noteholder Completion Guaranty when
making their investment decision.
LACK OF AVAILABLE INFORMATION ON THE TRUST'S ABILITY TO PERFORM ITS OBLIGATIONS
UNDER CERTAIN AGREEMENTS
Due to lack of financial information on the Trust, investors have no way of
assessing the ability of the Trust to perform its obligations under the
Noteholder Completion Guaranty and the Bank Completion Guaranty. The Trust was
formed in 1982 with the residue and remainder of the assets of the Estate of
Sigmund Sommer (the "Estate") in order to hold, manage, invest and reinvest the
assets on behalf of its beneficiaries. Historically, the Trust's financial
statements have been limited to tax basis reports required by various tax
authorities, and the Trust has never prepared financial statements on a basis
required by U.S. GAAP. The Trust holds, among other assets, direct and indirect
interests in several real estate properties in addition to those owned by the
Aladdin Parties and the Company, including certain interests that were acquired
when it was formed. Although the Trust has determined the basis of those
interests for tax reporting purposes, it never made the determinations that
would be required by U.S. GAAP as to such matters as the appropriate carrying
values of certain of the properties initially bequeathed to the Estate;
allocations of costs of certain properties to various asset categories; amounts
of additional costs of development and interest to be capitalized; amounts, if
any, related to certain long-lived assets that should have been written down;
and accruals, if any, of contingent liabilities. The Trust believes that the
complexity of these issues in relation to the Trust's circumstances means that
the preparation of financial statements for the Trust in accordance with U.S.
GAAP would be extremely difficult if not impossible. Accordingly, no such
financial statements have been prepared and purchasers of Notes should not rely
upon the Trust's performance under the Noteholder Completion Guaranty or the
Bank Completion Guaranty when making their investment decision.
RISK OF NON-PERFORMANCE UNDER KEEP-WELL AGREEMENT
Under the Keep-Well Agreement (as defined herein), AHL, London Clubs and
Bazaar Holdings have agreed to ensure the Company's compliance with certain
financial ratios. There can be no assurance that the parties will have available
sufficient financial resources if they are called on to make payments under the
Keep-Well Agreement. Failure of any of the parties to the Keep-Well Agreement to
comply with their material obligations under the Keep-Well Agreement could have
a material and adverse effect on the Company and the Aladdin Parties, and will
constitute a default under the Bank Credit Facility and the Indenture.
AHL, London Clubs and Bazaar Holdings have agreed pursuant to an agreement
(the "Keep-Well Agreement") to contribute, if required, funds to the Company to
ensure the Company's compliance with certain financial ratios and other
requirements under the Bank Credit Facility, subject to certain conditions.
Neither Holdings, the Issuer nor the holders of Warrants or Warrant Shares is a
party to the Keep-Well Agreement. The Keep-Well Agreement does not constitute a
guaranty of the obligations of the Company under the Bank Credit Facility, the
Notes or otherwise. In particular, under the Keep-Well Agreement, the parties to
the Keep-Well Agreement are not required to contribute an aggregate of more than
$150.0 million to the Company ($30.0 million in any fiscal year), and are not
required to contribute any amounts to the Company on or after the earlier of the
date on which the Company, without the benefit of cash contributions from the
Controlling Stockholders or their affiliates, complies with all of the financial
covenants set forth in the Bank Credit Facility for six consecutive quarterly
periods from and after the Conversion Date (as defined herein) or the date on
which the aggregate outstanding principal amounts of the Bank Credit Facility
are reduced below certain amounts and prior to certain dates.
While the parties to the Keep-Well Agreement have informed the Company that
they believe they will be able to perform their obligations under the Keep-Well
Agreement, no assurance can be given that they will have available sufficient
financial resources if they are called on to make payments under the Keep-
29
<PAGE>
Well Agreement. The obligations of London Clubs under the Keep-Well Agreement
are subordinated to other obligations of London Clubs under certain of its
pre-existing senior debt facilities. Furthermore, although the obligations of
London Clubs under the Keep-Well Agreement are guaranteed by certain
subsidiaries of London Clubs, such subsidiaries also currently guarantee senior
existing indebtedness of London Clubs. In addition, there are certain
restrictions on each of the parties' to the Keep-Well Agreement ability to incur
indebtedness or sell or transfer assets. If a party defaults in its obligations
under the Keep-Well Agreement, such party's (or its affiliate's) interest in
Holdings could be subject to dilution, which dilution could affect that party's
(or its affiliate's) ability to control or direct the policies of Holdings and
so the Company. Failure of each of the parties to the Keep-Well Agreement to
comply with their material obligations under the Keep-Well Agreement could have
a material and adverse effect on the Company and the Aladdin Parties, and will
constitute a default under the Indenture. The payments and issuance of
additional securities will be subject to the prior approval of the Nevada Gaming
Authorities. See "Controlling Stockholders--Keep-Well Agreement."
Certain historical financial information concerning London Clubs is included
herein to assist investors in evaluating the ability of London Clubs to perform
its obligations under the Keep Well Agreement. Such information has been
prepared in accordance with United Kingdom generally accepted accounting
principles ("U.K. GAAP"), which principles are not consistent with, and
materially differ from, United States generally accepted accounting principles
("U.S. GAAP"). With respect to the historical financial information of London
Clubs included herein, such differences relate (among other things) to
depreciation and amortization, valuation of fixed assets, recognition of
deferred taxes, accounting for employee stock options, and accounting for
pension costs. In making their investment decision, investors should consider
that if such financial information of London Clubs was restated in accordance
with U.S. GAAP, there are likely to be material differences from such
information as stated in accordance with U.K. GAAP. Such differences would have
no material effect on London Clubs' cash flows or liabilities and, accordingly,
also would have no material impact on its ability to meet its obligations.
The U.K. Chancellor of the Exchequer has proposed to increase the highest
marginal rate of gaming duty (tax on casino betting profits) from 33 1/3% to
40%. If the proposed tax increase were to be enacted into law, London Clubs
could suffer a reduction of profits. The proposed tax increase is not certain to
be enacted, or if enacted, in the form in which it has been proposed.
The Trust, which is indirectly a controlling stockholder of Enterprises,
Holdings, Capital and the Company, is a joint and several guarantor (together
with London Clubs and Bazaar Holdings) under each of the Bank Completion
Guaranty and the Noteholder Completion Guaranty. In addition, the Trust and AHL
are guarantors of all Bazaar's obligations under the Mall Financing.
Furthermore, the Trust is expected to be an obligor under the Music Keep-Well
Agreement. No financial information regarding the Trust is publicly available
for the purpose of evaluating the Trust's creditworthiness and, accordingly,
purchasers of Warrants or Warrant Shares should not rely upon the Trust's
performance under the Bank Completion Guaranty or the Noteholder Completion
Guaranty when making their investment decision.
DEPENDENCE UPON KEY MANAGEMENT AND LACK OF EXPERIENCED PERSONNEL
The Company is dependent to a large extent on the services of its senior
management. There can be no assurance that such individuals will remain with the
Company, and if such members of senior management do not remain with the
Company, the Company will be required to hire individuals with adequate
experience to replace such members of management on comparable terms, and no
assurances can be made as to the Company's ability to do so.
The ability of the Company to maintain its competitive position is dependent
to a large degree on its ability to retain the services of its senior management
team, including Jack Sommer, Richard Goeglein and James McKennon. Although
certain of the senior managers of the Company have employment agreements with
the Company, there can be no assurance that such individuals will remain with
the Company. The loss
30
<PAGE>
of the services of any of these individuals or an inability to attract and
retain additional senior management personnel could have a material adverse
effect on the operation of the Aladdin. There can be no assurance that the
Company will be able to retain its existing senior management personnel or to
attract additional qualified senior management personnel. See "Management."
Until construction of the Aladdin is close to completion, the Company
believes that it will not require extensive operational management and,
accordingly, has kept and intends to keep its permanent staff at relatively
minimal levels. However, the Company will be required to undertake a major
recruiting and training program prior to the opening of the Aladdin at a time
when other major new facilities may be approaching completion and also
recruiting employees. While the Company believes that it will be able to attract
and retain a sufficient number of qualified individuals to operate the Aladdin
on acceptable terms, the pool of experienced gaming and other personnel is
limited and competition to recruit and retain gaming and other personnel is
likely to intensify as more casinos are opened. No assurance can be given that
such employees will be available to the Company for use in managing the Aladdin.
RISK OF OVERCAPACITY; COMPETITION AND PLANNED CONSTRUCTION IN LAS VEGAS
Construction of several new major resort projects could lead to increased
competition and overcapacity in the Las Vegas hotel/casino market. As a result,
the operations and profitability of the Company could be adversely affected.
The hotel/casino industry is highly competitive. Hotels located on or near
the Strip ("Strip Hotels") compete with other Strip Hotels and with other major
hotels in downtown Las Vegas. The Aladdin will also compete with a large number
of other hotels and motels located in and near Las Vegas. According to the Las
Vegas Convention and Visitors Authority (the "LVCVA"), as of December 31, 1997,
there were 105,347 hotel and motel rooms in the Las Vegas area. Direct
competitors of the Company will include theme-oriented mega-resorts on the Strip
such as Caesars Palace Hotel, The Mirage, Treasure Island Hotel and Casino, New
York-New York Hotel and Casino and the MGM Grand Hotel and Casino. Many
competitors of the Company are subsidiaries or divisions of large public
companies and may have greater financial and other resources than the Company.
In addition, the construction of several new major resort projects that will
compete with the Company and the expansion of several existing resorts have
commenced construction or have recently been announced. These include the
planned Bellagio, Paris Casino Resort, Mandalay Bay and Venetian Casino Resort,
all currently under construction. Additionally, expansions have recently been
completed at Caesars Palace Hotel and Harrah's Las Vegas. These projects and
others are expected to add approximately 20,000 hotel rooms to the Las Vegas
inventory by 1999. According to the LVCVA, in 1997 the number of hotel rooms in
Las Vegas rose to over 105,000, a gain of 6.3%, while the number of visitors
rose by only 2.8% to approximately 30 million. Accordingly, while hotel
occupancy rates currently stand at 90.3%, a comparison with hotel occupancy
rates from 1994 shows only a slight increase. The future operating results of
the Company, and so the Aladdin Parties, could be materially and adversely
affected by such competitors and excess Las Vegas room and gaming capacity. Such
competition and increased supply with steady visitor counts has affected and may
continue to affect room prices, occupancy rates and profits.
The hotel/casino operations of the Company will also compete, to some
extent, with other hotel/casino facilities in Nevada and in Atlantic City, with
hotel/casino facilities elsewhere in the world and with state lotteries. In
addition, certain states have recently legalized, and others may or are likely
to legalize, casino gaming in specific areas, and passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in American Indian gaming
operations. The Company expects many competitors to enter such new jurisdictions
that authorize gaming, some of which competitors may have greater financial and
other resources than the Company and the legalization of casino gaming in or
near any metropolitan area from which the Company intends to attract potential
customers could have a material adverse effect on the business of the Company.
Although the Company is unaware of any particular legislation to legalize casino
gaming in or near metropolitan areas which could attract potential customers
from the Aladdin, such
31
<PAGE>
proliferation of gaming activities could significantly and adversely affect the
business of the Company, and so the Aladdin Parties. See "Business--The Las
Vegas Market."
The Desert Passage will compete with retail malls in or near Las Vegas,
including the Fashion Show Mall, the Forum Shops at Caesars Palace and retailers
in theme-oriented mega resorts, all of which may attract consumers away from the
Desert Passage and so the Complex.
GOVERNMENT REGULATION
The gaming operations of the Aladdin and ownership of securities of the
Issuer will be subject to extensive regulation and discretionary oversight by
the Nevada Gaming Authorities. Changes in regulations or the denial or
revocation of a Gaming Approval could have a material adverse effect on the
Company and the Aladdin Parties.
The gaming operations and the ownership of securities of the Company and the
Holdings Group will be subject to extensive regulation by the Nevada Gaming
Authorities. The Nevada Gaming Authorities will have broad authority with
respect to licensing and registration of entities and individuals involved with
the Company and the Holdings Group.
The Issuer may be required to disclose the identities of the holders of the
Warrants and Warrant Shares to the Nevada Gaming Authorities upon request. The
Nevada Commission (as defined herein) may, in its discretion, require the holder
of any security of a Registered Company (as defined herein), such as the
Warrants and the Warrant Shares, to file an application, be investigated and be
found suitable to own the security of a Registered Company. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act (as defined herein), the Registered Company can be
sanctioned, including the loss of its approvals if, without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form, or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
Each holder of the Warrants and the Warrant Shares shall be deemed to have
agreed (to the extent permitted by law) that if the Nevada Gaming Authorities
determine that a holder or beneficial owner of the Warrants and the Warrant
Shares must be found suitable, and if such holder or beneficial owner either
refuses to file an application or is found unsuitable, such holder shall, upon
request of the Issuer, dispose of such holder's Warrants and the Warrant Shares
within 30 days after receipt of such request or such earlier date as may be
ordered by the Nevada Gaming Authorities. The Issuer will also have the right to
call for the redemption of the Warrants and the Warrant Shares by any holder at
any time to prevent the loss or impairment of a Gaming Approval or an
application for a Gaming Approval, at a redemption price equal to the cost paid
by such holder. The beneficial owners of the Warrants and Warrant Shares will be
subject to the requirement of obtaining Gaming Approvals in the discretion of
the Nevada Gaming Authorities. Any beneficial owner of more than 10% of the
voting securities of the Issuer will be required to obtain a Gaming Approval.
However, the Warrants are exercisable only into non-voting shares of common
stock of the Issuer.
The Nevada Gaming Authorities may also, among other things, revoke the
license of any entity licensed by the Nevada Gaming Authorities (a "Company
Licensee") or the registration of a Registered Company or any entity registered
as an intermediary company or a holding company of a Company Licensee. In
addition, the Nevada Gaming Authorities may revoke the license or finding of
suitability of any officer, director, manager, member, controlling person,
shareholder, noteholder or key employee of a licensed or registered entity. If
Gaming Approvals of the Company or Holdings were revoked for any reason, the
Nevada Gaming Authorities could require the closing of the Casino, which would
result in a material adverse effect on the Company and the Aladdin Parties. The
Company, and certain of its officers, directors, manager, members and key
employees, have applied for licensing with the Nevada Gaming
32
<PAGE>
Authorities. Also, the Company possesses or has applied for all necessary state
and local government approvals, licenses and permits, other than Gaming
Approvals, necessary to open and operate the facility.
In addition, any future public offering of debt or equity securities by the
Company, the Note Issuers or the Issuer, including the Exchange Offer (as
defined herein), any Qualified Public Offering and the issuance of Common Stock
of the Issuer upon the exercise of the Warrants, if the securities or the
proceeds from the sale thereof are intended to be used to pay for construction
of, or to acquire an interest in, any gaming facilities in Nevada, to finance
the gaming operations of an affiliated company or to retire or extend
obligations incurred for any such purpose, requires the prior approval of the
Nevada Commission or, a ruling from the Chairman of the Nevada Board (as defined
herein) that such approval is not required. See "Regulation and Licensing" and
"Description of Indebtedness and Other Obligations--Senior Discount Notes."
LACK OF PUBLIC MARKET FOR THE WARRANTS AND WARRANT SHARES
There are currently no established trading markets for the Warrants and the
Warrant Shares. Therefore, there can be no assurance as to the liquidity of any
such trading market, if a trading market were to develop, or that an active
market for such securities will develop at all.
The Warrants and Warrant Shares are each new issues of securities for which
there is currently no trading market. There can be no assurance regarding the
future development of a market for the Warrants or Warrant Shares, or the
ability of the holders of the Warrants or Warrant Shares to sell such
securities, or the price at which such holders may be able to sell such
securities. If such a market were to develop, the Warrants and Warrant Shares
could trade at prices that may be higher or lower than the price paid by selling
holders of Warrants or Warrant Shares depending on many factors, including
prevailing interest rates, the Aladdin Parties' operating results and the market
for similar securities. Each of the Initial Purchasers has advised the Aladdin
Parties that it currently intends to make a market in the Warrants and Warrant
Shares. However, the Initial Purchasers are not obligated to do so and any
market making in respect to such securities may be discontinued at any time
without notice. Therefore, there can be no assurance as to the liquidity of any
trading market for the Warrants and Warrant Shares or that an active trading
market for such securities will develop. The Aladdin Parties do not intend to
apply for listing or quotation of the Warrants and Warrant Shares, on any
securities exchange or stock market. The Warrants and the Warrant Shares are
currently eligible for trading in the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") market. Following the Registration
Statement being declared effective by the Commission, the Warrants and the
Warrant Shares will not be eligible for PORTAL trading.
33
<PAGE>
USE OF PROCEEDS
No proceeds will be received by the Issuer from the registration or
subsequent sale of the Warrants or Warrant Shares pursuant to the Registration
Statement. The gross proceeds from the sale of the Units were estimated to be
$115.0 million. The net proceeds (net of Initial Purchasers' discounts and
estimated Offering expenses) together with the proceeds from the other Funding
Transactions are being used to develop, construct, equip and open the Aladdin
and to fund the Company's cash contribution to Aladdin Music with respect to the
Music Project.
Upon or prior to the consummation of the Offering (i) the proceeds from the
sale of the Units were allocated between the Notes and the Warrants, (ii) Sommer
Enterprises (a) contributed a portion of the Contributed Land and $7.0 million
consisting of the benefit of certain predevelopment costs incurred by AHL to the
Issuer in exchange for Class A Common Stock in the Issuer and (b) also
contributed a portion of the Contributed Land to Holdings in exchange for
Holdings Common Membership Interests, (iii) the Issuer contributed the portion
of the Contributed Land and the benefit of the predevelopment costs received
from Sommer Enterprises and the net proceeds allocable from the sale of the
Warrants to Holdings in exchange for Holdings Common Membership Interests, (iv)
Holdings contributed the Contributed Land appraised at $150.0 million,
approximately $42 million in cash from the London Clubs Contribution and $7.0
million consisting of the benefit of certain predevelopment costs incurred by
AHL to the Company in exchange for Common Membership Interests of the Company,
and (v) Holdings contributed $115.0 million in cash, consisting of the net
proceeds of the sale of the Units and approximately $8 million from the London
Clubs Contribution, to the Company in exchange for Series A Preferred Interests
of the Company. The London Clubs Contribution, together with a portion of the
net proceeds of the Offering, were expended on the Issue Date to repay certain
existing indebtedness assumed by the Company in connection with the Sommer
Equity Financing and to pay certain accrued expenses and certain fees and
expenses incurred in connection with the Funding Transactions. The remaining net
proceeds from the Offering (approximately $35 million) were deposited in the
Note Construction Disbursement Account. The liquidation preference of the Series
A Preferred Interests held by Holdings will equal at all times the Accreted
Value of the Notes.
Prior to or contemporaneously with the Offering the following other Funding
Transactions for the financing by the Company of the Aladdin were consummated:
(i) the Sommer Equity Financing and an indirect equity contribution to Holdings
by London Clubs of $50.0 million in cash in exchange for Holdings Common
Membership Interests; (ii) the closing of the $410.0 million Bank Credit
Facility and the funding of the Term B Loan and the Term C Loan thereunder into
the Cash Collateral Account and (iii) execution and delivery of a commitment
letter for the FF&E Financing, consisting of one or more leases or loans in the
aggregate amount of $80.0 million, covering the Specified Equipment and the
Gaming Equipment, to be used in the Aladdin. See "Controlling
Stockholders--Equity and Series A Preferred Interest Financing," "Description of
Certain Indebtedness and Other Obligations--Bank Credit Facility" and "--FF&E
Financing."
SOURCES AND USES OF FUNDS
The estimated sources and uses of funds for the development, construction,
equipping and opening of the Aladdin are as follows (in millions):
<TABLE>
<CAPTION>
SOURCES USES
- ---------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
Bank Credit Facility(1)........................ $ 410.0 Hotel and Casino(7)............................ $ 295.6
FF&E Financing(2).............................. 80.0 Off-Site Improvements(8)....................... 6.8
Senior Discount Notes due 2010(3).............. 115.0 Reimburseable Site Work Expenses(6)............ 14.2
Land Contribution(4)........................... 150.0 Furniture, Fixtures and Equipment and
Cash Contribution(5)........................... 57.0 Gaming Equipment(9)............................ 107.5
Anticipated Site Work Reimbursement(6)......... 14.2 Land(10)....................................... 135.0
Retire Existing Debt(11)....................... 74.5
Capitalized Interest, Net(12).................. 44.0
Pre-Opening Costs and Expenses................. 16.9
Reimbursement of Predevelopment Costs(13)...... 3.9
Working Capital(14)............................ 15.0
Construction and FF&E Contingency(15).......... 31.8
Land Investment in Music Project(16)........... 15.0
Cash Equity Investment in the Music
Project(17).................................. 21.3
Financing Fees and Expenses(18)................ 44.7
--------- ---------
Total Sources.................................. $ 826.2 Total Uses..................................... $ 826.2
---------
--------- ---------
---------
</TABLE>
34
<PAGE>
(1) The Company entered into the Bank Credit Facility with the Bank Lenders. The
Bank Credit Facility, which closed concurrently with the closing of the
Offering, consists of three separate term loans. Term A Loan comprises a
term loan of $136.0 million and matures seven years after the initial
borrowing date. Term B Loan comprises a term loan of $114.0 million and
matures eight and one-half years after the initial borrowing date. Term C
Loan comprises a term loan of $160.0 million and matures ten years after the
initial borrowing date. The Term B Loan and Term C Loan were funded into the
Cash Collateral Account on the Issue Date, and in June, 1998, the Company
began to use a portion of such funds in the construction of the Aladdin. The
use of the remaining proceeds of the Term B Loan and Term C Loan in the
construction of the Aladdin is subject to satisfaction of the conditions in
the Disbursement Agreement. It is anticipated that the Company will begin to
draw down the Term A Loan, subject to satisfaction of the conditions in the
Disbursement Agreement, approximately 21 months after the Issue Date. See
"Risk Factors--Drawn Down of Funds Under Funding Transactions." All of the
Loans will convert from construction loans into amortizing loans on the
Conversion Date. The Company has the option to pay interest at either LIBOR
or Scotiabank's ABR, in each case plus certain margins. See "Description of
Certain Indebtedness and Other Obligations--Bank Credit Facility."
(2) The Company entered into an agreement with the FF&E Lender for provision of
the FF&E Financing. The FF&E Financing consists of $60.0 million of
operating leases and $20.0 million in loans and will be used by the Company
to obtain the Gaming Equipment and Specified Equipment. See "Description of
Certain Indebtedness and Other Obligations--FF&E Financing."
(3) Represents the gross proceeds of the Offering, which, net of expenses of
approximately $8 million, were contributed, together with approximately $8
million in cash received pursuant to the London Clubs Contribution, by
Holdings to the Company in exchange for Series A Preferred Interests.
(4) The land on which the Aladdin, the Music Project and the Plant will be
built, including adjacent land of approximately 0.8 acres, comprises a total
of approximately 22.75 acres (the "Contributed Land") and was contributed to
the Company by Holdings in exchange for Common Membership Interests. The
Contributed Land has an appraised fair market value of $150.0 million (book
value of $33.6 million as of December 31, 1997). Approximately 18 acres of
the Contributed Land, having an appraised fair market value of $135.0
million, will be retained by the Company and approximately 4.75 acres of the
Contributed Land, having an appraised fair market value of $15.0 million,
will be used for the Music Project.
(5) Represents (i) a $50.0 million cash contribution by London Clubs in exchange
for 25% of the Holdings Common Membership Interests and (ii) a $7.0 million
deemed equity contribution by the Issuer in exchange for Holdings Common
Membership Interests, consisting of certain pre-development costs incurred
by AHL in 1996, 1997 and 1998.
(6) Pursuant to the Site Work Agreement, the Company has agreed to complete the
construction of, among other things, the Mall Shared Space, construction of
which will commence prior to the initial funding of the Mall Financing.
Bazaar has agreed to reimburse the Company for up to $14.2 million
(including interest) of the costs associated with such construction upon the
completion of the Mall Shared Space. See "Certain Material
Agreements--Construction, Operation and Reciprocal Easement Agreement and
Related Agreements."
(7) Represents (i) the guaranteed maximum price of construction of the Aladdin
pursuant to the Design/Build Contract of $267.0 million, less the
contingency allowance of $6.8 million and expected reimbursement from Bazaar
of $13.6 million (net of approximately $0.6 million of interest) as set
forth in note (6) above; (ii) approximately $35 million for theming the
Aladdin; (iii) $11.7 million for professional fees and disbursements; and
(iv) $2.3 million for permits and taxes. See "Risk Factors-- Completion of
the Mall Project and the Music Project." The Design/Build Contract contains
financial incentives for the Design/ Builder to complete the Aladdin within
the construction budget and in a timely manner, as well as liquidated
damages payable to the Company for certain unexcused delays. See "Risk
Factors--Risks of New Construction," "Risks Under Design/Build Contract and
Fluor Guaranty" and "Certain Material Agreements--Design/Build Contract."
(8) Represents the cost of off-site improvements, including overhead pedestrian
walkways and widening of certain streets, for those parts of the Project
Site on which the Aladdin will be built.
(9) Includes $26.5 million of gaming equipment and $81.0 million of furniture,
fixtures and other equipment consisting of new furniture and equipment other
than gaming equipment).
(10) Represents the appraised fair market value of the land on which the Aladdin
and the Plant will be built, together with adjacent land of approximately
0.8 acres.
(11) Represents the retirement on the Issue Date of $68.7 million of existing
indebtedness on the Contributed Land with an interest rate of LIBOR plus 650
bps and $5.8 million of existing debt owed by the Trust to GW Vegas, assumed
by the Company as part of Holdings' equity contribution to the Company.
(12) Represents capitalized gross interest under the Bank Credit Facility of
$57.4 million and capitalized gross interest of $2.4 million from leasing
expenses in connection with the FF&E Financing, from the date of the
Offering until the estimated completion of the Aladdin in the first four
months of the year 2000, net of interest income anticipated to be earned
upon the investment in cash equivalents of the funds (assumed to be at 5%
per annum) from the proceeds of the Offering and the proceeds of the Term B
Loan and Term C Loan.
(13) Represents $3.0 million of certain predevelopment costs incurred by AHL and
reimbursed at closing and up to $0.9 million of certain predevelopment costs
expected to be incurred and reimbursed over the expected construction
period.
(14) Represents cash on hand, inventories, deposits and other cash balances
required for the opening of the Aladdin.
(15) Comprises (i) the $6.8 million contingency included in the guaranteed
maximum price set forth in the Design/Build Contract and (ii) the $25.0
million general project contingency.
(16) Represents the appraised fair market value of the approximately 4.75 acres
of land on which the Music Project will be built, which land will be
contributed by the Company to AMH in exchange for common membership
interests in AMH.
(17) Represents cash to be contributed by the Company to AMH for common
membership interests in AMH.
(18) Represents fees in connection with the organization of the Company and the
financing of the Aladdin, including approximately $8 million for expenses
incurred in connection with the Offering.
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<PAGE>
CAPITALIZATION
THE ISSUER
The following table sets forth the capitalization of the Issuer as of
December 31, 1997 and as of the Issue Date. This table should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. See "Use of Proceeds" and "Description
of the Warrants and Warrant Shares."
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 THE ISSUE DATE
------------------- ---------------
<S> <C> <C>
(IN MILLIONS)
Long-term debt: ............................................................... $-- $--
------ ------
Members' Equity:
Class A Common Stock(1)...................................................... -- 0.4
Class B Common Stock......................................................... -- --
Additional Paid-in Capital(2)................................................ -- 15.0
------ ------
Total Members' Equity...................................................... -- 15.4
------ ------
Total Capitalization........................................................... $-- $15.4
------ ------
------ ------
</TABLE>
- --------------------------
(1) Represents: (i) the $6.3 million book value of the Contributed Land (such
land having an appraised fair market value of $28.1 million), net of
approximately $12.9 million of existing indebtedness repaid from the
proceeds of the Offering, and (ii) a $7.0 million deemed equity contribution
consisting of certain predevelopment costs incurred by AHL in 1996, 1997 and
1998.
(2) Represents $15.0 million of the gross proceeds of the Offering allocated to
the sale of the Warrants.
36
<PAGE>
HOLDINGS AND SUBSIDIARIES
The following table sets forth the consolidated capitalization of Holdings
at December 31, 1997, as of the Issue Date after giving effect to the Offering
and upon the consummation of the Funding Transactions (assuming all of the
Funding Transactions occurred on the Issue Date). The Issuer's sole material
asset is 25% of the Holdings Commmon Membership Interests. This table should be
read in conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. See "Use of Proceeds" and "Description
of Certain Indebtedness and Other Obligations."
<TABLE>
<CAPTION>
AS OF AS OF UPON CONSUMMATION
DECEMBER 31, 1997 THE ISSUE DATE OF THE FUNDING TRANSACTIONS
--------------------- --------------- ---------------------------
<S> <C> <C> <C>
(IN MILLIONS)
Long-term debt:
Company:
Bank Credit Facility(1)........................... $ -- $ 274.0 $ 410.0
FF&E Financing(2)................................. -- -- 20.0
--- ------ ------
Total Long-term Debt............................ -- 274.0 430.0
--- ------ ------
Holdings:
Senior Discount Notes due 2010(3)................. -- 100.0 100.0
Holdings and subsidiaries:
Total Long-term Debt and Senior Discount Notes.... -- 374.0 530.0
Members' Equity(4)(5)............................... -- 30.8 30.8
--- ------ ------
Total Capitalization................................ $ -- $ 404.8 $ 560.8
--- ------ ------
--- ------ ------
</TABLE>
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(1) The Company entered into the Bank Credit Facility with the Bank Lenders. The
Bank Credit Facility, which closed concurrently with the closing of the
Offering, consists of three separate term loans. Term A Loan comprises a
term loan of $136.0 million and matures seven years after the initial
borrowing date. It is anticipated that the Company will begin to draw down
the Term A Loan, subject to satisfaction of the conditions in the
Disbursement Agreement, approximately 21 months after the Issue Date. Term B
Loan comprises a term loan of $114.0 million and matures eight and one-half
years after the initial borrowing date. Term C Loan comprises a term loan of
$160.0 million and matures ten years after the initial borrowing date. The
Term B Loan and Term C Loan (comprising $274.0 million in aggregate) were
funded on the Issue Date, and subject to satisfaction of the conditions in
the Disbursement Agreement, are expected to be drawn down beginning in June
1998 (being approximately four months after the Issue Date). All of the
Loans will convert from construction loans into amortizing loans on the
Conversion Date, with substantial amounts due during the final six quarters
of the Term B Loan and the Term C Loan. The Company has the option to pay
interest at either LIBOR or Scotiabank's ABR, in each case plus a certain
margin. See "Description of Certain Indebtedness and Other Obligations--Bank
Credit Facility."
(2) The Company entered into an agreement with the FF&E Lender for provision of
the FF&E Financing. The FF&E Financing consists of $20.0 million in loans
and $60.0 million in operating leases and is expected to be used by the
Company to obtain the Gaming Equipment and Specified Equipment. The FF&E
Financing will begin to be funded six months prior to the opening of the
Aladdin. See "Description of Certain Indebtedness and Other
Obligations--FF&E Financing."
(3) The Notes have an initial Accreted Value of $115.0 million which equals the
gross proceeds of the Offering, such gross proceeds, net of expenses of
approximately $8 million, were contributed, together with approximately $8
million in cash received pursuant to the London Clubs Contribution, by
Holdings to the Company in exchange for Series A Preferred Interests. The
Aladdin Parties have allocated $100.0 million of the gross proceeds of the
Offering to the Notes and $15.0 million of such proceeds to the Warrants.
See "Use of Proceeds" and "Certain United States Federal Income Tax
Considerations."
(4) Represents: (i) the $33.6 million book value of the Contributed Land (such
land having an appraised fair market value of $150.0 million) and $15.0
million of the gross proceeds of the Offering allocated by the Aladdin
Parties to the sale of the Warrants and contributed by the Issuer to
Holdings for Holdings Common Membership Interests, net of approximately $69
million of indebtedness and $5.8 million of debt owed to GW Vegas and repaid
from the proceeds of the Offering, (ii) a $50.0 million cash contribution to
Holdings by London Clubs in exchange for 25% of the Holdings Common
Membership Interests, and (iii) a $7.0 million deemed equity contribution by
the Issuer, consisting of certain predevelopment costs incurred by AHL in
1996, 1997 and 1998.
(5) Does not include any ascribed value for the Bank Completion Guaranty.
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DIVIDENDS AND DISTRIBUTIONS
The Issuer does not anticipate paying any dividends on any Issuer Stock
(including the Warrant Shares) in the foreseeable future. The timing, amount and
form of distributions, if any, will depend, among other things, on the Company's
results of operations, financial condition, cash requirements and other factors
deemed relevant by the Company Board. The Issuer's ability to make any future
cash distributions or payments to holders of Issuer Stock, including the Warrant
Shares, will depend on the Issuer's receipt of cash distributions on its
Holdings Common Membership Interests, which in turn will depend on Holdings'
receipt of cash distributions on its Common Membership Interests from the
Company. The Company Operating Agreement and the Holdings Operating Agreement
restrict the ability of the Company and Holdings to make cash distributions on
the Common Membership Interests and Holdings Common Membership Interests,
respectively, prior to payment of distributions on preferred membership
interests, except for distributions to cover any tax liability in respect of
Holdings Common Membership Interests. The Bank Credit Facility and the Indenture
also contain significant restrictions on the ability of the Company and Holdings
to make distributions to members. See "Certain Material Agreements--Company
Operating Agreements," and "-- Holdings Operating Agreement" and "Description of
Certain Indebtedness and Other Obligations -- Bank Credit Facility" and "--
Senior Discount Notes."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEVELOPMENT ACTIVITIES
The Issuer is an indirect subsidiary of AHL and was incorporated in December
1997 for the sole purpose of issuing the Warrants and Warrant Shares. The sole
material asset of the Issuer is 25% of the Holdings Common Membership Interests
which represents an indirect interest to the Warrant holders of 10% of the
outstanding Holdings Common Membership Interests on a fully diluted basis.
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 the Company. The Company was organized in January 1997.
Since that time and until the Issue Date, the Company's activities have been
carried on by AHL on the Company's behalf. To date, the Company's activities
have principally been limited to arranging the design, construction and
financing of the Aladdin (including the Funding Transactions) and applying for
certain permits, licenses and approvals necessary for the development and
operation of the Aladdin. The Company plans to develop, construct and operate
the Aladdin as the centerpiece of an approximately 35 acre world-class resort,
casino and entertainment complex located on the site of the existing Aladdin
hotel and casino (the "Project Site"). The Aladdin will be situated at a premier
location at the center of the Strip in Las Vegas, Nevada. The original Aladdin
hotel and casino was built on the Project Site in 1966. The Theater was added in
1976. The Project Site was purchased by the Trust, through a
predecessor-in-interest to AHL, in December 1994. To maintain certain tax
attributes obtained in connection with the Trust's acquisition of the Project
Site, the original hotel and casino continued to be leased by JMJ, Inc., the
company which leased the Project Site from the former owners. On April 27, 1998,
the original Aladdin hotel and casino was demolished to clear the Project Site
for the development of the Complex. The Aladdin is currently expected to open in
the first four months of the year 2000.
RESULTS OF OPERATIONS
The Aladdin Parties and the Company have had no significant operations to
date. Certain financial statements for the Issuer and Holdings (on a
consolidated basis), Capital and the Company are included herein. Such
historical operating results are not indicative of future operating results.
Future operating results of the Company, which will be relevant to the
ownership and operation of the Aladdin and so the Issuer, are subject to
significant business, economic, regulatory and competitive uncertainties and
contingencies, many of which are beyond the control of the Company and the
Aladdin Parties. 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 Note Issuers and the Company to meet their payment
obligations on their indebtedness and Holdings to make cash distributions on the
Holdings Common Membership Interests, no assurances can be given that they will
be able to do so.
LIQUIDITY AND CAPITAL RESOURCES
The approximately $790 million necessary to fund the development, financing,
construction and opening of the Aladdin (excluding the Company's $21.3 million
planned indirect cash contribution and $15.0 million appraised fair market value
land contribution to Aladdin Music, as part of the development funds for the
Music Project) will be derived from a combination of (i) borrowings of up to
$410.0 million under the Bank Credit Facility; (ii) operating lease and loan
obligations aggregating $80.0 million under the FF&E Financing; (iii) the Equity
and Series A Preferred Interest Financing, comprising an equity contribution by
London Clubs of $50.0 million in cash, $7.0 million in pre-development costs
incurred by AHL in 1996 and 1997, $150.0 million appraised fair market value in
land by Holdings and $115.0 million of gross proceeds from the Offering; and
(iv) anticipated reimbursement pursuant to the Site Work Agreement of $14.2
million, including interest. See "Use of Proceeds."
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On the Issue Date the Company entered into the Bank Credit Facility with the
Bank Lenders. The Bank Credit Facility consists of three separate term loans.
Term A Loan comprises a term loan of $136.0 million and matures seven years
after the initial borrowing date. Term B Loan comprises a term loan of $114.0
million and matures eight and one-half years after the initial borrowing date.
Term C Loan comprises a term loan of $160.0 million and matures ten years after
the initial borrowing date. The Term B Loan and the Term C Loan were funded on
the Issue Date into the Cash Collateral Account, and subject to satisfaction of
the conditions in the Disbursement Agreement, are expected to be drawn down
beginning in June 1998 (approximately four months after the Issue Date). It is
anticipated that the Company will begin to draw down the Term A Loan, subject to
satisfaction of the conditions in the Disbursement Agreement in December 1999
(approximately 21 months after the Issue Date). See "Risk Factors-- Conditions
to Drawdown of Funds under Funding Transactions." All of the Loans will convert
from construction loans into amortizing loans on the Conversion Date, with
substantial amounts due during the final six quarters of the Term B Loan and the
Term C Loan. The Company has the option to pay interest at either LIBOR or
Scotiabank's ABR, in both cases plus certain margins. See "Description of
Certain Indebtedness and Other Obligations--Bank Credit Facility."
On the Issue Date, the Note Issuers issued the Notes pursuant to the
Offering. The Notes mature on March 1, 2010. The initial Accreted Value of the
Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The
Notes accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based
on the initial Accreted Value, calculated from the Issue Date. The Notes will
accrete to an aggregate principal amount of $221.5 million by March 1, 2003.
Cash interest will not accrue on the Notes prior to March 1, 2003. Commencing on
September 1, 2003, cash interest on the Notes will be payable, at a rate of
13 1/2% per annum, semiannually in arrears on March 1 and September 1 of each
year until maturity. See "Description of Certain Indebtedness and Other
Obligations--Senior Discount Notes."
The FF&E Financing provides for the operating lease financing of up to $60.0
million and loans of $20.0 million to obtain the Gaming Equipment and the
Specified Equipment. Under the terms of the FF&E Financing, repayments of
principal and interest are due in quarterly installments. The FF&E Financing is
secured by all of the Gaming Equipment and Specified Equipment financed pursuant
thereto. See "Description of Certain Indebtedness and Other Obligations--FF&E
Financing."
Pursuant to the Equity and Series A Preferred Interest Financing, Holdings
contributed to the Company the following property: (a) approximately $107
million in cash (comprising net proceeds from the Offering), (b) an
approximately 22.75 acre portion of the Project Site upon which the Aladdin, the
Music Project and the Plant will be built (together with adjacent land of
approximately 0.8 acres), which has an appraised fair market value of $150.0
million, (c) $7.0 million in the form of certain pre-development costs incurred
by AHL in 1996 and 1997, and (d) the London Clubs Contribution, consisting of
$50.0 million in cash.
London Clubs, the Trust and Bazaar Holdings have entered into the Bank
Completion Guaranty for the benefit of the Bank Lenders, and the Noteholder
Completion Guaranty for the benefit of the holders of the Notes, pursuant to
which London Clubs, the Trust and Bazaar Holdings are required, whenever there
are certain construction cost increases in connection with the work to be
performed pursuant to the Design/Build Contract, and subject to certain
qualifications, to contribute cash to the Company to fund all such increases in
construction costs. Neither the Issuer, holders of Issuer Stock (such as the
Warrant Shares) nor holders of the Warrants is party to, or entitled to enforce
the Bank Completion Guaranty or Noteholder Completion Guaranty. See "Risk
Factors--Lack of Available Information on the Trust's Ability to Perform Its
Obligations Under Certain Agreements" and "--Limitations Under Bank Completion
Guaranty and Noteholder Completion Guaranty," "Description of Certain
Indebtedness and Other Obligations--Bank Completion Guaranty" and "Description
of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder
Completion Guaranty."
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AHL, London Clubs, and Bazaar Holdings have entered into the Keep-Well
Agreement for the benefit of the Bank Lenders. Pursuant to the Keep-Well
Agreement, AHL, London Clubs and Bazaar Holdings have agreed to contribute funds
to the Company to ensure the Company's compliance with certain financial ratios
and other requirements under the Bank Credit Facility for the period up to the
earlier of the date on which the Company complies with all the financial
covenants set forth in the Bank Credit Facility for six consecutive quarterly
periods from and after the Conversion Date or the date on which the aggregate
outstanding principal amounts of the Bank Credit Facility are reduced below
certain amounts and prior to certain dates, subject to certain conditions. See
"Controlling Stockholders--Keep-Well Agreement."
The funds provided by the Funding Transactions are expected to be sufficient
to develop, complete and commence the operations of the Aladdin, assuming no
delays or construction cost overruns which (i) are not covered by the $31.8
million Contingency or (ii) Fluor and/or the Design/Builder are not responsible
for pursuant to the Fluor Guaranty and the Design/Build Contract, respectively.
As of May 31, 1998, the Company expended $1.7 million of the Contingency. The
Company does not expect that additional external funding will need to be
obtained in order to develop and commence the operations of the Aladdin.
Following the commencement of operations of the Aladdin, the Company expects
to fund its operating and capital needs, as currently contemplated, with $15.0
million of working capital from the Funding Transactions and operating cash
flows. In addition, upon the opening of the Aladdin, the Company is expected to
have an aggregate of $10.0 million available under a working capital facility.
Although no additional financing is contemplated, the Company will seek, if
necessary and to the extent permitted under the Indenture and the terms of the
Bank Credit Facility, additional financing through additional bank borrowings or
debt or equity financings. There can be no assurance that additional financing,
if needed, will be available to the Company, or that, if available, the
financing will be on terms favorable to the Company. There can also be no
assurance that estimates by the Company of its reasonably anticipated liquidity
needs are accurate or that new business developments or other unforeseen events
will not occur, resulting in the need to raise additional funds.
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BUSINESS
OVERVIEW OF THE COMPLEX
The Company plans to develop, construct and operate the Aladdin as the
centerpiece of an approximately 35 acre world-class resort, casino and
entertainment complex located on the site of the existing Aladdin hotel and
casino in Las Vegas, Nevada, a premier location at the center of the Strip. The
Aladdin has been designed to include a luxury theme hotel of approximately 2,600
rooms, an approximately 116,000 square foot casino, an approximately 1,400-seat
production showroom and seven restaurants. The Casino's main gaming area will
contain approximately 2,800 slot machines, 87 table games, keno and a race and
sports book facility. Included on a separate level of the Casino will be the
15,000 square foot luxurious Salle Privee, which is expected to contain an
additional 20 to 30 high denomination table games and approximately 100 high
denomination slot machines. The Salle Privee will cater to wealthy clientele and
be operated and marketed in conjunction with London Clubs, a prestigious,
multi-national casino operator which caters to international premium players.
The Complex, which has been designed to promote Casino traffic and to provide
customers with a wide variety of entertainment alternatives, will comprise (i)
the Aladdin; (ii) the themed entertainment Desert Passage shopping mall with
approximately 522,000 square feet of retail space; (iii) the Music Project,
which will be a second hotel and casino with a music and entertainment theme,
expected to be known as "Sound Republic Hotel and Casino;" (iv) the newly
renovated 7,000-seat Theater; and (v) the approximately 4,800-space Carpark. The
Mall Project and the Music Project will be separately owned by affiliates of the
Company. The Company's business and marketing strategies are expected to
capitalize on the Complex's premier location, its superior designed, mixed-use,
themed development, and strong strategic partnering with highly successful
public companies. The grand opening date for the Aladdin and the Mall Project is
currently anticipated to occur during the first four months of the year 2000,
with the opening of the Music Project expected to occur within six months after
the opening of the Aladdin.
The Company's management team is led by Chief Executive Officer Richard J.
Goeglein, the former President and Chief Executive Officer of Harrah's Hotels
and Casinos and President and Chief Operating Officer of Holiday Corp., who
during his term at Harrah's oversaw the expansion of the Harrah's brand,
including the development of Harrah's Hotel and Casino in Atlantic City.
Assisting Mr. Goeglein as Senior Vice President of the Company and
President/Chief Operating Officer of the Aladdin Hotel and Casino is James H.
McKennon, who as President and Chief Operating Officer of Caesars Tahoe was
instrumental in its financial turnaround and as President of Caesars World
International Marketing Corp. was responsible for the global marketing of the
Caesars brand.
It is expected that approximately $75 million will be spent on theming in
the Aladdin and the Desert Passage, of which approximately $35 million will be
spent by the Company on the Aladdin. This theming will create an environment in
the Aladdin that will be based upon the Legends of the 1001 Arabian Nights,
including the intriguing tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad
and other legendary stories woven around ancient wealth and wonders. The Aladdin
theme will be carefully crafted through the interior and exterior architecture
of the facility. The Aladdin's exterior will be designed to include a highly
articulated streetscape, a themed Casino exterior shaped like a Bedouin tent,
fountains, walkways, sculptures and an outdoor restaurant. The sophisticated
interior of the Aladdin will utilize rich colors, textures and design, enhancing
the fantasy of a mystical romantic time and place. A significant feature of the
Desert Passage will be the themed area to be known as the "Lost City." The Lost
City is expected to contain a re-creation of an ancient mystical mountain city
and will house a variety of specialty shops and restaurants underneath a
10-story high ceiling. The Company believes that the Aladdin, with its unique
theme, together with the Desert Passage and Music Project, will ensure its place
as a "must-see" destination in one of the world's largest entertainment cities.
The Company believes that upon completion, the Aladdin, the Mall Project and
the Music Project together will constitute one of the largest and best-planned
integrated, mixed-use entertainment resorts in the world. Bazaar Holdings, a
subsidiary of the Trust, and THB, a subsidiary of TrizecHahn, have entered
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into a joint venture agreement and formed Bazaar to develop, construct, own and
operate the Mall Project. TrizecHahn is the principal retail subsidiary of
TrizecHahn Corporation, one of the largest publicly-traded real estate companies
in North America. The Desert Passage is expected to include an array of high-
fashion specialty stores, exotic boutiques, theme restaurants, cafes and other
entertainment offerings. The Desert Passage will be directly connected to the
Casino to maximize Casino traffic.
AMH and a subsidiary of Planet Hollywood have entered into the Music Project
Memorandum of Understanding, relating to the ownership and development of the
Music Project. The Music Project Memorandum of Understanding is subject to the
finalization of financing commitments. Planet Hollywood is a creator and
worldwide developer of themed restaurants and consumer brands, most notably
"Planet Hollywood" and the "Official All Star Cafe." Planet Hollywood has
announced that it intends to position a brand of music-oriented entertainment
venues as its third major brand. The Music Project, which will be managed by the
Company, is expected to include an approximately 1,000 room hotel, a 50,000
square foot casino, four restaurants, including a music-themed restaurant which
will feature its own 1,000-person nightclub, a health spa and an outdoor
swimming pool. As part of the development of the Complex, the Company expects to
indirectly contribute to Aladdin Music $21.3 million in cash and land having an
appraised fair market value of $15.0 million in exchange for a preferred
membership interest and to lease the existing 7,000-seat Theater to Aladdin
Music for a nominal amount. It is anticipated that Aladdin Music will carry out
an approximately $8 million renovation of the Theater, improving its decor,
light and sound systems and other facilities. A further distinguishing feature
of the Music Project is the anticipated active involvement of famous artists and
celebrities, some of whom are expected to be stockholders of Planet Hollywood
(or an affiliate), participate in the marketing of the Music Project brand and
perform at the Theater or make other personal appearances at the Music Project.
The Music Project, with its music and entertainment theme, will complement the
Aladdin and it is expected that together the two hotels will offer an excitement
and variety of entertainment alternatives that will further distinguish the
Complex from other venues on the Strip.
The development of the Aladdin commenced during the first quarter of 1998.
The existing Aladdin hotel and casino closed for business on November 25, 1997
and the original facility was demolished on April 27, 1998. The development of
the Mall Project is expected to commence during the second quarter of 1998,
followed thereafter by the expected commencement of the development of the Music
Project in the second half of 1998. There can be no assurance, however, that
either of the Mall Project or the Music Project will, in fact, be completed. If
the Mall Project is not completed, the Company will need to expend additional
amounts (expected to be approximately $23 million) with respect to the
completion of shared structural space and the cost of surface parking. See "Risk
Factors--Completion of the Mall Project and the Music Project."
PREMIER LOCATION
The Aladdin's 800 feet of Strip frontage is located on the section of the
Strip between Flamingo Road at the north and Tropicana Boulevard at the south.
Based upon independent research and assuming completion of the Bellagio, Paris
and Venetian development projects, average vehicular traffic that will pass the
Complex each day is expected to be approximately 54,000.
AIRPORT ACCESS. Another major feature of the Complex will be its easy
access from Las Vegas' McCarran Airport, only 2.5 miles away. According to the
LVCVA, the number of visitors to Las Vegas has increased at a steady and
significant rate for the last 15 years, growing from approximately 10 million in
1980 to approximately 19 million in 1990 to over 30 million in 1997, with
approximately 47% of these visitors in 1997 arriving by air through McCarran
Airport. McCarran Airport, the tenth busiest airport in the United States, is
currently in the process of expanding its capacity through the addition of 26
new gates, and it is expected that following completion thereof, the number and
percentage of visitors arriving in Las Vegas by air will further increase,
making easy access from McCarran Airport to Las Vegas' resorts even more
crucial.
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VEHICLE ACCESS. The Complex will also offer easy access from other major
Las Vegas attractions, including the Las Vegas Convention Center, Hughes Center
office park, and the University of Nevada Las Vegas, the site of the Thomas &
Mack arena, via the main vehicular access on Harmon Avenue. As part of the
Complex, Harmon Avenue, which borders the Project Site, is expected to become a
major east/west thoroughfare and be widened from its existing four lanes to six
lanes. These improvements will allow visitors to access the Aladdin's
approximately 5,000 car spaces (including the approximately 4,800-space Carpark)
without having to traverse the traffic congestion on the Strip, but while still
utilizing major freeways and roads. In addition, by the use of a circular
internal roadway, guests arriving by limousine, car service or private vehicles
will be able to enter the Complex directly and easily from the Strip, Audrie
Lane and Harmon Avenue, further distinguishing the Hotel from many of its
competitors.
PEDESTRIAN ACCESS. The main entrance to the Aladdin will be located on the
Strip. The Complex's 800 feet of Strip frontage will provide pedestrians with
easy access to the Casino and the Desert Passage. A signaled crosswalk is
expected to be installed on the Strip to provide pedestrians with easy access
from the Bellagio. In addition, overhead pedestrian walkways have been
designated for at least two segments of the Harmon Avenue/Strip intersection
that will facilitate pedestrian traffic to the Aladdin.
MASTER-PLANNED, MIXED-USE DEVELOPMENT
The Aladdin has been carefully and strategically designed to promote Casino
traffic by an experienced and dedicated team with extensive backgrounds in real
estate development and construction; hotel, casino and restaurant operations;
and retail development and management. Each element of the Complex has been
sited and planned in a manner that maximizes pedestrian and vehicular traffic so
as to facilitate access to and from the Complex, as well as circulation between
the different parts of the Complex. The combination of the two distinct hotels
and casinos (catering to different but complementary market segments), the Mall
Project, the Theater and the Salle Privee will make the Complex a unique
integration of high-end and upper-middle market uses that benefit each other and
distinguish the Complex from other resorts on the Strip.
The Casino will be located in front of the Hotel, and unlike many of the
newer projects on the Strip, will provide easy access for pedestrians without
requiring long walks into the Complex. The Casino will be the nexus for the vast
majority of pedestrian traffic in the fully integrated Complex, including the
Desert Passage, the Music Project, and the Theater. Significant portions of the
Desert Passage and all of the Theater's entrances and exits will be accessed
through, or be adjacent to, the Casino. The Complex's 800 feet of Strip frontage
will provide pedestrians with easy access to the Casino and the Desert Passage
from the Strip. Pedestrian visitors to the Aladdin entering from the Strip will
be able to enter directly through the Casino or through the Desert Passage
entrances.
Another feature of the design of the Complex which will further distinguish
the Aladdin from its competitors will be the ease of both vehicular and
pedestrian traffic flow. Through the use of a circular internal roadway, guests
arriving by limousine, car service or private vehicle will be able to enter the
Complex directly and easily from the Strip and Harmon Avenue. Furthermore, by
the use of bridges and access ways, pedestrians will not be required to cross
roadways while moving between different attractions on the Complex, thus
facilitating ease of movement between various parts of the Complex and the
Strip.
UNIQUE ENTERTAINMENT FACILITIES
The Aladdin is expected to benefit from the Casino traffic generated from
the broad variety of entertainment facilities located throughout the Complex.
The Aladdin will be adjacent to the existing Theater, which will continue to be
used to hold major concerts and theatrical performances, and is one of the few
venues of its size and type in Nevada. The Company expects to lease the existing
Theater for a nominal amount to Aladdin Music, which intends to carry out an
approximately $8 million renovation of the Theater, improving its decor, light
and sound systems and other facilities. The Theater's renovation is expected to
transform it into a first-class venue and provide an additional source of
visitor traffic to the
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Complex. Under the Theater Lease (as defined herein), the Company will retain
certain rights to use the Theater for Company-promoted events at agreed
commercial rates.
The Aladdin will also include a 1,400-seat showroom which will provide live
nightly entertainment on its mezzanine level for the Hotel, Casino, Desert
Passage and other guests. The showroom will feature a 1001 Arabian Nights-themed
production show, including elegant, exotic costuming, music, lighting and
choreography. Furthermore, the Music Project will contain a 1,000-person
nightclub featuring regular live performances.
The Desert Passage will be designed to engage the customer in a themed
shopping, entertainment and dining experience. Of the approximately 522,000
square feet of retail space within the Desert Passage, it is anticipated that
approximately 25% will be devoted to high pedestrian traffic-generating food,
beverage and entertainment experiences. A significant feature of the Desert
Passage will be the themed area to be known as the "Lost City." The "Lost City"
is expected to contain a re-creation of an ancient mystical mountain city and
will house a variety of specialty shops and restaurants underneath a 10-story
high ceiling.
PRESTIGIOUS STRATEGIC PARTNERS
The Company has assembled a unique combination of partners for the
development of the Complex - London Clubs, TrizecHahn, Planet Hollywood and
Unicom Corporation. These partners bring a wealth of knowledge, capital,
networks and experience to the Complex.
LONDON CLUBS INVESTMENT. London Clubs, a prestigious multi-national casino
operator, owns through LCNI 25% of the outstanding Holdings Common Membership
Interests. As reflected on page A-17 hereof, London Clubs' Cash Flow From
Operating Activities for the 53 weeks ended March 30, 1997 was approximately
L44.8 million and for the 52 weeks ended March 29, 1998 was approximately L23.3
million. London Clubs believes that based on its current financial condition and
business operations, it will be able to meet its commitments under the Bank
Completion Guaranty, the Noteholder Completion Guaranty and the Keep-Well
Agreement. London Clubs has extensive experience in the international marketing
of casinos to premium players and maintains a strong presence in the United
Kingdom (where it controls the largest share of the London casino market),
Europe, Asia and the Middle East. In addition to its 25% ownership of the
outstanding Holdings Common Membership Interests, London Clubs, through LCNI,
will direct the operations of, and act as marketing consultant to, the Salle
Privee, the luxurious 15,000 square foot gaming area to be located on the
mezzanine level of the Casino which will be designed to cater to the needs of
the international premium-play guest. The Company believes that the Salle Privee
will be the first of its kind in the United States managed by a European
operator and based on the European concept of full service gaming areas for
premium players. The Salle Privee's primary business and marketing focus will be
to access London Clubs' worldwide member base of upscale casino clientele. Salle
Privee Hotel guests will be escorted through a private entrance to a dedicated
registration lobby and then taken via a private elevator to the Salle Privee's
five private floors of suites at the apex of the Aladdin's main tower. Once
there, the 24-hour butler and concierge will cater to the care and comfort of
the Salle Privee guest. In the elegantly appointed Salle Privee casino, the
customer may dine in the 100-seat exclusive restaurant, offering fine cuisine
from around the world.
London Clubs provides the Aladdin with an extensive international network of
premium casino players, having established substantial goodwill and customer
loyalty from high-end customers in the United Kingdom, Europe, Asia and the
Middle East. In addition, London Clubs is an experienced service provider to
high-end gaming customers and brings a wealth of knowledge to the Aladdin in
building and maintaining relationships with and customer loyalty from such
clientele. London Clubs also provides the Company with superb promotional
opportunities, not only by word of mouth through its network of contacts, but
also through international sporting sponsorships, including horse racing and
motor racing, which are well recognized in the United Kingdom, Cyprus, Hong
Kong, Dubai and Malaysia, and its international print publications, which are
distributed to members worldwide utilizing London Clubs' substantial database of
premium clientele.
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JOINT VENTURE WITH PLANET HOLLYWOOD. Through a subsidiary, Planet Hollywood
has agreed to be a 50% partner (on a fully diluted basis) in the Music Project.
Planet Hollywood is a creator and worldwide developer of consumer brands, most
notably "Planet Hollywood" and the "Official All Star Cafe," that capitalize on
the universal appeal of the high energy environment of movies, sports and other
entertainment-based themes. As of December 31, 1997, there were 78 Planet
Hollywood brand restaurants and nine Official All Star Cafe brand restaurants
worldwide. Planet Hollywood has announced that it intends to position its brand
of music-themed entertainment venues as its third major brand. A distinguishing
feature of the Music Project is the anticipated active involvement of famous
artists and celebrities, some of whom are expected to be stockholders of Planet
Hollywood, participate in the marketing of Planet Hollywood's music-oriented
brand and help generate significant media attention and publicity. Planet
Hollywood plans to utilize its strategy of celebrity involvement with its
music-themed brand. The Company believes this exposure will enhance the Aladdin
by providing immediate excitement and press coverage for the Complex. On July
21, 1998, Planet Hollywood announced that it has retained financial advisors in
connection with a review of Planet Hollywood's financial and strategic
alternatives and is continuing with an operational plan to address current
financial and operational performance issues. There can be no assurance that the
Music Project will proceed with Planet Hollywood. See "Risk Factors--Completion
of the Mall Project and the Music Project."
STRATEGIC RELATIONSHIP WITH TRIZECHAHN. The Mall Project will be owned,
developed and operated by Aladdin Bazaar, a joint venture between Bazaar
Holdings and TBH, a wholly-owned subsidiary of TrizecHahn. TrizecHahn is a
wholly-owned subsidiary of TrizecHahn Corporation, one of the largest publicly
traded real estate companies in North America.
TrizecHahn was the developer of the Fashion Show Shopping Mall on the Strip
and other major shopping malls including Horton Plaza in San Diego, Bridgewater
Commons in New Jersey, Valley Fair in San Jose and Park Meadows in Denver. The
Company believes that TrizecHahn's proven ability in designing well laid-out
retail centers, attracting high quality tenants and successfully promoting and
operating its retail projects will benefit the Aladdin by attracting a
consistent stream of visitors to the Complex and its various attractions.
Investors should be aware that TrizeHahn has announced that it is considering
selling its operating portfolio of regional shopping centers and on April 6,
1998 announced the sale of 20 regional shopping centers for over $2.5 billion.
While TrizecHahn's announcement is limited to the sale of its current operating
portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert Passage.
Accordingly, investors cannot be assured that TrizecHahn will own and operate
the Desert Passage once it becomes operational, and as a result, pedestrian
traffic to the Aladdin may decrease. See "Risk Factors--Completion of the Mall
Project and the Music Project."
ENERGY PLANT CONTRACT WITH ENERGY PROVIDER. The Energy Provider is a
subsidiary of UTH. The predecessor entity of UTH was founded in 1993 to develop
district energy projects, and UTH has developed the largest district cooling
system in the world, located in Chicago, Illinois. UTH is also a partner in
energy ventures in Boston, Houston and Windsor, Ontario. The Energy Provider's
obligations under the Development Agreement up to $30.0 million will be
guaranteed by its ultimate parent, Unicom. See "Risk Factors--Completion of the
Energy Project."
CLOSE RELATIONSHIP BETWEEN MANAGEMENT AND OWNERS. On completion, it is
expected that the Complex will be one of only two independently constructed
hotel, casino and retail major Strip projects in Las Vegas (the other being the
Venetian Hotel and Casino). All other major competitors of the Aladdin are
corporate projects, such as the Bellagio, owned by Mirage Resorts, Inc. and
Paris Casino owned by Hilton. Management believes that the close relationship
between the Company's members and management will be conducive to more efficient
decision making and ultimately assist in the successful development and
operation of the Complex.
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STRATEGY
The Company's business and marketing strategies are linked together by the
Complex's premier location, its superior design, mixed-use theme development and
strong strategic partnering with highly successful public companies.
CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin,
with its unique, well-executed design, together with the Desert Passage and the
Music Project (including the newly renovated Theater), will ensure its place as
a "must-see" destination in one of the fastest growing entertainment cities in
the world. The Aladdin theme will be supported by a sophisticated interior
design enhancing the fantasy of mystical and romantic time and place. The
Aladdin's main Casino traffic will be driven not only by Hotel guests, but also
by the customers directly attracted from the Strip. Visitor traffic to the
Aladdin will also be enhanced by the attractiveness of the Desert Passage. With
the addition of the Music Project, which will address a somewhat younger
clientele, the Complex will have a combined room count of approximately 3,600
rooms and appeal to a broader customer demographic.
MARKET POSITIONING. The Company intends to focus on three different market
segments to attract customers to the Aladdin:
- UPSCALE CLIENTELE. The Hotel will be designed to appeal to upscale
clientele, providing the amenities and level of service such high-end
guests expect. In particular, each of the Hotel's approximately 2,600
guest rooms and suites will have an area of not less than 450 square
feet--exceeding that of the average Las Vegas hotel room of approximately
360 to 400 square feet--and 24% of the Hotel's guest rooms and suites will
have an area exceeding 620 square feet. The Hotel's room inventory for the
upscale market will include 400 "king parlors" (ranging from 620 to 680
square feet), 136 "tower end-cap suites" (ranging from 732 to 1,162 square
feet) and 58 "center king suites" (585 square feet). Each of the rooms and
suites will have a large four or five fixture bathroom with a separate
shower, bathtub, up to two washbasins and an enclosed watercloset. A
special feature of each of the rooms and suites will be the added width
given to the interior design allowing for a more residential feel. The
Hotel will provide extensive recreational facilities for its guests,
including a 20,000 square foot health spa with steam, sauna and massage
services and an outdoor swimming-pool complex located above the Desert
Passage and surrounded by gardens and fountains. The Company intends to
promote the Hotel's many features to the upscale market through a variety
of media, including high-end print publications, travel agents and events
sponsorships. A targeted relationship marketing program is expected to
ensure clientele retention and repeat visitation.
- INTERNATIONAL PREMIUM PLAYER CLIENTELE. The Company believes that the
Salle Privee will be the first of its kind in the United States managed by
a European operator and based on the European concept of full-service
gaming areas for premium players. The focus of the Salle Privee's business
will be the wealthy clientele that form the core of London Clubs' business
in London and elsewhere. The Hotel will include 30 suites primarily for
use by Salle Privee clientele, including 25 "Salle Privee" suites (ranging
from 815 to 930 square feet) and five "mega-suites" (ranging from 2,125 to
3,500 square feet). The Company will maintain the Salle Privee's premium
player atmosphere through more sophisticated dining options, higher table
limits and more formal levels of service and dress.
- UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms, six of
its seven restaurants and the 1,400-seat production showroom, combined
with the heavily-themed Casino, Theater and Desert Passage, are expected
to appeal broadly to the upper-middle market guest. In addition, the Music
Project is expected to appeal to the upper-middle market by attracting
younger, affluent customers to the Complex through its music and
entertainment-based theme. The Music Project is expected to include an
approximately 1,000 room hotel, four restaurants, including a music-themed
restaurant which will feature its own 1,000-person nightclub, a health spa
and outdoor swimming pool, together with a 50,000 square foot casino. The
Theater, which will be a major feature of the
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Complex, will be central to the Company's promotional strategies for this
market segment, with publicity expected to be gained through the booking
of popular performers, many of which are expected to be broadcast live to
Planet Hollywood's other music-themed entertainment venues. Cooperative
advertising and promotion through various media, such as television, radio
and print, will be used to promote the Complex to the upper-middle market.
LEVERAGE FROM STRATEGIC RELATIONSHIPS. The Company and its affiliates have
chosen as strategic partners an experienced team of retail, casino and themed
entertainment developers and operators. The Company intends to utilize the
unique expertise of its partners from the preliminary development stages of the
Complex through its promotion and operation.
- DEVELOPMENT EXPERTISE. In establishing a strategic relationship with
TrizecHahn, the Company has obtained the knowledge, skills and capital of
a partner who has expertise in the coordination, construction and
completion in a timely manner of large, high quality projects.
- MANAGEMENT AND OPERATING ABILITIES. The Complex will benefit from the
experience of TrizecHahn, London Clubs and Planet Hollywood in its
operations. Through its management and ownership of several shopping
centers, TrizecHahn has demonstrated its ability to successfully design,
configure and attract high quality tenants to its retail shopping
projects. London Clubs has extensive experience in the international
marketing and operation of casinos, in particular to premium players. In
addition, Planet Hollywood has successfully grown its concepts to 87
company-owned and franchised Planet Hollywood and Official All Star Cafe
units (as of December 31, 1997) since commencing business in 1991.
- CAPITALIZING ON BRAND NAMES. With access to some of the most well-known
names in the relevant markets, the Company expects to capitalize on the
worldwide brand recognition of Planet Hollywood, London Clubs and
TrizecHahn.
- ACCESSING NEW CLIENT BASE. London Clubs and Planet Hollywood are expected
to provide the Complex with access to market segments which the Company
believes have not been extensively penetrated by other hotel/casinos in
Las Vegas. London Clubs provides the Aladdin with one of the best networks
of international premium players in the world and superb promotional
opportunities. Furthermore, it is expected that Planet Hollywood will
introduce a younger, affluent clientele to the Complex through, among
other things, celebrity involvement in the Music Project.
CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS. The Company anticipates the
total cost of developing, financing, constructing and opening the Aladdin to be
approximately $790 million (excluding the Company's $21.3 million planned
indirect cash contribution and $15.0 million appraised fair market value land
contribution to Aladdin Music as part of the development funds for the Music
Project). As part of the Company's strategy of carefully managing construction
costs and risks, the Company has hired Tishman, a privately held company with
extensive experience in building quality hotels and casinos, to be the
construction manager. As construction manager, Tishman will advise with respect
to scheduling, administration and reporting in connection with the construction
activities of the Design/Builder. In addition, the following arrangements have
been made to ensure the full and timely completion of the Aladdin.
BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY. London Clubs,
the Trust and Bazaar Holdings have entered into the Bank Completion Guaranty for
the benefit of the Bank Lenders, under which they have agreed, among other
things, to guarantee the completion of the Aladdin. The Bank Completion
Guaranty, which became effective as of the closing of the Offering, is not
subject to any maximum dollar limitations. London Clubs, the Trust and Bazaar
Holdings have entered into the Noteholder Completion Guaranty for the benefit of
the holders of the Notes, under which they guarantee completion of the Aladdin,
subject to certain important exceptions, limitations and qualifications. Neither
Holdings, the Issuer nor the holders of the Warrants or Warrant Shares are party
to the Bank Completion Guaranty or Noteholder Completion Guaranty. No financial
information regarding the Trust is available for the purpose of evaluating the
Trust's creditworthiness and, accordingly, purchasers of Warrants or
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Warrrant Shares should not rely upon the Trust's performance under the Bank
Completion Guaranty of Noteholder Completion Guaranty when making their
investment decision. See "Risk Factors--Limitations Under Bank Completion
Guaranty and Noteholder Completion Guaranty" and "--Lack of Available
Information on the Trust's Ability to Perform Its Obligations Under Certain
Agreements," "Description of Certain Indebtedness and Other Obligations--Bank
Completion Guaranty" and "Description of Noteholder Completion Guaranty and
Disbursement Agreement--Noteholder Completion Guaranty."
DESIGN/BUILD CONTRACT. Fluor Daniel, Inc. is the design/builder for the
Aladdin. The Design/Builder has entered into a guaranteed maximum price
design/build contract (subject to scope changes) with the Company to construct
the Aladdin. The Design/Build Contract provides the Design/Builder with
incentives for completing the Aladdin ahead of schedule and within budget and
for payment of liquidated damages to the Company for certain delays. The
Design/Build Contract is guaranteed by Fluor Corporation, the parent of the
Design/Builder, pursuant to the Fluor Guaranty. See "Certain Material
Agreements-- Design/Build Contract."
MALL FINANCING AND MALL GUARANTY. Bazaar has entered into a building loan
agreement with the Mall Lenders to fund the construction of the Mall Project.
Furthermore, TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL have agreed to
guarantee completion of the Mall Project and Bazaar's indebtedness to the Mall
Lenders until certain earnings and loan to value targets have been met. Funding
under the Mall Financing is subject to certain conditions. See "Risk
Factors--Completion of the Mall Project and the Music Project" and "Certain
Material Agreements--Mall Financing."
THE ALADDIN
OVERVIEW. The Aladdin will comprise the Hotel and the Casino and will be
owned, developed and operated by the Company. The Aladdin will be constructed of
high quality materials, including floors covered in stone, marble and granite
set in intricate patterns; carpeting of wool axminster; and wall surfaces of
covered architectural veneers, tiles of stone, ceramic and mosaic. The main
ceiling treatment will combine actual tent drape with texture and design of a
matching motif.
THE ALADDIN HOTEL. The Hotel building is expected to comprise a 34-story,
400 foot main tower attached to two 17 story towers. The approximately
2,600-room Hotel room inventory will include standard rooms, 400 "king parlors"
(ranging from 620 to 680 square feet), 136 "tower end-cap suites" (ranging from
732 to 1,162 square feet), 58 "center king suites" (585 square feet), 25 "Salle
Privee Suites" (ranging from 815 to 930 square feet) and five "mega-suites", the
largest of which will be approximately 3,500 square feet. The design and
furnishings of the rooms will be spacious and luxurious, with appointments
inspired by the Aladdin theme. All guest rooms will include such amenities as a
dual line phone in the bathroom and two additional dual line speakerphones with
modem hook-up. The king parlors, tower end-cap, center king and Salle Privee
suites and the mega-suites will include a king-size or two queen-size beds, with
over-sized bathrooms featuring a separate bathtub and shower, dual sinks,
enclosed watercloset and, for the center king, Salle Privee and mega-suites,
such amenities as a separate living area with a fully-stocked minibar and a work
area with modem hook-up, fax machine/printer and video telephone technology. The
suites will be designed to accommodate informal business meetings involving both
business travelers and convention attendees. Approximately 93 of the suites will
be of a larger size, allowing for the possibility of casually entertaining up to
forty persons in the living area. The main tower will also house luxury suites
designed for Salle Privee and other VIP guests, including premium casino players
and convention and trade show attendees who require additional space for
entertaining.
The Hotel is expected to provide extensive recreational facilities designed
to pamper its guests, including a 20,000 square foot health spa with steam,
sauna and massage services and an outdoor swim-ming-pool complex located above
the Desert Passage and surrounded by gardens and fountains.
The Aladdin is expected to include seven restaurants, with combined seating
capacity for over 2,300 customers, offering a wide range of dining selections.
Food service facilities at the Aladdin will include a
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buffet and food plaza seating 800 customers, a 24-hour casual dining facility
seating 575 customers and a high-energy restaurant with indoor and outdoor
seating which will overlook the Strip and be located on the Casino level. This
"al fresco" dining experience, one of the first on the Strip, will further
distinguish the Aladdin from its competitors and will provide a lively
attraction for pedestrians traversing the Strip. The mezzanine level, which will
offer a panoramic view of the main casino floor, will feature a themed
restaurant of 150 seats and a steakhouse of 150 seats, both of which will offer
indoor and outdoor terrace dining. A Sushi/Chinese noodle shop with 50 seats and
a casual dining/coffee bar will complete the food offerings on the mezzanine.
There will also be a poolside restaurant with capacity to seat 150 people. To
ensure consistent, high quality service throughout the Aladdin, the Company will
own and operate all food service facilities in the Aladdin (other than the
exclusive Salle Privee restaurant, which will be operated by London Clubs).
THE SHOWROOM. In keeping with the Aladdin's Arabian Nights theme, the
Aladdin will include, on its mezzanine level, a 1,400-seat showroom which will
provide nightly entertainment for Hotel, Casino and other guests. The showroom
will feature a 1001 Arabian Nights-theme production show including elegant,
exotic costuming, music, lighting and choreography.
CONVENTION, MEETING AND RECEPTION FACILITIES. The Aladdin is expected to
include on the mezzanine floor of the main building over 70,000 square feet of
convention, conference, trade show and reception facilities, including a 28,500
square foot main ballroom, 25,600 square feet of pre-function space and 17,400
square feet of breakout space in 16 separate rooms. These facilities will be
made available for business and other conventions, trade shows, private
receptions and conferences throughout the year. The Company believes that
convention, meetings and special events customers will represent an important
market for the Aladdin, helping the Hotel obtain consistently high occupancy
rates and levels. See "-- Guest Mix--Conventions, Meetings and Special Events
Customers."
GUEST MIX. The Hotel guest mix, in order of magnitude, is expected to
include free and independent travelers, targeted casino customers (both
complimentary and at casino rates), convention, meetings and special events
customers, and tour and travel customers. Of these groups, all but one
(convention, meeting and special events customers) generally have substantial
leisure time to take advantage of the Complex's many attractions. According to
the LVCVA, approximately 72% of the visitors to Las Vegas came to Las Vegas for
vacation and pleasure in 1997.
The planned guest mix by category is as follows:
<TABLE>
<CAPTION>
SEGMENT MIX
- ------------------------------------------------------------------------------------ -------------
<S> <C>
Free and Independent Travelers...................................................... 30%
Casino Customers.................................................................... 30%
Convention/Meeting.................................................................. 20%
Tour & Travel....................................................................... 20%
</TABLE>
FREE AND INDEPENDENT TRAVELERS. Free and independent travelers will be the
primary focus of the Complex with its array of resort services including
luxurious rooms, swimming pool and spa, fine restaurants (both in the Hotel,
Casino and the Desert Passage), extensive retail opportunities, and the multiple
entertainment offerings of the Theater, the Aladdin/Arabian Nights production
show and the Desert Passage. Free and independent travelers include persons who
travel to Las Vegas from throughout the world who are not affiliated with a
traveling group and make their reservations at the property of their choice.
These travelers are characterized by travel budgets higher on average than the
typical "tour group" traveler budget. They generally pay higher room rates, are
predominantly weekend customers and have a relatively high non-gaming budget but
still spend more money on gaming activities than the typical Las Vegas visitor.
Management believes the Aladdin's emphasis on high-quality accommodation and an
upscale integrated entertainment complex will broadly appeal to this market.
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CASINO CUSTOMERS. Casino customers will be drawn from the upscale,
international premium and upper-middle segments of the market. Utilizing both
the resources of London Clubs and those internal to the Company, the Casino
marketing network will cover Europe, the Middle East, the Pacific Rim, Mexico
and Latin America, as well as the United States. The Company believes that the
Aladdin's high levels of service, distinctive and private accommodations and the
Salle Privee and its amenities will help differentiate it from its competitors.
Where appropriate, management will offer complementary suites to high quality,
repeat casino players and other premium players. In addition, the Casino will
offer a range of popular gaming alternatives, designed to attract the
upper-middle market guest.
CONVENTIONS, MEETINGS AND SPECIAL EVENTS CUSTOMERS. Conventions, meetings
and special events customers are expected to fill the mid-week time periods when
the demand by free and independent travelers is lower. Las Vegas is currently
the largest trade show market and the fourth largest convention market in the
United States, with Las Vegas hotels obtaining premium occupancy rates during
large conventions. By utilizing the Aladdin's 70,000 square feet of convention
and meeting space, the Aladdin will focus on groups that have both a good hotel
and gaming revenue profile. Demand for convention and meeting room nights will
be supplemented by convention guests being displaced from neighboring hotels.
TOUR AND TRAVEL CUSTOMERS. The tour and travel market consists of customers
who utilize "packages" to reduce the cost of travel, lodging and entertainment.
According to the LVCVA, approximately 28% of Las Vegas' visitors utilized such
tour packages in 1997. These "packages" are produced by wholesalers and travel
agents and emphasize mid-week stays in Las Vegas. Management believes that it
will be able to capture a significant portion of this market segment by offering
the extensive facilities (including non-gaming attractions and amenities) of the
Complex to tour and travel visitors during off-peak periods. The tour and travel
market will be utilized to fill rooms mid-week with nominal room blocks on the
weekends when demand by free and independent travelers is at its peak. With the
upper-middle and upscale focus of the Hotel, the Aladdin will focus on the
higher-end tour and travel guest from both domestic and international tour
operators.
THE CASINO. A highly-themed approximately 116,000 square foot casino will
be at the center of the Complex. The Casino's main gaming area will contain
approximately 2,800 slot machines, 87 table games, keno and a race and sports
book facility. Included on a separate level of the Casino will be the luxurious
15,000 square foot Salle Privee, which is expected to contain an additional
approximately 100 high limit slot machines and 20 to 30 high limit table games.
The Salle Privee will cater to wealthy clientele and will be operated and
marketed in conjunction with London Clubs, a prestigious, multi-national casino
operator which caters to international premium players. The Casino will be
located in front of the Hotel, and unlike many of the newer projects on the
Strip, will provide easy access for pedestrians without requiring long walks
into the Complex. The Casino will be the nexus for the vast majority of
pedestrian traffic on the fully integrated Complex, including the Desert
Passage, the Music Project and the Theater. The Casino's exterior will be
designed in the style of a large Bedouin sheik's tent, helping to introduce the
Aladdin theme to visitors even before they reach the Complex. On entering the
Casino, patrons will be surrounded by the Aladdin theme through sculptured
surroundings, rich fabrics, strategic lighting and music, evoking the mystery
and luxury of the Legends of the 1001 Arabian Nights. At the center of the
Casino will be "Scheherazade's Palace," a series of themed architectural
elements of domes, arches, and 65 foot polished stone columns. The main level of
Scheherazade's Palace will have a bar and live entertainment lounge overlooking
the Casino and across to the Mezzanine level.
THE SALLE PRIVEE AND THE SALLE PRIVEE MANAGEMENT AGREEMENT. A distinctive
feature of the Casino will be the Salle Privee, located on the mezzanine level
which will be designed to cater to the needs of the international premium guest.
The Salle Privee will contain 20 to 30 high limit table games including
baccarat, double zero roulette, single zero roulette and blackjack, and
approximately 100 high limit slot machines.
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The Company believes that the Aladdin's Salle Privee will be the first of
its kind in the United States managed by a European operator and based on the
European concept of a luxurious, full-service, gaming area for international and
domestic premium players. The focus of the Salle Privee's business will be the
wealthy clientele that form the core of London Clubs' business in London and
elsewhere. The Company will maintain the Salle Privee's premium player
atmosphere through more sophisticated dining options, higher table limits and
more formal levels of service and dress.
The Company believes that the Salle Privee will prove to be a significant
attraction for premium players to stay at the Hotel and play at the Casino. In
order to take full advantage of this potential, the Company has entered into a
consulting and marketing services agreement (the "Salle Privee Management
Agreement") with London Clubs, one of the Controlling Stockholders, under which
London Clubs will promote the Salle Privee, marketing this aspect of the Aladdin
through its international network of premium casino customers. See "Certain
Material Agreements -- Salle Privee Management Agreement."
London Clubs has extensive experience in the international marketing of
casinos to premium players. London Clubs operates seven casinos in London, one
in Cannes, France, three in Egypt and one in Lebanon. Each of London Clubs'
casinos offer their own individual style, but with comparable internationally
recognized standards of service. In recent years, London Clubs has embarked upon
a period of expansion, acquiring the Park Tower Casino in London's Knightsbridge
in October 1995 and re-opening and managing the casino operations of the famous
Casino du Liban in Lebanon in December 1996.
London Clubs maintains a strong presence in the United Kingdom (where it
controls a leading share of the London casino market), Europe, Asia and the
Middle East. Its international sporting sponsorships, including horse racing and
motor racing, are widely recognized, particularly in the United Kingdom, Cyprus,
Hong Kong, Dubai and Malaysia. In addition, London Clubs produces a print
publication for its clientele utilizing its substantial database of premium
customers which is a valuable means of direct communication with its clientele
worldwide. Each issue features developments in London Clubs' clubs, lifestyle
articles, member profiles and a popular social diary.
Under the Salle Privee Management Agreement, London Clubs will earn an
incentive fee based on the operating performance of the Salle Privee. As a
result of London Clubs' substantial network of casino players in the United
Kingdom, Europe, Asia and the Middle East and management's own extensive network
in North and South America and the Pacific Rim, the Company believes that the
Salle Privee will provide the Aladdin with a significant competitive advantage
over other hotels and casinos on the Las Vegas Strip in attracting customers
from the profitable international premium player market. Through London Clubs'
involvement in the promotion of the Salle Privee, its equity interest in
Holdings and its commitment to the Aladdin (demonstrated in part by the
Keep-Well Agreement and the Completion Guaranty), the Company also believes that
the Aladdin's international profile and financial stability will be
significantly strengthened.
THE MALL PROJECT
OVERVIEW. Located on the Complex adjacent to the Aladdin will be the Desert
Passage, a shopping mall with approximately 522,000 square feet of retail space,
and the approximately 4,800-space Carpark, each of which will be developed,
owned and operated by Bazaar, a joint venture between Bazaar Holdings and THB, a
wholly-owned subsidiary of TrizecHahn. TrizecHahn has extensive experience in
developing retail properties, and prior to its recently announced sale of 20
regional shopping centers, TrizecHahn owned and managed 27 regional centers
throughout the United States, comprising over 25 million square feet.
TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, one of
the largest publicly traded real estate companies in North America. Investors
should note that TrizecHahn has announced that it is considering selling its
operating portfolio of regional shopping centers and on April 6, 1998 announced
the sale of 20 regional shopping centers for over $2.5 billion. While
TrizecHahn's announcement is limited
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to the sale of its current operating portfolio of regional shopping centers,
there can be no assurance that TrizecHahn will not similarly decide to sell its
interest in the Desert Passage. Accordingly, investors cannot be assured that
TrizecHahn will own and operate the Desert Passage once it becomes operational,
and as a result, pedestrian traffic to the Aladdin may decrease. See "Risk
Factors--Completion of the Mall Project and the Music Project."
THE DESERT PASSAGE. The Desert Passage entertainment shopping mall will
constitute a key aspect of the Complex, and, like the Aladdin, will be heavily
themed on the Arabian Nights legends. With a strong presence and entrances on
the Strip, the Desert Passage will wrap around the Casino and Hotel buildings
and the Theater. The Desert Passage will consist of two stories of prime retail
space in the area closest to the Strip, reducing to one-level in the areas near
the rear of the Hotel, the Carpark and the Music Project. While the Desert
Passage will be of a similar size to the successful Forum Shops at Caesars
Palace, it will not be set back from the Strip, but will instead be located
close to the Strip, allowing passing pedestrian traffic to gain easy access.
Pedestrian visitors to the Aladdin entering from the Strip will be able to enter
directly through the Casino or through the Desert Passage entrances and
significant portions of the Desert Passage will flow directly into the Casino.
It is expected that the Desert Passage will provide a steady source of
pedestrians and Hotel guests to the Complex, many of whom it is expected will
also want to visit the Casino or dine at the Hotel.
The Desert Passage will be designed to engage the customer in a highly
themed shopping, entertainment and dining experience. Of the approximately
522,000 square feet of retail space within the mall, it is anticipated that
approximately 25% will be devoted to high pedestrian traffic-generating food,
beverage and entertainment experiences. The food service facilities located in
the Desert Passage will consist predominantly of establishments which complement
the dining alternatives in the Aladdin. A significant feature of the Desert
Passage will be the themed area to be known as the "Lost City." The "Lost City"
is expected to contain a re-creation of an ancient mystical mountain city and
will house a variety of specialty shops and restaurants underneath a 10-story
high ceiling.
CARPARK. As part of the Mall Project, Bazaar will develop an approximately
4,800-space carpark facility, to be located at the rear of the Complex, together
with an additional approximately 350 surface level parking spaces. The Carpark
will be accessible from Audrie Lane, the same street from which the Paris Casino
public carpark will be accessed, and from the circular internal roadway on the
Complex (accessible from Harmon Avenue and the Strip) which will provide direct
vehicular access to the Hotel. The Carpark will be directly linked through the
Desert Passage to the Hotel and Casino and the Music Project. Bazaar is
considering retaining an independent management company to operate the Carpark.
The Carpark and related surface level parking areas will include certain car
parking spaces to be used principally for valet parking. In addition, in
connection with the development of the Aladdin, parking facilities for
approximately 500 vehicles will be developed beneath the Hotel.
THE MUSIC PROJECT
THE MUSIC PROJECT HOTEL AND CASINO. The Music Project is the second stage
of development to the Complex. The Music Project will involve the development of
a second hotel and casino, with a music and entertainment theme, on the
southeast edge of the Complex on the corner of Audrie Lane and Harmon Avenue.
AMH and a subsidiary of Planet Hollywood have entered into the Music Project
Memorandum of Understanding to own and operate the Music Project, subject to
finalization of financing, with each joint venture partner holding a 50%
interest (on a fully-diluted basis). See "Risk Factors--Completion of the Mall
Project and the Music Project" and "Certain Material Agreements--Music Project
Memorandum of Understanding."
The Music Project is expected to include an approximately 1,000 room hotel,
four restaurants, including a music-themed restaurant which will feature its own
1,000-person nightclub with regular live entertainment, a health spa and outdoor
swimming pool, together with a 50,000 square foot casino. The
53
<PAGE>
Music Project will aim to expand the market by having a different theme and
attracting a different market segment to the Aladdin. The Music Project is
expected to appeal to the upper-middle market, attracting younger, affluent
customers to the Complex through its music and entertainment-based theme. In
order to enhance the Complex, the Music Project is intended to be integrated
through walkways, bridges and the internal circular roadway with the Aladdin,
the Desert Passage and the Carpark, providing yet another attraction on the
Complex and contributing to its mixed-use nature.
Through a subsidiary, Planet Hollywood will be a 50% partner (on a fully
diluted basis) in the Music Project. Planet Hollywood is a creator and worldwide
developer of consumer brands, most notably "Planet Hollywood" and the "Official
All Star Cafe," that capitalize on the appeal of the high-energy environment of
movies, sports and other entertainment-based themes. As of December 31, 1997,
there were 78 Planet Hollywood brand restaurants and nine Official All Star
Cafes brand restaurants worldwide. Planet Hollywood has announced that it
intends to position a brand of music-themed hotels and entertainment venues as
its third major brand. A distinguishing feature of the Music Project is the
anticipated active involvement of famous artists and celebrities, some of whom
are expected to be stockholders of Planet Hollywood, participate in the
marketing of Planet Hollywood's music-themed brand, perform at the Theater or
make other personal appearances at the Music Project, and help to generate
significant media attention and publicity. Brand recognition is expected to be
further enhanced through the high visibility of Planet Hollywood's music brand's
merchandise, such as jackets, T-shirts, sweatshirts and hats. The Company
believes this exposure will enhance the Aladdin by providing immediate
excitement and press coverage for the Complex. See "Risk Factors--Completion of
the Mall Project and the Music Project."
It is currently anticipated that construction of the Music Project will
commence during the second half of 1998. Neither the development of the Aladdin
nor the Mall Project is contingent on the development of the Music Project.
THEATER OF THE PERFORMING ARTS. The Aladdin and the Desert Passage will be
adjacent to the Theater, a 7,000-seat entertainment facility that will be
accessible through the Casino. The Theater is an entertain-ment auditorium with
high-quality sight lines and acoustics and, with its 15,000 square foot stage,
is one of the few venues of its size and type in Nevada. As part of the
development of the Complex, the Company intends to enter into a 69-year lease of
the existing Theater for a nominal amount with Aladdin Music, which expects to
carry out an approximately $8 million renovation of the Theater, improving its
decor, light and sound systems and other facilities. The renovation will also
allow the Theater to be condensed into a smaller, approximately 2,000-seat
auditorium for more intimate performances. The Company will retain certain
rights to use the Theater for Company-promoted events at agreed commercial
rates.
In the past the Theater has hosted major concert artists, championship
boxing matches and Broadway shows and it is expected that the Theater will
continue to be used to hold major concerts and theatrical performances. The
renovation and integration of the Theater into the first class resort Complex is
expected to provide another source of visitor traffic to the Complex.
THE LAS VEGAS MARKET
OVERVIEW. Las Vegas is one of the fastest growing entertainment markets in
the country. Las Vegas hotel occupancy rates are among the highest of any major
market in the United States. According to the LVCVA, the number of visitors
traveling to Las Vegas has increased at a steady and significant rate for the
last ten years from 16.2 million in 1987 to 30.4 million visitors in 1997, a
compound annual growth rate of 6.5%. Aggregate expenditures by these visitors
increased at a compound annual growth rate of 10.2% from $8.6 billion in 1986 to
approximately $25 billion in 1997. Although the number of visitors to Las Vegas
has increased, there has been a greater increase in the supply of hotel rooms.
Such competition and increased supply, with steady visitor counts, has affected
and may continue to affect room prices, occupancy rates and profits. See "Risk
Factors--Risk of Overcapacity; Competition and Planned Construction in Las
Vegas."
54
<PAGE>
EXPANDING HOTEL AND GAMING MARKET. Las Vegas has one of the strongest and
most resilient hotel markets in the country and is the largest gaming market in
the world. The number of hotel and motel rooms in Las Vegas has increased by
71.6% from 61,394 in 1988 to 105,347 in 1997. Major properties on the Strip
opening over this time period include the Mirage, Excalibur, MGM Grand, Treasure
Island, the Luxor, Monte Carlo and New York New York. In addition, a number of
existing properties on the Strip embarked on expansions including Harrah's Las
Vegas, Caesars Palace, Circus Circus and the Luxor. Despite this significant
increase in the supply of rooms in Las Vegas, hotel occupancy rates exceeded on
average 90.4% for the years 1990 to 1996, averaged 93.4% in 1996 and averaged
90.3% in 1997. By the end of 1999, it is estimated that approximately 20,000
additional hotel rooms will be opened on the Strip, including the Bellagio, the
Venetian, Mandalay Bay and Paris resorts, all of which are currently under
construction.
55
<PAGE>
VISITOR STATISTICS
LAS VEGAS VISITOR VOLUME
A trend analysis of the Las Vegas visitor volume for the past ten years is
presented in the following chart. The number of visitors to Las Vegas has grown
by 77.1% since 1988.
<TABLE>
<CAPTION>
VISITOR PERCENTAGE
YEAR VOLUME CHANGE
- --------- ------------- -----------
<S> <C> <C>
1988 17,199,808 6.1%
1989 18,129,684 5.4%
1990 20,954,420 15.6%
1991 21,315,116 1.7%
1992 21,886,865 2.7%
1993 23,522,593 7.5%
1994 28,214,362 19.9%
1995 29,002,122 2.8%
1996 29,636,361 2.2%
1997 30,464,635 2.8%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MILLIONS
<S> <C>
1988 17.2
1989 18.1
1990 21.0
1991 21.3
1992 21.9
1993 23.5
1994 28.2
1995 29.0
1996 29.6
1997 30.5
</TABLE>
SOURCE: Las Vegas Convention and Visitors Authority
56
<PAGE>
VISITOR STATICSTICS
VISITOR DOLLAR CONTRIBUTION (INCLUDES GAMING REVENUES)
Tourists and conventioneers spent approximately $25.0 billion in the Las
Vegas area during 1997. An analysis of the visitor dollar contribution since
1988 for Las Vegas is presented below.
<TABLE>
<CAPTION>
VISITOR
DOLLAR PERCENTAGE
YEAR CONTRIBUTION CHANGE
- --------- ------------------ -----------
<S> <C> <C>
1988 $ 10,039,448,236 16.7%
1989 11,912,941,021 18.7%
1990 14,320,745,600 20.2%
1991 14,326,553,719 0.0%
1992 14,686,644,065 2.5%
1993 15,127,266,781 3.0%
1994 19,163,212,044 26.7%
1995 20,686,800,160 8.0%
1996 22,533,257,750 8.9%
1997 24,952,188,808 10.7%
</TABLE>
PER VISIT EXPENDITURES EXCLUDING GAMING FOR 1997:
Trade show delegates: $1,517 Convention/meeting delegates: $963
Tourists: $551
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BILLIONS
<S> <C>
1988 $ 10.0
1989 $ 11.9
1990 $ 14.3
1991 $ 14.3
1992 $ 14.7
1993 $ 15.1
1994 $ 19.2
1995 $ 20.7
1996 $ 22.5
1997 $ 25.0
</TABLE>
SOURCE: Las Vegas Convention and Visitors Authority
57
<PAGE>
ROOM INVENTORY
NUMBER OF HOTEL/MOTEL ROOMS
The total hotel/motel room inventory for Las Vegas increased by 43,953 rooms
from 1988 to 1997. This represents a percentage increase of 71.6%. The inventory
analysis follows.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
YEAR HOTEL/MOTEL ROOMS CHANGE
- --------- ----------------- -----------
<S> <C> <C>
1988 61,394 5.0%
1989 67,391 9.8%
1990 73,730 9.4%
1991 76,879 4.3%
1992 76,523 (0.5%)
1993 86,053 12.5%
1994 88,560 2.9%
1995 90,046 1.7%
1996 99,072 10.0%
1997 105,347 6.3%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1988 61,394
<S> <C>
1989 67,391
1990 73,730
1991 76,879
1992 76,523
1993 86,053
1994 88,560
1995 90,046
1996 99,072
1997 105,347
</TABLE>
SOURCE: Las Vegas Convention and Visitors Authority
58
<PAGE>
AIRPORT STATISTICS
TOTAL ENPLANED AND DEPLANED PASSENGERS
Since 1988, the total number of passengers enplaning and deplaning at
McCarran International airport has increased by 87%.
<TABLE>
<CAPTION>
TOTAL ENPLANED/ PERCENTAGE
YEAR DEPLANED PASSENGERS CHANGE
- --------- ------------------- -----------
<S> <C> <C>
1988 16,231,199 4.2%
1989 17,106,948 5.4%
1990 19,089,684 11.6%
1991 20,171,557 5.7%
1992 20,912,585 3.7%
1993 22,492,156 7.6%
1994 26,850,486 19.4%
1995 28,027,239 4.4%
1996 30,459,965 8.7%
1997 30,305,822 (0.5%)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MILLIONS
<S> <C>
1988 16.2
1989 17.1
1990 19.1
1991 20.2
1992 20.9
1993 22.5
1994 26.9
1995 28
1996 30.5
1997 30.3
</TABLE>
SOURCE: McCarran International Airport
59
<PAGE>
AUTOMOBILE TRAFFIC
AVERAGE DAILY TRAFFIC (ALL FOUR DIRECTIONS COMBINED)
The Nevada Department of Transportation provides average daily traffic
counts on the four principal highways servicing travelers to and from Las Vegas.
The traffic counters are located on I-15 South (MEASURING SOUTHERN CALIFORNIA
TRAFFIC), I-15 North (MEASURING UTAH TRAFFIC), US 95 North (MEASURING TONOPAH,
RENO TRAFFIC), and US 95 South (MEASURING ARIZONA TRAFFIC). The figures reported
include both inbound and outbound traffic.
<TABLE>
<CAPTION>
TOTAL PERCENTAGE
YEAR VEHICLES CHANGE
- --------- ----------- -----------
<S> <C> <C>
1988 41,234 7.4%
1989 45,222 9.7%
1990 48,607 7.5%
1991 50,150 3.2%
1992 51,411 2.5%
1993 53,467 4.0%
1994 56,875 6.4%
1995 58,917 3.6%
1996 59,777 1.5%
1997 63,261 5.8%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THOUSANDS
<S> <C>
1988 41.2
1989 45.2
1990 48.6
1991 50.2
1992 51.4
1993 53.5
1994 56.0
1995 58.9
1996 59.8
1997 63.3
</TABLE>
SOURCE: Nevada Department of Transportation
60
<PAGE>
GAMING REVENUE
CLARK COUNTY GROSS GAMING REVENUE
A summary of the gross gaming revenue in Clark County for the period
covering 1988 through 1997 is shown in the following table.
<TABLE>
<CAPTION>
GROSS PERCENTAGE
YEAR GAMING REVENUE CHANGE
- --------- --------------- -----------
<S> <C> <C>
1988 3,136,901,000 12.5%
1989 3,430,851,000 9.4%
1990 4,104,001,000 19.6%
1991 4,152,407,000 1.2%
1992 4,381,710,000 5.5%
1993 4,727,424,000 7.9%
1994 5,430,651,000 14.9%
1995 5,717,567,000 5.3%
1996 5,783,735,000 1.2%
1997 6,152,415,000 6.4%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BILLIONS
<S> <C>
1988 3.1
1989 3.4
1990 4.1
1991 4.2
1992 4.4
1993 4.7
1994 5.4
1995 5.7
1996 5.8
1997 6.2
</TABLE>
SOURCE: Nevada State Gaming Control Board
61
<PAGE>
Gaming has continued to be a strong and growing business in Las Vegas.
According to the LVCVA, Clark County gaming revenues have increased at a
compound annual rate of 7.3% from approximately $2.8 billion in 1986 to
approximately $6.1 billion in 1997. As a result of the increased popularity of
gaming, Las Vegas has sought to increase its popularity as an overall vacation
resort destination. Management believes that the growth in the Las Vegas market
has been enhanced as a result of a dedicated program by the LVCVA and major Las
Vegas hotels to promote Las Vegas as a major vacation and convention site, the
increased capacity of McCarran Airport and the introduction of large, themed
destination resorts in Las Vegas. Notwithstanding, there has recently been
volatility in stock prices of Las Vegas-based gaming companies. The Issuer
believes this volatility is a result of a perceived saturation of the Las Vegas
market and uncertainty arising from the Asian economic downturn and its effect
on Asian gaming customers.
GROWTH OF LAS VEGAS RETAIL SECTOR AND NON-GAMING REVENUE EXPENDITURES. The
Las Vegas market continues to evolve from its historical gaming focus to a
broader entertainment offering. In addition to the traditional attractiveness of
gaming, the market is continuing to expand to include retail, sporting
activities, major concerts and other entertainment facilities. This
diversification has contributed to the growth of the market and broadened the
universe of individuals who would consider Las Vegas as a vacation destination.
The more diversified entertainment offerings present significant growth
opportunities.
An increasing number of destination resorts are developing non-gaming
entertainment to complement their gaming activities in order to draw additional
visitors. According to the LVCVA, while gaming revenues in Clark County have
increased from approximately $2.8 billion in 1986 to $6.1 billion in 1997, the
percentage of an average tourist's budget spent on gaming has declined from
32.6% in 1986 to 25.8% in 1996 with non-gaming tourist revenues increasing from
$5.8 billion in 1986 to $16.7 billion in 1996. The newer large theme destination
resorts have been designed to capitalize on this development by providing better
quality sleeping rooms at higher rates and by providing expanded shopping,
dining and entertainment opportunities to their patrons in addition to gaming.
LAS VEGAS AS A CONVENTION CENTER ATTRACTION. Las Vegas is one of the
largest convention and trade show destinations in the country. In 1987,
approximately 1.7 million persons attended conventions in Las Vegas providing
approximately $1.2 billion in non-gaming convention revenue. In 1997, the number
of convention attendees increased to more than 3.5 million, providing $4.4
billion in non-gaming convention revenue. Las Vegas offers convention and trade
shows unique infrastructure for handling the world's largest shows, including a
concentration of high-end hotel rooms located on the Strip, two convention
centers with a total of over 2.3 million square feet of convention and
exhibition space and unparalleled entertainment options. The proposed expansion
of the Las Vegas Convention Center ("LVCC") and the planned construction of the
Congress Center will further increase convention and exhibit space. Management
believes that Las Vegas will continue to evolve as one of the country's
preferred convention destinations.
MCCARRAN AIRPORT EXPANSION. During the past five years, the facilities of
McCarran Airport, the tenth busiest airport in the United States, have been
expanded to accommodate the increased number of airlines and passengers which it
services. The number of passengers traveling through McCarran Airport has
increased from approximately 15.6 million in 1987 to approximately 30.3 million
in 1997, a compound annual growth rate of 6.7%. According to the LVCVA, in 1997
visitors to Las Vegas arrived by the following methods of transportation: 47% by
air; 41% by auto; 6% by bus; and 5% by recreational vehicle. An approximately
$500 million expansion project at McCarran Airport is scheduled for completion
in 1998. Long-term expansion plans for McCarran Airport provide for additional
runways, three new satellite concourses, 65 additional gates, improved public
transportation, roads and other infrastructure leading from McCarran Airport to
the Strip and other facilities which would allow McCarran Airport to
significantly increase visitor capacity. To the extent that McCarran Airport is
not expanded in accordance with its plans, the occupancy rates and average daily
hotel room rates in Las Vegas could be adversely affected due to the planned
construction of new hotel rooms. During the first quarter of 1998, visitor
62
<PAGE>
counts at McCarran Airport were down 4.1% from the same period in 1997. Airline
traffic is a significant contributor to the overall visitor volume to Las Vegas,
as approximately 44% of visitors arrive by air. A reduction in visitation to the
market could result in lower average room rates, lower hotel occupancy
percentages and reduced revenues for the Company.
STATISTICS ON THE LAS VEGAS GAMING INDUSTRY. The following table sets forth
certain information derived from published reports of the LVCVA and the Nevada
State Gaming Control Board concerning Las Vegas Strip gaming revenues and
visitor volume and hotel data for the years 1986 to 1997. As shown in the table,
the Las Vegas market has achieved significant growth in visitor volume and
tourist revenues and favorably absorbed significant additional room capacity
despite the occurrence of a series of adverse economic, regulatory and
competitive events during the past decade such as the recession of the early
1990s, the expansion of gaming into new jurisdictions, the modification of
existing regulations in other jurisdictions and the expansion of Native American
gaming.
63
<PAGE>
HISTORICAL DATA FOR LAS VEGAS GAMING INDUSTRY(1)
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Las Vegas Visitor Volume..... 16,216,102 17,199,808 18,129,684 20,954,420 21,315,116 21,886,865 23,522,593 28,214,362
Percentage Change............ 6.7% 6.1% 5.4% 15.6% 1.7% 2.7% 7.5% 19.9%
Total Visitor
Expenditures(2)............ $8,602,966 $10,039,448 $11,912,941 $14,320,746 $14,326,554 $14,686,644 $15,127,267 $19,163,212
Percentage Change............ 15.3% 16.7% 18.7% 20.2% 0.0% 2.5% 3.0% 26.7%
Las Vegas Convention
Attendance................. 1,677,716 1,702,158 1,508,842 1,742,194 1,794,444 1,969,435 2,439,734 2,684,171
Percentage Change............ 10.4% 1.5% (11.4)% 15.5% 3.0% 9.8% 23.9% 10.0%
Las Vegas Hotel Occupancy
Rate....................... 87.0% 89.3% 89.8% 89.1% 85.2% 88.8% 92.6% 92.6%
Las Vegas Hotel/Motel Room
Supply..................... 58,474 61,394 67,391 73,730 76,879 76,523 86,053 88,560
Percentage Change............ 3.5% 5.0% 9.8% 9.4% 4.3% (0.5)% 12.5% 2.9%
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Las Vegas Visitor Volume..... 29,002,122 29,636,631 30,464,635
Percentage Change............ 2.8% 2.2% 2.8%
Total Visitor
Expenditures(2)............ 20,686,800 22,533,258 24,952,189
Percentage Change............ 8.0% 8.9% 10.7%
Las Vegas Convention
Attendance................. 2,924,879 3,305,507 3,519,424
Percentage Change............ 9.0% 13.0% 6.5%
Las Vegas Hotel Occupancy
Rate....................... 91.4% 93.4% 90.3%
Las Vegas Hotel/Motel Room
Supply..................... 90,046 99,072 105,347
Percentage Change............ 1.7% 10.0% 6.3%
</TABLE>
- ------------------------
(1) Sources: LVCVA and Nevada State Gaming Control Board for the fiscal years
ended December 31.
(2) In thousands.
64
<PAGE>
CONSTRUCTION SCHEDULE AND BUDGET
The development of the Aladdin commenced during the first quarter of 1998.
The original Aladdin hotel and casino closed for business on November 25, 1997
and the implosion of the original facility occurred on April 27, 1998. The
development of the Mall Project is expected to commence during the second
quarter of 1998, followed soon thereafter by the commencement of the development
of the Music Project in the second half of 1998. The Company anticipates the
cost of developing, financing, constructing and opening the Aladdin to be
approximately $790 million (excluding the Company's $21.3 million planned
indirect cash contribution and $15.0 million appraised fair market value land
contribution to Aladdin Music, as part of the development funds for the Music
Project). Pursuant to the Design/Build Contract, the Design/Builder has
committed itself to a 26 month work schedule to complete the Aladdin, subject to
certain scope changes. An equitable adjustment in the Contract Date (as defined
herein) and guaranteed maximum price will be made for changes that either
increase or decrease the Design/Builders' time for performance and/or cost of
construction. See "Certain Material Agreements--Design/Build Contract." The
Company believes that the construction budget is reasonable and the Design/Build
Contract sets forth a procedure designed to ensure the timely completion of the
Aladdin. However, given the risks inherent in the construction process, it is
possible that construction costs could be significantly higher than budget and
that delays could occur. If construction costs do exceed the amounts set forth
in the construction budget, it is expected the potential sources to pay such
excess include (a) the $31.8 million Contingency; (b) London Clubs, the Trust
and Bazaar Holdings pursuant to their obligations under the Bank Completion
Guaranty; and (c) the Design/Builder, a subsidiary of Fluor, pursuant to its
liability under the Design/Build Contract, which liability is guaranteed by
Fluor pursuant to the Fluor Guaranty. As of May 31, 1998, the Company has
expended $1.7 million under the Contingency. See "Risk Factors--Risks of New
Construction" and "--Risks Under Design/Build Contract and Fluor Guaranty" and
"Certain Material Agreements."
The Mall Project is not being developed by the Company, but is being
developed by Bazaar. The Mall Project is budgeted to cost approximately $259.0
million, all of which amount will be paid by Bazaar. Upon completion of the Mall
Financing, TrizecHahn, the Trust, Bazaar Holdings and AHL agreed to guarantee
completion of the Mall Project and Bazaar's indebtedness to the Mall Lenders
until certain earnings and loan to value targets have been met. See "Risk
Factors--Risk of New Construction" and "--Completion of the Mall Project and the
Music Project," "Use of Proceeds" and "Certain Material Agreements--Bazaar LLC
Operating Agreement."
The Aladdin, together with the Mall Project, will be developed as the first
phase of a planned two-phase redevelopment of the Complex. In the second phase,
Aladdin Music will develop the Music Project which, like the Mall Project, will
be financed independently and such financing will not be guaranteed by the
Company. It is expected that upon the completion of the division of the Project
Site into separate legal parcels, the Company will be required to transfer
ownership of the land parcel upon which the Music Project will be built to
Aladdin Music. The opening of the Music Project is expected to occur within six
months after the opening of the Aladdin. See "Risk Factors--Completion of the
Mall Project and the Music Project," "--Possible Conflicts of Interest" and
"Certain Material Agreements--The Music Project Memorandum of Understanding."
The completion and full operation of the Aladdin is not contingent upon the
subsequent financing or completion of the Mall Project or the Music Project.
Investors should note that funding arrangements for the completion of the Music
Project have not yet been finalized and funding under the Mall Financing is
subject to certain conditions, and there can be no assurance that such funding
arrangements for the Music Project will be finalized at any time or that the
Mall Project or Music Project will be completed. See "Risk Factors--Completion
of the Mall Project and the Music Project."
65
<PAGE>
DESIGN AND CONSTRUCTION TEAM
The Company has assembled what it believes to be a highly qualified team of
specialists to design and construct the Aladdin.
TISHMAN. Tishman has been appointed as the construction manager for the
Aladdin. Tishman is a privately-held construction firm. Tishman or its
affiliates have built or renovated over 30,000 hotel rooms nationwide, including
the 500-room, one million square foot Golden Nugget hotel and casino in Atlantic
City, the 635-room, two million square foot Trump Castle Hotel and Casino in
Atlantic City, the 400-room expansion of Harrah's Hotel and Casino in Atlantic
City, the 2,300-room Walt Disney World Dolphin and Swan Hotel and convention
complex, the 1,200-room Sheraton Chicago Hotel & Towers, the 800-room Hilton in
Walt Disney World Village and the 600-room Westin Rio Mar Beach Resort & Country
Club.
Entertainment projects built by Tishman include Caesars Magical Empire in
Las Vegas, several Official All Star Cafes throughout the United States, the
Goodwill Games '98 Aquatics Center, Pacific Park in California, restoration of
the New Amsterdam Theater in New York and EPCOT Center in Orlando, Florida.
FLUOR DANIEL. Fluor Daniel, Inc. is the design/builder for the Aladdin. The
Design/Builder is a subsidiary of Fluor, a Fortune 500 Company offering
architectural, engineering, construction management, construction and
maintenance services to projects around the world. The Design/Builder has been
ranked the number one engineering and construction company in the United States
based on total revenue by Engineering News-Record for nine of the last ten
years. In October 1997, the Design/Builder was recognized by Fortune as the most
admired public engineering firm in the world. The Design/Builder has entered
into a guaranteed maximum price Design/Build Contract (subject to scope changes)
with the Company to design and construct the Aladdin. The Design/Build Contract
provides the Design/Builder with incentives for completing the Aladdin ahead of
schedule and within budget and for payment of liquidated damages to the Company
for certain delays. The Design/Build Contract is guaranteed by Fluor, the parent
of the Design/Builder, pursuant to the Fluor Guaranty. See "Certain Material
Agreements-- Design/Build Contract."
ADP/FD OF NEVADA, INC. ADP, an indirect subsidiary of Fluor, will be the
Complex architect. ADP is wholly-owned by ADP Marshall, Inc. ("ADP Marshall").
ADP Marshall, which is based in Phoenix, Arizona, is well-known for its
architecture work and mixed-use projects. Such projects include resorts, hotels,
timeshare/vacation ownership, gaming, mixed-use/planning, recreational (golf
clubs, spas, tennis centers, etc.) and specialty entertainment/retail/restaurant
projects. Among ADP Marshall's many award-winning efforts are Five Star ranked
properties. Its client list includes Princess Hotels, Inc. (Scottsdale and
Acapulco), Carefree Resorts (The Boulders, The Peaks, Carmel Valley Ranch) and
PGA Family Golf Center (Scottsdale).
ADP's philosophy is that design and systems efficiency must support the
operations of a project, especially where the client has a long-term involvement
in the completed development. The firm aims to establish strong client
relationships by thoroughly understanding its clients' needs, the intricacies of
their operations and their development, financial and market specific goals.
TRIZECHAHN. THB, a wholly-owned subsidiary of TrizecHahn, is the joint
venture partner of Bazaar Holdings in the Mall Project. Prior to its recently
announced sale of 20 regional shopping centers, TrizecHahn owned and managed 27
regional centers in major markets throughout the United States, comprising over
25 million square feet and was one of the largest owners, developers and
managers of regional shopping centers in the United States. Investors should
note that TrizecHahn has announced that it is considering selling its entire
operating portfolio of regional shopping centers and on April 6, 1998 announced
the sale of 20 regional shopping centers for over $2.5 billion. While
TrizecHahn's announcement is limited to the sale of its current operating
portfolio of regional shopping centers, there can be no assurance that
TrizecHahn will not similarly decide to sell its interest in the Desert Passage.
Accordingly,
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investors cannot be assured that TrizecHahn will own and operate the Desert
Passage once it becomes operational, and as a result, pedestrian traffic to the
Aladdin may decrease. See "Risk Factors-- Completion of the Mall Project and the
Music Project."
BBGM. The interior designer for the project, BBGM, specializes in
hospitality design and has experience in casinos, restaurants, retail,
spa/fitness centers and specialty/theme projects. BBGM's experience includes the
recently renovated and expanded Caesars Atlantic City hotel, casino, restaurants
and public space. Other projects have included the Mohegan Sun Casino in
Connecticut and TropWorld in Atlantic City. BBGM's hotel projects have included
the St. Regis, The Plaza and the Sheraton Hotel & Towers located in New York
City.
THE ENERGY PROVIDER. The Energy Provider, a wholly-owned subsidiary of UTH,
will be the energy provider for certain parts of the Complex, including the
Aladdin. The predecessor to UTH was founded in July 1993 as a subsidiary of
Unicom to develop district energy projects. Unicom is listed on the New York
Stock Exchange. Unicom is also the parent of Commonwealth Edison Company, one of
the largest electric utilities in the United States. Since 1993, UTH has
developed the largest district cooling system in the world, located in Chicago,
Illinois, and is a partner in energy ventures in Boston, Houston and Windsor,
Ontario.
OPERATIONAL FACILITIES
The Complex has been designed to include certain operational facilities and
advantages which will assist the Company in providing a high level of service to
guests.
SERVICE FACILITIES. The north side of the Complex will border on a service
road, which will include service elevators, loading docks, receiving and
purchasing facilities and storage areas. These service facilities will be
located near the majority of the Complex's restaurants and food service areas,
which will be the principal users of such facilities.
ELEVATOR BANKS. The Hotel will be designed so that elevator banks are
located at strategic locations, enabling Hotel guests and employees to access
the Hotel guest areas easily. Within the Hotel, special waiter elevators will
provide waiters with direct access from Hotel kitchens to rooms and suites,
allowing guests to receive full room service on a timely basis.
ENERGY. The Complex, once fully constructed, will require substantial
amounts of electricity, hot and cold water and heating and cooling. For this
purpose, the Company has entered into certain agreements with the Energy
Provider for the supply of electricity and heating and cooling to certain parts
of the Complex. The Energy Provider has agreed to provide the Aladdin with all
its electricity, heating and cooling needs, as specified by the Company, from
the date of completion of the Aladdin. Pursuant to the Development Agreement, in
order to supply the Aladdin's energy requirements, the Energy Provider has
agreed to construct and operate, at its own cost, a thermal energy plant (the
"Plant") on an approximately 0.64 acre portion of the Complex (the "Plant
Site"). The Energy Provider's obligations under the Development Agreement are
guaranteed up to $30.0 million by the Energy Provider's ultimate parent, Unicom,
one of the largest electric utility companies in the United States. See "Certain
Material Agreements--Development Agreement," "--Unicom Guaranty" and "--Energy
Service Agreement."
The Music Project will also use electricity, hot and cold water and heating
and cooling supplied by the Energy Provider. TrizecHahn will utilize the Plant
for the provision of electricity and cold water for the Mall Project.
SECURITY. The Aladdin will include state-of-the-art security systems,
including internally operated camera surveillance systems for the Casino. The
Company will employ extensive supervision and accounting procedures to control
the handling of cash in the Casino. These measures will include security
personnel, closed-circuit television for observation of critical areas of the
casino, locked cash boxes,
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independent auditors and observers, strict sign-in and sign-out procedures which
ensure, to the extent practicable, that gaming chips issued by and returned to
the Casino cashiers' cages are accurately accounted for, and procedures for the
regular observation of gaming employees.
EMPLOYEES
The Company anticipates that immediately prior to completion of the Aladdin,
it will employ approximately 3,600 employees in connection with the Aladdin. The
Company will be required to undertake a major recruiting and training program
prior to the opening of the Aladdin at a time when other major new facilities
may be approaching completion and also recruiting employees. The Company
believes it will be able to attract and retain a sufficient number of qualified
individuals to operate the Aladdin. However, there can be no assurance that it
will be able to do so. Furthermore, the Company does not know whether or to what
extent such employees will be covered by collective bargaining agreements, as
that determination will be ultimately made by such employees.
SERVICE MARKS
On the Issue Date, AHL transferred to the Company four federally registered
service marks involving the word "Aladdin" and used in connection with the
provision of casino and casino entertainment services and hotel and restaurant
services (the "Marks"). Two of the Marks were registered on July 13, 1993, a
third on July 29, 1993 and the fourth on August 24, 1993. A statement of
continuing use with respect to each of the Marks must be filed with the United
States Patent and Trademark Office (the "PTO") between the fifth and sixth
anniversary of the date such Mark was registered in order to maintain the
effectiveness of the registration with respect to such Mark. Although the
Company will not be using the Marks during the period of the Aladdin's
construction, the Company does not expect that this will adversely affect the
registration of the Marks, provided that the reason for the non-use of the Marks
is explained to the PTO at the time the statement of continuing use is filed.
Each of the registrations for the Marks has a duration of ten years and, unless
renewed, will expire on the tenth anniversary of such Mark's date of
registration. The Company has recorded its ownership of the Marks with the PTO.
A lien on the Marks was granted to the Bank Lenders on the Issue Date. See
"Description of Certain Indebtedness and Other Obligations--Bank Credit
Facility."
INSURANCE
Prior to the commencement of operation of the Aladdin, the Company intends
to obtain the types and amounts of insurance coverage that it considers
appropriate for a company in its business. While management intends to ensure
that the Company's insurance coverage will be adequate, if the Company were held
liable for amounts exceeding the limits of its insurance coverage or for claims
outside of the scope of its insurance coverage, the Company's business and
results of operations could be materially and adversely affected.
With respect to the construction of the Aladdin, the Company and the
Design/Builder have elected to implement a controlled insurance program (the
"CIP") whereby the Design/Builder will provide General Liability, Workers'
Compensation, Excess Liability, Contractual Liability, Builders Risk and Transit
coverages for the Design/Builder and all subcontractors. The Company will pay
the Design/Builder for all premiums and costs associated with the CIP. Where
necessary, the Company will be named as a named insured or as an additional
insured on each policy procured by the Design/Builder pursuant to the CIP. In
addition, in lieu of procuring a liquidated damages insurance policy or a
business interruption insurance policy to compensate for late completion of the
Aladdin, the Company has paid the Design/Builder $2.0 million as a bonus
advance. The Design/Builder may elect to purchase liquidated damages insurance
or it may elect to self-insure. In either event, the Design/Builder is entitled
to keep the bonus advance if the Aladdin is finished on or before the date set
for Substantial Completion (as defined herein) (the "Contract Date"). As a
further bonus, the Design/Builder will receive $100,000 for each day, up to but
not
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to exceed 90 days, that the Aladdin is substantially completed in advance of the
Contract Date. If the Aladdin is not substantially completed by the Contract
Date, the Design/Builder must pay back the advance bonus plus $100,000 per day
commencing on the first day following the Contract Date and continuing up to 90
days thereafter. See "Certain Material Agreements--Design/Build Contract."
LITIGATION
The Company and the Aladdin Parties are not currently party to any pending
claim or legal action. However, Mr. Jack Sommer, who is the Chairman of the
Holdings Board and the Company Board (each as defined herein), a director of
Holdings, Capital, the Company and the Issuer, and a trustee of the Trust, and
the other trustees of the Trust are currently co-defendants in a legal action
relating to the original Aladdin hotel and casino. See "Controlling
Stockholders--Trust Litigation."
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REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local
regulations. The operation of the Casino by the Company will be subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada
Commission, the Nevada Board, and the CCLGLB are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Any change in such laws, regulations and
procedures could have a material adverse effect on the proposed gaming
operations of the Aladdin and the financial condition and results of operations
of the Company and so the Holdings Group.
As operator and manager of the Aladdin, the Company will conduct
nonrestricted gaming operations at the Casino and so will be required to be
licensed by the Nevada Gaming Authorities. A nonrestricted gaming license
permits the holder to operate sixteen or more slot machines, or any number of
slot machines with at least one table game. The gaming license will require the
periodic payment of fees and will not be transferable. No person will be able to
become a member of, or receive any percentage of the profits of, the Company
without first obtaining Gaming Approvals. In connection with licensing of the
Company, Holdings will be required to be registered and found suitable as a
holding company of the Company and to be licensed as a member of the Company. In
connection with the registration and licensing of Holdings as a holding company
and a member, each direct and indirect owner of Holdings, including, but not
limited to, the Issuer, London Clubs, LCNI, London Clubs Holdings Ltd. (a wholly
owned subsidiary of London Clubs and the holding company for LCNI) AHL, the
Trust, Sommer Enterprises, GAI and their respective owners (all such parties
collectively, the "Aladdin Owners") will be required to obtain from the Nevada
Gaming Authorities applicable Gaming Approvals. Capital will also be subject to
being called forward for a finding of suitability as a co-issuer of the Notes
and the New Notes in the discretion of the Nevada Gaming Authorities.
Upon the effectiveness of the Exchange Offer, Holdings will be a "publicly
traded corporation" as that term is defined in the Nevada Act. If the Company
becomes an IPO Entity, it will also become a "publicly traded corporation" as
that term is defined in the Nevada Act. In order for a company that is a
publicly traded corporation to receive a gaming license, the Nevada Commission
must exempt the company from a regulatory provision in the Nevada Act which
makes publicly traded corporations ineligible to apply for or hold a gaming
license. However, the Nevada Commission has exempted companies from this
provision in the past and has granted gaming licenses to publicly traded
corporations. If the Company becomes an IPO Entity, the Company intends to apply
for an exemption from this eligibility requirement (the "Exemption") in
connection with its application for a gaming license. In connection with
licensing and receipt of the Exemption, the Issuer Holdings, London Clubs and
the Company will each also be required to be registered by the Nevada Commission
as a publicly traded corporation (a "Registered Company"). The following
regulatory requirements will be applicable to the Company, Holdings and the
Aladdin Owners upon their receipt of all necessary Gaming Approvals from the
Nevada Gaming Authorities. The Company, Holdings and the Aladdin Owners have not
yet obtained from the Nevada Gaming Authorities the Gaming Approvals required in
order for the Company to conduct gaming operations at the Aladdin
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and there can be no assurances given that such Gaming Approvals will be
obtained, or that they will be obtained on a timely basis. There can also be no
assurances that the Company's officers, managers and key employees will obtain
Gaming Approvals from the Nevada Gaming Authorities.
As a Registered Company and Company Licensee, the Company will be required
to periodically submit detailed financial information and operating reports to
the Nevada Commission and furnish any other information that the Nevada
Commission may require. No person may become a member of, or receive any
percentage of profits from a Company Licensee without first obtaining licenses
and approvals from the Nevada Gaming Authorities.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, Holdings
and the Aladdin Owners to determine whether such individual is suitable or
should be licensed as a business associate of a Company Licensee. Officers,
managers and certain key employees of the Company and Holdings must file
applications with the Nevada Gaming Authorities and will be required to be
licensed by the Nevada Gaming Authorities in connection with the Company's
application. The Nevada Gaming Authorities may deny an application for licensing
or a finding of suitability for any cause they deem reasonable. A finding of
suitability is comparable to licensing, and both require submission of detailed
personal and financial information followed by a thorough investigation. The
applicant for licensing or a finding of suitability, or the gaming licensee by
whom the applicant is employed or for whom the applicant serves, must pay all
the costs of the investigation. Changes in licensed positions must be reported
to the Nevada Gaming Authorities, and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a company position.
If the Nevada Gaming Authorities were to find an officer, manager or key
employee of the Company or Holdings unsuitable for licensing or to continue
having a relationship with the Company or Holdings, the Company or Holdings, as
the case may be, would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company or Holdings, as the case
may be, to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company will be required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions by the Company will be
required to be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company or
Holdings, the Gaming Approvals they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company, Holdings and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor
could be appointed by the Nevada Commission to operate the Aladdin and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Aladdin) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any Gaming
Approval or 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
Aladdin Parties.
Any beneficial holder of a Registered Company's voting or non-voting
securities (including warrants exercisable into such securities), regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Registered
Company's securities determined if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the state of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
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The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Company's voting securities (including warrants
exercisable into voting securities) to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of a
Registered Company's voting securities apply to the Nevada Commission for a
finding of suitability within thirty days after the Chairman of the Nevada Board
mails the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more than
10%, but not more than 15%, of the Registered Company's voting securities
(including warrants exercisable into voting securities) may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Registered Company, and change in the
Registered Company's corporate charter, bylaws, management, policies or
operations of the Registered Company, or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
the Company's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders or
interest holders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not to
cause a change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable in a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder or beneficial owner found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the common stock or other equity securities of a Registered Company beyond such
period of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Registered Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company, the Registered Company (i) pays
that person any dividend, distribution or interest upon voting securities of the
Registered Company, (ii) allows that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. The holders of the
Warrants and the Warrant Shares will be subject to being called forward for a
finding of suitability in the discretion of the Nevada Commission.
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, the Issuer, London Clubs, the Company
and Holdings may not make a public offering of any securities (including, but
not limited to, the Common Stock of the Issuer 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
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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 Issuer, which plans to make a public
offering of securities intending to use such securities, or the proceeds from
the sale thereof for the construction or operation of gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes, may apply
to the Nevada Commission for prior approval of such offering. The Nevada
Commission may find an applicant unsuitable based solely on the fact that it did
not submit such an application, unless upon a written request for a ruling, the
Nevada Board Chairman has ruled that it is not necessary to submit an
application. The sale of securities pursuant to the Warrant Shelf Registration
Statement (the "Warrant Public Offering") will qualify as a public offering. The
Issuer has filed a written request (the "Ruling Request") with the Nevada Board
Chairman for a ruling that it is not necessary to submit the Warrant Public
Offering for prior approval. No assurance can be given that the Ruling Request
will be granted or that it will be considered on a timely basis. If the Nevada
Board Chairman rules that approval of the Warrant Public Offering is required,
the Issuer will file an application for such approval. If the Ruling Request is
not granted, the Warrant Public Offering could be significantly delayed while
the Issuer seeks approval of the Nevada Board and the Nevada Commission for the
Warrant Public Offering. No assurance can be given that approval of the Warrant
Public Offering, if required, will be granted. If Holdings or the Company shall
become an IPO Entity prior to receiving its Gaming Approvals, they intend to
file a Ruling Request with the Nevada Board Chairman for a ruling that it is not
necessary to submit the Qualified Public Offering for prior approval. No
assurance can be given that such a Ruling Request will be granted or that it
will be considered on a timely basis. If the Nevada Board Chairman rules that
approval of the Qualified Public Offering is required, the Company or Holdings,
as applicable, will file an application for such approval. If the Ruling Request
is not granted, the Qualified Public Offering could be significantly delayed
while the Company or Holdings seeks approval of the Nevada Board and the Nevada
Commission for the Qualified Public Offering. No assurance can be given that
approval of the Qualified Public Offering, if required, will be granted.
Changes in control of a Registered Company through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Company must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Company. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
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
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made directly to the Registered Company's stockholders or interest holders for
the purposes of acquiring of the Registered Company.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax also will also be paid by the Company where certain
entertainment is provided in a cabaret, nightclub, cocktail lounge or casino
showroom in connection with admissions and the serving or selling of food,
refreshments or merchandise.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are also required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities or
enter into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or a finding of
suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by the Company on the premises of the
Aladdin is also subject to licensing, control and regulation by the CCLGLB. All
licenses are revocable and are not transferable. The CCLGLB have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on the
financial position and results of operations of the Company and the Aladdin
Parties.
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MANAGEMENT
The following table sets forth the executive officers and the directors of
the Company, which will own, develop and operate the Aladdin, and of the Issuer,
Holdings and Capital. A "director" of the Company or Holdings, as such term is
used in this Prospectus, shall refer to a person who sits on the Board of
Managers of the Company (the "Company Board") or Holdings (the "Holdings
Board").
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Jack Sommer.................................. 51 Chairman of the Company Board and the Holdings Board;
Director of the Issuer and Capital; President of the Issuer
Richard J. Goeglein.......................... 64 Chief Executive Officer and President of the Company,
Holdings and Capital; Director of the Company, Holdings and
Capital
Ronald Dictrow............................... 54 Executive Vice President/Secretary and Director of the
Company, Holdings and Capital; Director and Secretary of the
Issuer
Alan Goodenough.............................. 54 Director of the Company, Holdings and Capital
G. Barry C. Hardy............................ 50 Director of the Company, Holdings and Capital
James H. McKennon............................ 44 Senior Vice President of the Company, Holdings and Capital;
President/Chief Operating Officer of the Aladdin Hotel and
Casino
Cornelius T. Klerk........................... 44 Senior Vice President/Chief Financial Officer/ Treasurer of
the Company, Holdings and Capital; Treasurer of the Issuer
Lee A. Galati................................ 55 Senior Vice President/Human Resources of the Company,
Holdings and Capital
Jose A. Rueda................................ 61 Senior Vice President/Electronic Gaming of the Company,
Holdings and Capital
David Attaway................................ 43 Senior Vice President of the Company, Holdings and Capital;
President and Chief Operating Officer of the Music Project
Patricia Becker.............................. 46 Senior Vice President/General Counsel of the Company,
Holdings and Capital
</TABLE>
JACK SOMMER is the Chairman of the Holdings Board and the Company Board,
director of the Issuer and Capital and President of the Issuer. Mr. Sommer has
been a full time resident of Las Vegas since 1988. Mr. Sommer is both a trustee
and contingent beneficiary of the Trust. He has over 25 years of experience in
developing residential and commercial real estate, including luxury residential
projects such as North Shore Towers, in Queens County, New York, and The
Sovereign at 425 East 58th Street in Manhattan. The Sommer family has been in
the real estate development business for over 100 years, operating for part of
that time as Sommer Properties ("Sommer Properties") founded by Mr. Sommer's
father (who passed away in 1979), and which is controlled by Mr. Sommer and his
mother, Mrs. Viola Sommer. Other well known developments of Sommer Properties
have included 280 Park Avenue, Manhattan, an 820,000 square foot office building
in Manhattan formerly owned and currently partially occupied by the Bankers
Trust Company; 135 West 50th Street, Manhattan, an 800,000 square foot office
building also known as the AMA Building; and 600 Third Avenue, Manhattan, a
500,000 square foot office building. Sommer Properties has also developed over
35,000 single family homes, primarily in New Jersey.
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RICHARD J. GOEGLEIN is Chief Executive Officer and a director of the
Company, Holdings and Capital. Mr. Goeglein has spent over 28 years in the
hotel/casino and food service industry. He was an Executive Vice President and a
member of the Board of Directors of Holiday Inns and Holiday Corp. from 1978
through 1987 and led the management team that consummated the 1980 acquisition
of Harrah's Hotels and Casinos ("Harrah's") for Holiday Inns. Mr. Goeglein
subsequently served as President and Chief Executive Officer of Harrah's from
1980 to the Fall of 1984 and as President and Chief Operating Officer of Holiday
Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns and Embassy
Suites) from October 1984 through 1987. From 1988 to 1992, Mr. Goeglein
participated in several corporate turnarounds in the technology and consumer
services fields. In 1992, Mr. Goeglein formed Gaming Associates, Inc. ("Gaming
Associates") to take management control of Dunes Hotel and Casino in Las Vegas
and to prepare a plan of closure for and carry out the closure of the property.
He remains a principal of that company. Gaming Associates provided consulting
services to the lodging and gaming industries. Mr. Goeglein recently served as a
member of the Gaming Oversight Committee of Marriott Corporation ("Marriott")
and through Gaming Associates, provided consulting services to Marriott's gaming
operations situated outside of the United States through December 1997. Mr.
Goeglein is also a director of Hollywood Park, Inc.
RONALD DICTROW is Executive Vice President/Secretary and a director of the
Company, Holdings and Capital and a director and Secretary of the Issuer. Mr.
Dictrow spent the first 12 years of his professional career as a CPA with the
New York accounting firm of David Berdon & Company and has a master's degree in
accounting and taxation. In 1979, he was hired by Sigmund Sommer as Controller
with financial responsibility for all of Mr. Sommer's properties. In 1984, Mr.
Dictrow became Treasurer and Chief Financial Officer of the Trust with the
additional responsibility for the operations and management of these properties.
Mr. Dictrow is an advisor and consultant to Mrs. Viola Sommer and has been an
officer and director of Sovereign Apartments, Inc., a New York City cooperative
apartment building since 1979. Mr. Dictrow has had business dealings with the
Sommer family for over 20 years.
ALAN GOODENOUGH is a director of the Company, Holdings and Capital. Mr.
Goodenough, who is chief executive officer of London Clubs, has over 30 years of
experience in the leisure and gaming industry, having worked as a public company
director and at other senior levels with several major public leisure and casino
companies in the United Kingdom. In 1990 Mr. Goodenough founded Lyric Hotels
Limited, a United Kingdom hotel company, raising over $40 million from United
Kingdom-based institutions. He remains Chairman of the Lyric Group which
currently operates three and four star hotels throughout England. As chief
executive officer of London Clubs, Mr. Goodenough was instrumental in that
company's initial public offering on the London Stock Exchange in June 1994. Mr.
Goodenough is also presently a fellow of the United Kingdom Hotel and Catering
Institute and a member of the Institute of Directors of England and Wales.
G. BARRY C. HARDY is a director of the Company, Holdings and Capital. Mr.
Hardy has served as Finance Director of London Clubs since 1989. Before joining
London Clubs, Mr. Hardy had extensive business experience in the leisure and
gaming industries. Such experience included executive level positions with
Pleasurama, plc where he held the offices of Development Director, Group Finance
Director and Company Secretary. In addition, Mr. Hardy was actively involved in
the development of Pleasurama's leisure and casino interests. In 1988, after the
acquisition of Pleasurama by Mecca Leisure Ltd., Mr. Hardy was appointed to
Mecca's Board as Managing Director of its casino division.
JAMES H. MCKENNON is Senior Vice President of the Company, Holdings and
Capital and President/ Chief Operating Officer of the Aladdin Hotel and Casino.
Mr. McKennon's career spans over 21 years in the hotel and casino industry in a
variety of executive positions. He was President and Chief Operating Officer of
Caesars World International Marketing (the casino marketing division of Caesars
World) from 1994 to 1996 and served as the President and Chief Operating Officer
of Caesars Tahoe from 1991 to 1994. Mr. McKennon first joined Caesars as the
Senior Vice President-Hotel Operations for Caesars Palace in
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Las Vegas, a position he held until his promotion in 1991. From 1976 to 1988 he
held a variety of managerial positions at both the property and corporate level
for Westin Hotels.
CORNELIUS T. KLERK is the Senior Vice President/Chief Financial Officer of
the Company, Holdings and Capital and Treasurer of the Issuer. He has over 19
years of experience in the hotel and casino industry both at the corporate and
property level. From 1993 to 1997 Mr. Klerk was Vice President--Finance for
Hilton Gaming Division (the gaming division of Hilton Hotels Corporation
("Hilton")). In that position he was responsible for the financial oversight of
all gaming properties owned and operated by Hilton. He was employed by Harrah's
from 1979 to 1985 and again from 1989 to 1993 in a variety of financial
management positions ranging from Casino Controller for Harrah's Atlantic City
to Vice President, Finance--Southern Nevada. From 1985 to 1987, Mr. Klerk was
Vice President of Gilpin, Peyton and Pierce, a regional advertising agency and
from 1987 to 1989, he was Corporate Controller for Forte Hotels International in
San Diego, California. Mr. Klerk was previously a CPA with the accounting firm
of Price Waterhouse.
LEE A. GALATI is the Senior Vice President/Human Resources of the Company,
Holdings and Capital. Mr. Galati has 22 years of human resources experience in a
variety of industries in both the public and private sectors. He was most
recently the Director of Human Resources for Sky Ute Casino in Durango, Colorado
from 1996 to 1997. Mr. Galati served as the Director of Human Resources for La
Plata County, Colorado from 1993 to 1995. From 1990 to 1993, Mr. Galati served
as an adjunct professor in the School of Business at Fort Lewis College in
Durango, Colorado. His experience also includes serving as Director of
Operations Support Services and Human Resources for Northern Telecom in San
Diego from 1984 to 1990 as well as Director of Human Resources for Beckman
Instruments in Fullerton, California from 1980 to 1984. Mr. Galati earned a
Masters in Human Resources and Organization Development from the University of
San Francisco in 1984.
JOSE A. RUEDA is the Senior Vice President of Electronic Gaming for the
Company, Holdings and Capital. Mr. Rueda's 28 years experience in the gaming
industry includes gaming operations as well as the sale and distribution of
gaming equipment. He was the Vice President, North East Region of Mikohn Gaming
Corporation from 1995 to 1997. Mikohn is a leading supplier of gaming equipment
to the casino industry. Prior to joining Mikohn, Mr. Rueda was with Harrah's for
24 years in a variety of management positions that included Director of Slot
Operations, Harrah's Atlantic City, from 1986 to 1994; Vice President of
Gaming/Slots, Harrah's Corporate from 1984 to 1986; Vice President of
Operations, Harrah's at Trump Plaza from 1983 to 1984 and Vice President of
Gaming, Harrah's Corporate from 1980 to 1983. Mr. Rueda has extensive experience
in property research and development along with creative product positioning. He
holds a business management degree from the University of Nevada at Reno.
DAVID ATTAWAY is the Senior Vice President of the Company, Holdings and
Capital and President and Chief Operating Officer of the Music Project. Mr.
Attaway has 17 years experience in the entertainment, hotel and casino industry
in a variety of executive positions. He joined Caesars Tahoe in 1986 and held
the following positions during his 12 year tenure: Senior Vice President and
General Manager from 1996 to 1998; Senior Vice President of Casino Operations
and Marketing, 1996 and Senior Vice President of Marketing, 1992 to 1996. Prior
to joining Caesars Tahoe, Mr. Attaway was the Director of Marketing and Finance
for Lawlor Event Center in Reno, Nevada from 1983 to 1985. He held management
positions with Five Flag Center in Dubuque, Iowa from 1981 to 1983. Mr. Attaway
holds a Bachelors Degree in Theater Management from Ohio University and he
completed the Masters Program in Marketing at the same institution.
PATRICIA BECKER is the Senior Vice President/General Counsel of the Company,
Holdings and Capital. Ms. Becker currently is a director of Powerhouse
Technologies, Inc. and Fitzgeralds Gaming Corporation and chairs the Compliance
Committee for both companies. From 1993 to 1995, Ms. Becker was Chief of Staff
for Nevada Governor, Bob Miller. From 1985 to 1993 Ms. Becker was with Harrah's
Hotels and Casinos, where she held the position of Senior Vice President and
General Counsel. Prior to joining
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Harrah's, she was a member of Nevada State Gaming Control Board. She holds a
Juris Doctorate degree from California Western School of Law.
COMMITTEES
There are currently no committees of the board of directors of the Issuer
(the "Issuer Board"). The Holdings Operating Agreement provides that there will
be Executive Management Committees which will be responsible for the day to day
management of Holdings and the Company. The Executive Management Committee of
the Company includes the following persons: the President and Chief Executive
Officer of the Company, the Chief Financial Officer of the Company, the
President and Chief Operating Officer of the Aladdin, the President and Chief
Operating Officer of the Music Project, the Senior Vice President of Human
Resources of the Company, the Senior Vice President of Electronic Gaming of the
Company, the Senior Vice President/General Counsel of the Company and the
Managing Director of the Salle Privee. See "Certain Material
Agreements--Holdings Operating Agreement." The Holdings Board may also establish
committees of the Holdings Board as it may deem necessary or advisable. Each of
London Clubs and Sommer Enterprises is entitled to have one of its nominee
Holdings Board members on each such committee. Presently, no committees of the
Holdings Board have been established.
COMPENSATION
The following table summarizes the compensation earned during 1997 by the
Company's, Holdings' and Capital's Chief Executive Officer and the only other
executive officer of the Company, Holdings, Capital or the Issuer who earned
over $100,000 in 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION(1)
--------------------------------- ------------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK
OCCUPATION(2)(3) SALARY COMPENSATION AWARDS OTHER
- ------------------------------- ---------- --------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Richard J. Goeglein; Chief
Executive Officer............ $ 650,000(4) --(5) $ 0(6) $16,343(7)
James H. McKennon; Senior Vice
President.................... $ 243,750(8) --(9) $ 0(10) $635(7)
</TABLE>
- ------------------------------
(1) All of the executive officers of the Company, Holdings and Capital (other
than Mr. Dictrow) are compensated by the Company. Mr. Dictrow is principally
employed by the Trust and is compensated by the Trust. Compensation has been
paid on the Company's behalf by AHL since the Company's inception in January
1997.
(2) The executive officers of the Issuer received no compensation from the
Issuer in 1997.
(3) No other executive officer of the Company, Holdings or Capital received a
total annual salary and bonus exceeding $100,000 in 1997 from the Company,
Holdings or Capital.
(4) Includes $150,000 paid to GAI in 1997 for consulting fees.
(5) 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.
(6) Mr. Goeglein purchased unvested Holdings Common Membership Interests
representing 2% of the outstanding Holdings Common Membership Interests for
a purchase price of $1,200. Such interests had a fair market value of $1,200
on the date of purchase and vest on the earlier of (a) July 1, 2002 and (b)
the date on which such interests become publicly traded.
(7) Represents life insurance premiums paid on behalf of the executive in 1997.
(8) Mr. McKennon's employment with the Company began mid-year 1997. Mr.
McKennon's Employment Agreement provides for an annual salary of $325,000
per year ($350,000 effective April 1998), plus certain other benefits. See
"--Employment Agreements."
(9) The aggregate amount of all perquisites and other personal benefits received
by Mr. McKennon were less than 10% of the salary and bonus he was paid in
1997.
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(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. Twenty-five percent of such
interests vest on the date of the opening of the Aladdin and an additional
25% vests on each annual anniversary of such opening date.
EMPLOYMENT AGREEMENTS
Richard J. Goeglein, James H. McKennon, Cornelius T. Klerk, Lee A. Galati
and Jose A. Rueda (the "Officers") each signed an employment agreement (each, an
"Employment Agreement") with the Company during 1997. David Attaway and Patricia
Becker are currently negotiating employment agreements with the Company which
are expected to be comparable to the employment agreements discussed herein. The
terms of the Employment Agreements were amended on February 26, 1998, such that
Holdings became a party and the Officers contributed their Restricted Membership
Interests in the Company to Holdings in return for Restricted Membership
Interests in Holdings. The initial term of Mr. Goeglein's Employment Agreement
is five years and six months, and the remaining Officers' Employment Agreements
have an initial duration of four years. Pursuant to each Employment Agreement,
the Officers have such authority, responsibilities and duties as are customarily
associated with their positions with the Company. The Employment Agreements
provide that, during the term of their employment, the Officers will devote
their full time, efforts and attention to the business and affairs of the
Company.
The terms of the Employment Agreements provide for an annual base salary for
Mr. Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda of $500,000
($600,000 after the opening of the Aladdin), $325,000 ($350,000 effective April
1998), $200,000, $150,000 and $250,000, respectively, plus any bonus granted by
the Board of Directors based on relevant criteria and performance standards. All
of the Officers have been receiving and are expected to continue to receive
their compensation from the Company, except that prior to the Issue Date, such
amounts have been and will continue to be paid by AHL on the Company's behalf.
Mr. Goeglein's Employment Agreement provides for annual bonuses based upon "on
target" performances, ranging from 50% to 75% of his base salary, and is subject
to certain tax provisions. The Company Board will consider increases to the
Officers' base salary no less frequently than annually, commencing at the end of
each Officer's first employment year. Any increase in base salary shall be
within the sole discretion of the Company Board. The Employment Agreements
provide that the Officers' salary cannot be reduced. After the initial term of
Mr. Goeglein's Employment Agreement, the Company has agreed to retain Mr.
Goeglein as a consultant to the Company for an additional five years at $100,000
per year. The Officers are entitled to receive other employee benefits from the
Company, such as health, pension and retirement and reimbursement of certain
expenses.
Pursuant to the terms of the Employment Agreements, as amended, Mr.
Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda have purchased for a
total purchase price of $1,200, $600, $450, $150 and $450, respectively,
unvested Common Membership Interest which were contributed to Holdings on
February 26, 1998 in return for unvested Holdings Common Membership Interests
representing approximately 2.0%, 1.0%, .75%, .25% and .75% (subject to dilution
upon exercise of the Warrants, whether vested or unvested at such time),
respectively of the Holdings Common Membership Interests (the "Restricted
Membership Interests"), subject to the receipt of applicable Gaming Approvals.
The Officers' Restricted Membership Interests will be diluted upon exercise of
the Warrants so that Sommer Enterprises and the Officers share pro rata the
ultimate dilutive effect of the exercise of the Warrants. Sommer Enterprises'
percentage interest will be adjusted upward to the same degree. Enterprises'
interest in Holdings will be unaffected by the vesting of the Officers'
Restricted Membership Interests. Except with respect to Mr. Goeglein, during the
terms of the Employment Agreements, 25% of each Officer's Restricted Membership
Interests vest on the date of the opening of the Aladdin, and a further 25% vest
on each annual anniversary of the opening of the Aladdin. If the Company
continues to employ each Officer after the expiration of the term of each
Officer's Employment Agreement, 25% of the Officer's Restricted Membership
Interests will continue to vest on each anniversary of the opening date until
such interests are fully vested. After the terms of the Employment Agreements,
if the Company does not continue to employ
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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 vests. Mr. Goeglein's Restricted Membership Interests are
expected to become fully vested at the earlier of July 1, 2002 and the date on
which such interests become publicly traded, conditioned upon Mr. Goeglein's
continued relationship with the Company. If an Officer's employment with the
Company and Holdings terminates, the Company and Holdings are expected to 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 Interest. Under certain circumstances as
set forth in the Employment Agreements, including if an initial public offering
with respect to the Restricted Membership Interests has not occurred prior to
the full vesting of such interests, the Officers have the right to sell their
vested Restricted Membership Interests to Holdings at fair market value (subject
to the receipt of applicable Gaming Approvals and to certain restrictions on
restricted payments set forth in the Indenture and the Bank Credit Facility). If
Holdings does not satisfy its obligation to purchase the Restricted Membership
Interests within seven days, the Officers have the right to require the Company
to purchase such interests at fair market value (subject to certain restrictions
on Restricted Payments set forth in the Indenture). After the Company has
satisfied its obligation to purchase the Restricted Membership Interests,
Holdings has the right to call such interests from the Company for nominal
consideration. If, prior to the date of an initial public offering with respect
to the Restricted Membership Interests, an Officer is terminated for Cause,
except with respect to Mr. Goeglein, the Company and Holdings have the right to
purchase any vested Restricted Membership Interests from the Officers at two
times the original price paid by the Officer for such interests, (in each case
with corresponding rights in Holdings to purchase the Common Membership
Interests which correspond to such Restricted Membership Interests for nominal
consideration).
The Employment Agreements may be terminated by the Company with or without
Cause (as defined in each Employment Agreement) or by the Officers for Good
Reason (as defined in each Employment Agreement). If an Officer is terminated
for Cause, he shall be entitled only to such salary, bonus and benefits then
accrued or vested. If an Officer is terminated without Cause or upon a Change in
Control (as defined in the Employment Agreements), the Officer shall be entitled
to such salary, bonus and benefits he would have been entitled for the remainder
of the four-year term or twelve months, whichever is longer (in the case of Mr.
Goeglein, any such amount remaining in connection with his term plus certain
other amounts).
Each Officer has agreed not to compete with the Company during the term of
the Employment Agreements (plus one additional year if the Officer was
terminated for Cause) and has agreed to refrain from certain other activities in
competition with the Company.
Each of the Employment Agreements provides that the Company shall indemnify
and hold the Officers harmless to the fullest extent permitted by Nevada law
against costs, expenses, liabilities and losses, including reasonable attorney's
fees and disbursements of counsel, incurred or suffered by the Officer in
connection with his services as an employee of the Company during the term of
the respective Employment Agreement.
Mr. Goeglein's Employment Agreement provides Mr. Goeglein with relocation
expense reimbursement, an interest-free mortgage loan of up to $500,000, and
certain excise tax gross-up provisions.
GAI CONSULTING AGREEMENT
The Company has entered into a consulting agreement (as amended, the
"Consulting Agreement") with GAI, LLC ("GAI"), a Nevada limited-liability
company 100% beneficially owned by Richard Goeglein, which was subsequently
amended on February 26, 1998 to add Holdings as a party and pursuant to which
amendment GAI contributed its Common Membership Interests in the Company to
Holdings in return for Holdings Common Membership Interests. Pursuant to the
Consulting Agreement, GAI will render such consulting services as are reasonably
requested by the Company Board until June 30, 2002.
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During the term of the Consulting Agreement, the Company shall pay GAI a
retainer of $12,500 each month as payment for remaining on call to provide
services and expertise for such month. In addition, GAI purchased a 3% Common
Membership Interests in the Company which was contributed to Holdings on
February 26, 1998 in return for a 3% Holdings Common Membership Interest (the
"GAI Membership Interest") for a purchase price of $1,800. The GAI Membership
Interest is fully vested and is subject to certain anti-dilution provisions
contained in the Consulting Agreement (but subject to dilution upon exercise of
the Warrants). In addition, (a) if Richard Goeglein is terminated from his
employment with the Company other than for "Cause" or voluntarily terminates for
"Good Reason" (as such terms are defined in Mr. Goeglein's Employment Agreement
with the Company) after the consummation of the Funding Transactions and the
Offering or (b) if an initial public offering in respect of the GAI Membership
Interest has not occurred prior to July 1, 2002, GAI has the right to sell any
shares purchased under the Consulting Agreement back to Holdings at their fair
market value at the time of such sale (subject to the receipt of applicable
Gaming Approvals and to certain restrictions on restricted payments set forth in
the Indenture and the Bank Credit Facility). If Holdings does not satisfy its
obligation to purchase the GAI Membership Interest within seven days, GAI has
the right to require the Company to purchase such interests at fair market
value. After the Company has satisfied its obligation to purchase the GAI
Membership Interest, Holdings will have the right to call such interests from
the Company at nominal value.
Pursuant to the Consulting Agreement, GAI has certain "piggyback"
registration rights with respect to its interests purchased pursuant to the
Consulting Agreement. Holdings has agreed to indemnify GAI, its legal counsel
and independent accountants against all expenses, claims, losses, damages and
liabilities which may arise out of certain acts or omissions committed in
connection with the registration of such membership interests, and, in
connection with certain acts or omissions not committed in connection with the
registration of such membership interests, to the same extent that other senior
management and directors of the Company and Holdings are indemnified.
BONUS AND INCENTIVE PLANS
The Company and Holdings currently do not have any bonus or incentive plans.
However, the Company anticipates adopting such a plan at such time as it may
deem appropriate (subject to supermajority approval by the Holdings Members (as
defined herein), such approval not to be unreasonably withheld). It is expected
that the terms of any such plan would be comparable to those customary in the
industry.
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CONTROLLING STOCKHOLDERS
OVERVIEW
AHL owns 98.7% of the common membership interests of Sommer Enterprises, a
Nevada limited-liability company. Sommer Enterprises currently owns 100% of the
Issuer Stock and, on a fully diluted basis assuming full exercise of the
Warrants, will own 60% of the Issuer Stock (comprising 100% of the Issuer's
Class A Common Stock, no par value, and 50% of the Common Stock). The Holdings
Common Membership Interests are held, 25.0% by the Issuer, 47.0% by Sommer
Enterprises, 25.0% by London Clubs, through LCNI, and the remaining 3.0% by GAI.
Holdings owns all of the outstanding Common Membership Interests and Series A
Preferred Interests of the Company.
AHL, which indirectly owns approximately 71.1% of the Common Membership
Interests and Series A Preferred Interests, is a 95%-owned subsidiary of the
Trust, a private New York discretionary trust, the trustees of which are Mrs.
Viola Sommer, Mr. Eugene Landsberg and Mr. Jack Sommer and the beneficiaries of
which are certain members of the Sommer family. The Sommer family has been in
the business of developing residential and commercial real estate, predominantly
in the metropolitan areas of the States of New York and New Jersey, for over 100
years. The former Aladdin hotel and casino located on the Project Site was
acquired by a predecessor-in-interest to AHL in December, 1994. Mr. Jack Sommer
and the other trustees of the Trust are currently co-defendants in a legal
action relating to the acquisition of the Project Site in December, 1994. See
"--Trust Litigation".
There is a potential conflict of interest for the Trust with respect to its
indirect interest in the Mall Project, on the one hand, and its indirect
interest in the Aladdin on the other hand. If the Trust directs attention to
operations at the Mall Project and to increasing customers to the Desert
Passage, it may decrease the pedestrian traffic to the Aladdin, which could have
a material adverse effect on operations of the Company, and accordingly Holdings
and Enterprises.
London Clubs (together with AHL, the "Controlling Stockholders") owns 25% of
the Holdings Common Membership Interests through subsidiaries. On the opening
date of the Aladdin, 0.5% of the Holdings Common Membership Interests will be
transferred from London Clubs to Sommer Enterprises and, upon the vesting of
certain employees' membership interests in Holdings, London Clubs' percentage of
the Holdings Common Membership Interests, and Sommer Enterprises' percentage of
the Holdings Common Membership Interests, will be further diluted
proportionately to account for such vesting, subject to applicable Gaming
Approvals. London Clubs is one of the world's leading casino operators, with
seven casinos in London (including Les Ambassadors Club and 50 St. James), three
in Egypt and one in Lebanon. Each of London Clubs' casinos offers its own
individual style, but with the same internationally-recognized standards of
service.
In recent years, London Clubs has embarked upon a period of expansion,
acquiring the Park Tower Casino in London's Knightsbridge in October 1996 and in
December 1996 re-opening and managing the casino operations of the famous Casino
du Liban in Lebanon. London Clubs is listed on the London Stock Exchange. See
"Risk Factors--Controlling Stockholders" and "--Possible Conflicts of Interest."
HOLDINGS OPERATING AGREEMENT
The members of Holdings (the "Holdings Members") are parties to the Holdings
Operating Agreement which sets forth their agreement as to the relationships
between Holdings and the Holdings Members and among the Holdings Members
themselves and as to the conduct of the business and internal affairs of
Holdings and its subsidiaries. For a summary of certain key provisions of the
Holdings Operating Agreement, see "Certain Material Agreements--Holdings
Operating Agreement."
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EQUITY AND SERIES A PREFERRED INTEREST FINANCING
Concurrent with or prior to the Offering, the following contributions were
made in order to effect the equity and Series A Preferred Interest contribution
to the Company by Holdings: (i) Sommer Enterprises (a) contributed a portion of
the Contributed Land and $7.0 million consisting of the benefit of certain
predevelopment costs incurred by AHL to the Issuer in exchange for Class A
Common Stock in the Issuer and (b) contributed a portion of the Contributed Land
to Holdings in exchange for Holdings Common Membership Interests, (ii) the
Issuer contributed the portion of the Contributed Land and the benefit of the
$7.0 million of certain predevelopment costs received from Sommer Enterprises
and the net proceeds allocable from the sale of the Warrants to Holdings in
exchange for Holdings Common Membership Interests ((i) and (ii) collectively,
the "Sommer Equity Financing"), (iii) Holdings contributed the Contributed Land
appraised at $150.0 million, approximately $42 million from the London Clubs
Contribution and the $7.0 million consisting of the benefit of certain
predevelopment costs incurred by AHL to the Company in exchange for Common
Membership Interests in the Company and (iv) Holdings contributed $115.0 million
in cash, consisting of the net proceeds of the sale of the Units and
approximately $8 million of the London Clubs Contribution, to the Company in
exchange for Series A Preferred Interests of the Company.
LAND APPRAISAL. The Project Site represents the Company's most material
asset. The Bank of Nova Scotia, as arranger of the Bank Credit Facility retained
HVS International, a division of Hotel Consulting, Inc., to prepare and deliver
an appraisal of the Project Site and the Hotel/Casino (the "Appraisal"). The
Appraisal was completed and delivered to the Bank of Nova Scotia and the Company
on October 7, 1997. The Appraisal states that as of August 7, 1997, the "market
value" of the Project Site was $180.0 million and of the site on which the
Aladdin and the Plant will be built (as well as an adjacent approximately 0.8
acre portion of the Project Site) was $135.0 million.
KEEP-WELL AGREEMENT
AHL, Bazaar Holdings and London Clubs (collectively, the "Sponsors") have
entered into the Keep-Well Agreement in favor of the Administrative Agent and
the Bank Lenders. Neither the Issuer, Holdings nor holders of the Warrants or
Warrant Shares are party to the Keep-Well Agreement. Capitalized terms used and
not defined in this section have the meanings assigned to such terms in the
Keep-Well Agreement.
The Keep-Well Agreement is the joint and several agreement of the Sponsors
to make certain quarterly Cash Equity Contributions (as defined below) to the
Company from and after the Conversion Date if the Company fails to comply with
the Minimum Fixed Charges Coverage Ratio set forth in the Bank Credit Facility.
The Bank Credit Facility defines the Minimum Fixed Charges Coverage Ratio as the
ratio of the Company's EBITDA for any period of four consecutive fiscal quarters
to the Company's fixed charges for such period. For the Company's first three
fiscal quarters after the Conversion Date, the Minimum Fixed Charges Coverage
Ratio shall be calculated by annualizing the Company's Minimum Fixed Charges
Coverage Ratio for such fiscal quarters.
The Cash Equity Contributions to the Company shall be in an amount that,
when added to the Company's EBITDA for the four quarter period ending on the
last day of such fiscal quarter, would rectify such breach. In no event shall
the aggregate Cash Equity Contributions required to be made by the Sponsors in
any fiscal year of the Company exceed $30.0 million. The $30.0 million annual
limitation on Cash Equity Contribution shall not apply to, or in any way limit,
any obligation of the Sponsors to pay the Accelerated Payment Amount (as defined
below).
The Cash Equity Contributions are cash contributions by the Sponsors to the
Company in exchange for Holdings Series A Preferred Interests or Holdings Series
B Preferred Interests having terms and conditions satisfactory to the Bank
Lenders (including, without limitation, no mandatory redemption provisions and
no requirements for the distribution of cash). The Holdings Operating Agreement
makes
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provision for adjustment of the proportion of Holdings Common Membership
Interests held by Sommer Enterprises and London Clubs for circumstances where
the portion of payment made by either Sponsor is in excess of 25% with respect
to London Clubs and 75% with respect to Sommer Enterprises. The Cash Equity
Contributions and the issuance of Holdings Common Membership Interests or the
Holdings Series A Preferred Interests and Holdings Series B Preferred Interests
will require the approval of the Nevada Gaming Authorities.
Cash Equity Contributions made under the Bank Completion Guaranty will not
count for purposes of the Keep-Well Agreement, and vice-versa.
The Keep-Well Agreement will terminate (the "Keep-Well Termination Date") on
the date which is the earliest of (i) the day on which full and indefeasible
payment of the Obligations of the Company under the Bank Credit Facility has
been made to reduce the commitments of the Bank Lenders thereunder (the
"Commitments") to $145.0 million or less, (ii) the last day of the period of six
consecutive fiscal quarters from and after the Conversion Date during which the
Company has satisfied each of the financial covenants set forth in the Bank
Credit Facility (without giving effect to any payments to or investments by the
Sponsors in or for the benefit of the Company), (iii) the date on which both of
the following shall have been satisfied: (a) construction of the Aladdin and
renovation of the Theater have been completed in accordance with the terms of
the Bank Credit Facility and (b) the Commitments and the aggregate outstanding
principal amount of the Obligations under the Bank Credit Facility shall have
been reduced to an amount not in excess of a certain amount specified for such
date pursuant to a schedule of the 20 quarters following the Conversion Date,
(iv) the date on which the Sponsors shall have made full payment of the
Accelerated Payment Amount (as defined below) or (v) in the case of London Clubs
only, the date on which it shall have made full payment of the Accelerated
Payment Amount in respect of certain London Clubs specified events.
The Accelerated Payment Amount is, as of any date, an amount equal to the
sum of (a) the product of (i) $7.5 million times (ii) the number of scheduled
quarterly amortization payments remaining under the Bank Credit Facility (which
have not been paid by or on behalf of the Company) plus (b) any accrued and
unpaid amounts owed by the Sponsors under certain provisions of the Keep-Well
Agreement; provided, however, that at no time shall the Accelerated Payment
Amount exceed the lesser of (x) the outstanding Obligations of the Company under
the Bank Credit Facility and (y) $150.0 million plus amounts due under clause
(b) above, minus the product of (A) $7.5 million and (B) the number of complete
calendar quarters that have elapsed since the Conversion date which is six
calendar quarters after the Conversion Date.
The maximum amount of the Accelerated Payment Amount will be $150.0 million
plus any unpaid Cash Equity Contributions previously required to be made under
the Keep-Well Agreement. The maximum amount of the Accelerated Payment Amount
shall decrease by $7.5 million for each quarterly amortization payment which is
paid or prepaid.
Should certain specified exceptional events under the Keep-Well Agreement
occur, London Clubs is obligated to pay the Accelerated Payment Amount. The
specified exceptional events will include breaches by London Clubs of various
financial covenants and a covenant limiting the amount of secured debt which
London Clubs can incur, as well as certain events which will be triggered if
other indebtedness of London Clubs is accelerated or if London Clubs becomes
insolvent. Any such payments by London Clubs shall be used to repay bank
indebtedness under the Bank Credit Facility.
The obligations of London Clubs under the Keep-Well Agreement are
subordinated to other obligations of London Clubs under certain of its
pre-existing senior debt facilities. In addition, obligations of London Clubs
under the Keep-Well Agreement are guaranteed by certain subsidiaries of London
Clubs, which subsidiaries currently guarantee other indebtedness of London
Clubs.
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Pursuant to the Salle Privee Management Agreement, London Clubs will receive
certain fees in consideration for its obligations under the Keep-Well Agreement.
See "Certain Transactions--Other Payments to Controlling Stockholders."
The Keep-Well Agreement contains representations and warranties, covenants
and events of default that are customary for the type of transaction.
TRUST LITIGATION
Mr. Jack Sommer, who is a trustee of the Trust, and the other trustees of
the Trust, are co-defendants in a legal action relating to the existing Aladdin
hotel and casino commenced by members of the Aronow family (the "Aronow
Plaintiffs") in May 1995 in the Supreme Court of the State of New York, County
of New York. In their complaint, the Aronow Plaintiffs allege that Mr. Jack
Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire and
develop the existing Aladdin hotel and casino and that Mr. Sommer breached such
alleged agreement when the Trust acquired an interest in the Aladdin hotel and
casino in December, 1994. The Aronow Plaintiffs are seeking (among other
remedies) to impress a constructive trust upon the Trust's interest in the
Aladdin hotel and casino, an accounting, compensatory damages of not less than
$200.0 million and punitive damages of not less than $500.0 million.
Mr. Sommer and the trustees of the Trust have informed the Company that they
intend to vigorously defend such action. However, in the event that the action
is successful, the Trust might be required to pay substantial damages and/or the
Aronow Plaintiffs might be entitled to part of the Trust's interest in the
Aladdin hotel and casino. An adverse decision could have a material and adverse
effect on the Company and the Aladdin Parties.
Mr. Sommer and the other trustees of the Trust were also co-defendants in a
legal action commenced by Edward Kanbar, Romano Tio and Adina Winston (the
"Kanbar Plaintiffs" and together with the Aronow Plaintiffs, the "Plaintiffs")
in January 1997 in the Supreme Court of the State of New York, County of New
York. In their complaint, the Kanbar Plaintiffs alleged that they were partners
in an alleged partnership with Joseph Aronow, which partnership was formed to
seek and develop business opportunities with Mr. Sommer. The Kanbar Plaintiffs
were seeking (among other remedies) to impress a constructive trust upon the
Trust's interest in the Aladdin hotel and casino, compensatory damages of not
less than $20.0 million and punitive damages of not less than $50.0 million. On
January 15, 1998, the court granted the trustees of the Trust's motion to
dismiss this action in its entirety.
In 1988, the Trust and two related entities commenced an action in the
Southern District of New York against certain entities owned and controlled by
Bronfman family interests (the "Bronfman Defendants") alleging, among other
things, that the Bronfman Defendants committed violations of Rule 10b-5 under
the Securities Exchange Act of 1934, as amended, as well as multiple breaches of
fiduciary duties as general partner of a partnership in which the Trust owns
limited partnership interests. Relief requested includes an accounting,
imposition of a constructive trust and damages in excess of $100.0 million.
The Bronfman Defendants have asserted counterclaims against plaintiffs and
certain Sommer family members individually alleging causes of action for breach
of contract, fraud and various related torts. The Bronfman Defendants claim
damages in excess of $100.0 million.
The trustees of the Trust have informed the Company that they intend to
vigorously defend the counterclaim. However, in the event the Bronfman
Defendants are successful, the Trust might be required to pay substantial
damages. An adverse decision could have a material and adverse effect on the
Trust.
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CERTAIN TRANSACTIONS
SALLE PRIVEE MANAGEMENT AGREEMENT
The Company, London Clubs and LCNI are parties to the Salle Privee
Management Agreement which relates to the Salle Privee. Under the Salle Privee
Management Agreement, London Clubs has agreed to guaranty the obligations of
LCNI. In consideration for the services to be furnished by London Clubs under
the Salle Privee Management Agreement, the Company will pay to London Clubs a
performance-based incentive fee (the "Incentive Marketing and Consulting Fee")
calculated as follows: (i) 10% of the Salle Privee EBITDA (defined in the Salle
Privee Management Agreement to mean gross revenue attributable to the Salle
Privee, less all costs and expenses directly attributable to the Salle Privee),
up to and including $15.0 million of EBITDA; plus (ii) 12.5% of the Salle Privee
EBITDA, in excess of $15.0 million, up to and including $17.0 million; plus
(iii) 25% of the Salle Privee EBITDA, in excess of $17.0 million, up to and
including $20.0 million; plus (iv) 50% of the Salle Privee EBITDA, in excess of
$20.0 million. The foregoing thresholds will be adjusted in accordance with
consumer price index changes every five years. See "Certain Material
Agreements--Salle Privee Management Agreement."
OTHER PAYMENTS TO CONTROLLING STOCKHOLDERS
In consideration for certain expenses incurred by the Trust prior to the
Issue Date relating to the management and coordination of the development of the
Aladdin, the Company reimbursed $3.0 million to the Trust on the Issue Date. In
addition, the Company will reimburse certain ongoing out-of-pocket expenses of
the Trust relating to the development of the Aladdin, not to exceed $0.9
million.
In consideration for its obligations under the Keep-Well Agreement and
related arrangements, under the London Clubs Purchase Agreement, the parties
agreed that London Clubs receive (a) an initial fee of 1.0% of the Company's
indebtedness with respect to a $265.0 million portion of the Bank Credit
Facility, which is supported and enhanced by the Keep-Well Agreement (such fee
was paid on the Issue Date) and (b) an annual fee of 1.5%, payable in arrears,
of the Company's annual average indebtedness with respect to a $265.0 million
portion of the Bank Credit Facility, which is supported and enhanced by the
Keep-Well Agreement for each relevant twelve month period ending on an
anniversary of the closing date of the Bank Credit Facility, which amount shall
reflect the extent, if any, by which the obligations under the Keep-Well
Agreement are reduced or eliminated over time (such fees accrue from the closing
date of the Bank Credit Facility, and shall be paid from available proceeds
after the opening date of the Aladdin).
KEEP-WELL AGREEMENT
On the Issue Date, the Sponsors entered into the Keep-Well Agreement in
favor of the Administrative Agent and the Bank Lenders. The Keep-Well Agreement
is the joint and several agreement of the Sponsors to make certain quarterly
Cash Equity Contributions to the Company from and after the Conversion Date if
the Company fails to comply with certain financial ratios set forth in the Bank
Credit Facility. See "Controlling Stockholders--Keep-Well Agreement."
BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY
On the Issue Date, London Clubs, the Trust and Bazaar Holdings entered into
the Bank Completion Guaranty in favor of the Bank Lenders. Pursuant to the Bank
Completion Guaranty, the parties guaranteed, among other things, the timely
completion of the Aladdin. The Bank Completion Guaranty is not subject to any
maximum dollar limitations. On the Issue Date, London Clubs, the Trust and
Bazaar Holdings also entered into the Noteholder Completion Guaranty for the
benefit of the holders of the Notes. Neither Holdings, the Issuer nor holders of
the Warrants or the Warrant Shares are party to the Bank Completion Guaranty or
Noteholders Completion Guaranty. See "Risk Factors--Limitations Under Bank
Completion Guaranty and Noteholder Completion Guaranty" and "--Lack of Available
Information on the Trust's Ability to Perform Its Obligations Under Certain
Agreements," "Description of Noteholder
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Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty"
and "Description of Certain Indebtedness and Other Obligations--Bank Completion
Guaranty."
ARRANGEMENTS WITH RICHARD GOEGLEIN AND GAI
The Company has entered into the Consulting Agreement with GAI. Pursuant to
the Consulting Agreement, GAI will render such consulting services as are
reasonably requested by the Board of the Company until June 30, 2002. During the
term of the Consulting Agreement, the Company shall pay GAI a retainer of
$12,500 per month as payment for remaining on call to provide services and
expertise for such month. Pursuant to the Consulting Agreement, GAI purchased 3%
of the Common Membership Interests in the Company (which were contributed to
Holdings on February 26, 1998 for a 3% interest in Holdings) for $1,800. Such
membership interest is fully vested, subject to certain anti-dilution
provisions, put rights and certain "piggyback" registration rights. See
"Management--GAI Consulting Agreement." In addition, Mr. Goeglein's Employment
Agreement provides Mr. Goeglein with relocation expense reimbursement, an
interest free mortgage loan of up to $500,000 and certain excise tax gross-up
provisions.
MUSIC PROJECT MANAGEMENT AGREEMENT AND DEVELOPMENT AGREEMENT
It is anticipated that Aladdin Music will contract with the Company for the
construction, development and day-to-day management and operations of the Music
Project and the Theater and certain promotional development and the services,
pursuant to a development agreement (the "Music Project Development Agreement")
and a management agreement (the "Music Project Management Agreement"), each in
form and substance satisfactory to Aladdin Music and the Company. The terms of
the Music Project Management Agreement are expected to be at least as favorable
to the Company as those which are available from an independent third party
vendor. See "Certain Material Agreements--Music Project Memorandum of
Understanding."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth certain information with respect to the
beneficial ownership of and the capital stock of the Issuer and the membership
interests of Holdings by (i) each person who, to the knowledge of the Aladdin
Parties, beneficially owns more than 5% of the outstanding capital stock or
membership interests (as the case may be); (ii) the directors of the Issuer and
Holdings; (iii) all executive officers of the Issuer and Holdings named in
"Management"; and (iv) all directors and executive officers of the Issuer and
Holdings, respectively, as a group. Neither the capital stock of the Issuer is,
nor the membership interests of Holdings are, presently listed or traded on any
securities exchange or securities market.
<TABLE>
<CAPTION>
ALADDIN GAMING ENTERPRISES, INC.
----------------------------------------------------------------------------------
COMMON STOCK
----------------------------------------------------------------------------------
PRIOR TO EXERCISE ASSUMING FULL EXERCISE PRIOR TO EXERCISE OF THE
OF THE WARRANTS--CLASS A OF THE WARRANTS--CLASS A WARRANTS-CLASS B COMMON
COMMON STOCK(6) COMMON STOCK(6)(7) STOCK
-------------------------- -------------------------- --------------------------
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES CLASS SHARES CLASS SHARES CLASS
NAME OF BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED OWNED OWNED OWNED OWNED
- -------------------------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Viola Sommer, Jack Sommer and
Eugene Landsberg, as trustees of the
Trust(1)(2)......................... 1,093,103 98.7% 1,093,103 98.7% 2,186,205 98.7%
Jack Sommer(1)(2)..................... 1,093,103 98.7% 1,093,103 98.7% 2,186,205 98.7%
Ronald Dictrow(3)..................... 14,398 1.3% 14,398 1.3% 28,795 1.3%
Cornelius T. Klerk(4)................. 0 0.0% 0 0.0% 0 0.0%
All Directors and Executive
Officers as a group(5).............. 1,107,500 100.0% 1,107,500 100.0% 2,215,000 100.0%
<CAPTION>
ASSUMING FULL EXERCISE
OF THE WARRANTS--CLASS B
COMMON STOCK(6)(7)
----------------------------
NUMBER OF PERCENTAGE OF
SHARES CLASS
NAME OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED
- -------------------------------------- ----------- ---------------
<S> <C> <C>
Viola Sommer, Jack Sommer and
Eugene Landsberg, as trustees of the
Trust(1)(2)......................... 2,186,205 49.4%
Jack Sommer(1)(2)..................... 2,186,205 49.4%
Ronald Dictrow(3)..................... 28,795 *
Cornelius T. Klerk(4)................. 0 0.0%
All Directors and Executive
Officers as a group(5).............. 2,215,000 50.0%
</TABLE>
- ------------------------
* Represents less than one percent of the outstanding shares of Class B Common
Stock.
(1) The Trust has an option to acquire 5% of the common membership interests in
AHL from GW Vegas (representing all of GW Vegas' common membership interests
in AHL). Such option is exercisable at any time prior to December 2001. The
address of the Trust is 280 Park Avenue, New York, New York.
(2) Mr. Jack Sommer, who is Chairman and a director of the Company and Holdings
and a director of Capital and the Issuer, is a trustee and contingent
beneficiary of the Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each
deemed to beneficially own the same interest as the Trust owns in the Issuer
because each of them is a trustee of the Trust.
(3) Mr. Ronald Dictrow is the Secretary and a director of the Issuer. Mr.
Dictrow's address is 280 Park Avenue, New York, New York.
(4) Mr. Cornelius Klerk is the Treasurer of the Issuer. Mr. Klerk's address is
831 Pilot Road, Las Vegas, Nevada.
(5) The directors of the Issuer are Messrs. Sommer and Dictrow. The executive
officers of the Issuer are Messrs. Sommer, Dictrow and Klerk.
(6) The Class A Common Stock and Class B Common Stock in the Issuer held by
Sommer Enterprises were on the closing date pledged to the Bank Lenders.
(7) Upon the exercise of the Warrants, holders of the Warrant Shares will own
50.0% of the outstanding Class B Common Stock and 0.0% of the outstanding
Class A Common Stock of the Issuer.
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<TABLE>
<CAPTION>
ALADDIN GAMING HOLDINGS, LLC
------------------------------------------------------------------------
PERCENTAGE OWNERSHIP OF HOLDINGS PERCENTAGE OWNERSHIP OF HOLDINGS
COMMON MEMBERSHIP INTERESTS COMMON MEMBERSHIP INTERESTS
NAME OF BENEFICIALLY OWNED PRIOR TO BENEFICIALLY OWNED ASSUMING FULL
BENEFICIAL OWNER EXERCISE OF THE WARRANTS(9) EXERCISE OF THE WARRANTS(10)
- ------------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Viola Sommer, Jack Sommer and Eugene
Landsberg, as trustees of the
Trust(1)(2)............................. 71.1% 61.6%
Jack Sommer(2)............................ 71.1% 61.6%
London Clubs(3)........................... 25.0% 25.0%
Alan Goodenough(3)........................ 0.0% 0.0%
G. Barry C. Hardy(3)...................... 0.0% 0.0%
Ronald Dictrow(4)......................... * *
Richard J. Goeglein(5)(7)................. 3.0% 2.6%
James H. McKennon(6)(7)................... 0.0% 0.0%
Cornelius T. Klerk(6)(7).................. 0.0% 0.0%
Jose A. Rueda(6)(7)....................... 0.0% 0.0%
Lee A. Galati(6)(7)....................... 0.0% 0.0%
All Directors and Executive Officers as a
group (eight persons)(8)................ 75.0% 65.0%
</TABLE>
- ------------------------------
* Represents less than one percent of the outstanding Holdings Common
Membership Interests.
(1) The Trust has an option to acquire 5% of the common membership interests in
AHL from GW Vegas (representing all of GW Vegas' common membership interests
in AHL). Such option is exercisable at any time prior to December, 2001. The
address of the Trust is 280 Park Avenue, New York, New York.
(2) Mr. Jack Sommer, who is Chairman and a director of the Company and Holdings
and a director of Capital and the Issuer, is a trustee and contingent
beneficiary of the Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each
deemed to beneficially own the same interest as the Trust owns in Holdings
because each of them is a trustee of the Trust.
(3) Mr. Alan Goodenough is Chief Executive Officer of London Clubs and a
director of the Company and Holdings. As of March 16, 1998, Mr. Goodenough
held approximately 202,000 ordinary shares (representing less than one
percent of the share capital) of London Clubs. Mr. Barry Hardy is Finance
Director of London Clubs and a director of the Company and Holdings. As of
March 16, 1998, Mr. Hardy held approximately 901,000 ordinary shares
(representing less than one percent of the share capital) of London Clubs.
As of March 16, 1998, Mr. Hardy also held options to purchase 516,395
ordinary shares (options to purchase 512,400 ordinary shares presently
exercisable) of London Clubs. The address of London Clubs is 10 Brick
Street, London, W1Y, 8HQ, United Kingdom.
(4) Mr. Ronald Dictrow is a director of the Issuer and the Executive Vice
President/Secretary and a director of the Company, Holdings and Capital. Mr.
Dictrow's address is 280 Park Avenue, New York, New York.
(5) Mr. Richard J. Goeglein, who is Chief Executive Officer, President and a
director of the Company, Holdings and Capital, beneficially owns 100% of
GAI, which holds 3% of the Holdings' Common Membership Interests. Mr.
Goeglein's address is 831 Pilot Road, Las Vegas, Nevada.
(6) The address of Messrs. McKennon, Klerk, Rueda and Galati is 831 Pilot Road,
Las Vegas, Nevada.
(7) Messrs. Goeglein, McKennon, Klerk, Rueda and Galati have rights to acquire
beneficial ownership of Holdings Common Membership Interests representing an
aggregate of 4.75% of such interests (prior to exercise of the Warrants) and
4.12% of such interests (assuming full exercise of the Warrants), which
rights do not vest within 60 days. See "Management--Employment Agreements."
(8) The directors of Holdings are Messrs. Sommer, Goodenough, Dictrow, and
Goeglein. The executive officers of Holdings are Messrs. Goeglein, Dictrow,
McKennon, Klerk, Rueda and Galati.
(9) Holdings owns 100% of the Common Membership Interests and Series A Preferred
Interests of the Company. The Common Membership Interests were, on closing
of the Bank Credit Facility, pledged to the Bank Lenders. The Series A
Preferred Interests were, on the closing of the Offering, pledged to the
Trustee for the benefit of the Holders.
(10) The Issuer owns 25% of the Holdings Common Membership Interests. Upon full
exercise of the Warrants, holders of the Warrant Shares will indirectly own
10% of the outstanding Holdings Common Membership Interests.
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[CHART]
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ALADDIN BAZAAR, LLC OWNERSHIP STRUCTURE
[CHART]
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DESCRIPTION OF CAPITAL STOCK
The Issuer's Articles of Incorporation, as amended, authorize the issuance
of 10,000,000 shares of Issuer Stock without par value, of which 2,000,000
shares are designated as Class A Voting Common Stock (the "Class A Common
Stock") and 8,000,000 shares are designated as the Common Stock, which is the
Class B Non-Voting Common Stock. As of the date hereof, the Issuer had 1,107,500
shares of Class A Common Stock issued and outstanding and 2,215,000 shares of
Common Stock issued and outstanding.
THE CLASS A COMMON STOCK
Each holder of Class A Common Stock is entitled to one vote per share
owned of record on all matters that are voted on by stockholders. All
stockholder action requires the affirmative vote of a majority of the voting
power of the issued and outstanding Class A Common Stock except for the removal
of a director from office which requires a vote of not less than two-thirds of
the voting power of the issued and outstanding Class A Common Stock. The Class A
Common Stock bears no preemptive rights and is not subject to redemption. Once
the subscription price of any share of Class A Common Stock has been paid, such
share becomes non-assessable. Holders of Class A Common Stock are entitled to
receive dividends if, as and when declared by the Issuer's Board of Directors
and such dividends may be paid in cash, property, shares of corporate stock, or
any other medium.
THE COMMON STOCK
Except as may otherwise be provided by Nevada law, the holders of Common
Stock have no right to vote on any matters that are voted on by Issuer's
stockholders including, without limitation, any election or removal of
directors. However, holders of Warrants and Warrant Shares are entitled to
certain minority protections pursuant to the Equity Participation Agreement. See
"Certain Material Agreements--Equity Participation Agreement." In all other
matters, holders of Common Stock and Class A Common Stock have the same rights,
privileges and restrictions and rank equally, share ratably and are identical in
all respects as to all matters, including rights to dividends, rights in
liquidation and the non-assessability of shares.
THE WARRANTS
On February 26, 1998, the Issuer issued 2,215,000 Warrants which entitle
the holders thereof to purchase an aggregate of 2,215,000 shares of Common Stock
at an exercise price of $0.001 per share, subject to certain adjustments (the
"Exercise Price"). The Warrants become exercisable at any time on or after the
Separation Date and, unless exercised, the Warrants will automatically expire on
March 1, 2010 (the "Expiration Date"). The holders of Warrants have no right to
receive dividends and are not entitled to share in the assets of the Issuer in
the event of liquidation, dissolution or winding up of the Issuer's affairs. The
Issuer has authorized for issuance such number of shares of Common Stock as
shall be issuable upon the due exercise of all outstanding Warrants.
RESTRICTIONS ON INTERESTED TRANSACTIONS
Pursuant to Nevada law, each director is subject to restrictions relating to
the misappropriation of corporate opportunities by such director or such
director's affiliates. Nevada law requires that a transaction with the Issuer in
which a director or officer of the Issuer has a direct or indirect interest is
not voidable by the Issuer solely because of the director's or officer's
interest in the transaction if (i) the material facts of the transaction and the
director's or officer's interest therein are disclosed to or known by the
directors or a committee noted in the minutes, and the transaction is approved,
authorized, or ratified by the disinterested directors, (ii) the material facts
of the transaction and the director's or officer's interest therein are
disclosed to or known by the stockholders entitled to vote and the transaction
is approved or ratified by the stockholders, (iii) the material facts are not
disclosed or known to the director or officer at
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the time the transaction is brought before the directors for action, or (iv) the
transaction is established to have been fair to the Issuer at the time it was
authorized or approved.
NEVADA ANTI-TAKEOVER LEGISLATION
Nevada's Combinations with Interested Stockholders statute (NRS
SectionSection78.411-78.444), which applies to Nevada corporations having at
least 200 stockholders, prevents an "interested stockholder" and an applicable
Nevada corporation from entering into a "combination" unless certain conditions
are met. A "combination" means any merger or consolidation with an "interested
stockholder," or any sale, lease exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions, with an "interested
stockholder" having: (i) an aggregate market value equal to 5% or more of the
aggregate market value of the assets of the corporation, (ii) an aggregate
market value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation, or (iii) 10% or more of the earning power
or net income of the corporation. An "interested stockholder" means a person
who, together with affiliates and associates, beneficially owns (or within the
prior three years, did beneficially own) 10% or more of the voting power of the
corporation. A corporation to which this statute applies may not engage in a
"combination" within the three years after the interested stockholder acquired
its shares unless the combination or purchase is approved by the board of
directors before the interested stockholder acquired such shares. If this
approval is not obtained, then after the expiration of the three-year period,
the business combination may be consummated with the approval of the board of
directors or a majority of the voting power held by disinterested stockholders,
or if the consideration to be paid by the interested stockholder is at least
equal to the highest of: (i) the highest price per share paid by the interested
stockholder within the three years immediately preceding the date of the
announcement of the combination or in the transaction in which it became an
interested stockholder, whichever is higher, (ii) the market value per share of
common stock on the date of announcement of the combination and the date the
interested stockholder acquired the shares, whichever is higher, or (iii) for
holders of preferred stock, the highest liquidation value of the preferred
stock, if it is higher.
Nevada's Acquisition of Controlling Interest statute (NRS
SectionSection78.378-78.3793) applies only to Nevada corporations with at least
200 stockholders, including at least 100 stockholders of record who are Nevada
residents, and which conduct business directly or indirectly in Nevada. As of
the date of this Prospectus, the Issuer does not have 100 stockholders of record
who are residents of Nevada, although there can be no assurance that in the
future the Acquisition of Controlling Interest statute will not apply to the
Issuer.
The Acquisition of Controlling Interest statute prohibits an acquiror,
under certain circumstances, from voting its shares of a target corporation's
stock after crossing certain ownership threshold percentages, unless the
acquiror obtains approval of the target corporation's disinterested
stockholders. The statute specifies three thresholds: one-fifth or more by less
than one-third, one-third but less than a majority, and a majority or more, of
the outstanding voting power. Once an acquiror crosses one of the above
thresholds, those shares in an offer or acquisition and acquired within 90 days
thereof become "Control Shares" and such Control Shares are deprived of the
right to vote until disinterested stockholders restore the right. The
Acquisition of Controlling Interest statute also provides that in the event
Control Shares are accorded full voting rights and the acquiring person has
acquired a majority or more of all voting power, all other stockholders who do
not vote in favor of authorizing voting rights to the Control Shares are
entitled to demand payment for the fair value of their shares in accordance with
statutory procedures established for dissenters' rights.
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DESCRIPTION OF THE WARRANTS
The Warrants were issued pursuant to a Warrant Agreement (the "Warrant
Agreement") between the Issuer and State Street Bank and Trust Company, as
warrant agent (the "Warrant Agent"). The following summary of certain provisions
of the Warrant Agreement and the Warrants does not purport to be complete and is
qualified in its entirety by reference to the Warrant Agreement and the
Warrants, including the definitions therein of certain terms.
GENERAL
The Warrants entitle the holders thereof to purchase an aggregate of
2,215,000 shares of Common Stock at the Exercise Price, subject to adjustment.
The Warrants are exercisable at any time on or after the Separation Date prior
to March 1, 2010. Unless exercised, the Warrants will automatically expire on
the Expiration Date. The Warrants entitle the holders thereof to purchase in the
aggregate 40% of the outstanding Common Stock of the Issuer, representing an
indirect interest in 10% of the outstanding Holdings Common Membership Interests
on a fully diluted basis as of the date of issuance after giving effect to such
issuance.
The Warrants may be exercised at any time on or after the Separation Date
by surrendering to the Issuer at the office of the Warrant Agent the Warrant
certificates evidencing such Warrants with the accompanying form of election to
purchase properly completed and executed, together with payment of the Exercise
Price. Payment of the Exercise Price may be made in the form of cash or a
certified or official bank check payable to the order of the Issuer. Upon
surrender of the Warrant certificate and payment of the Exercise Price, the
Warrant Agent will deliver or cause to be delivered, to or upon the written
order of such holder, a stock certificate representing the number of whole
Warrant Shares or other securities or property to which such holder is entitled
under the Warrant Agreement and the Warrants, including, without limitation, any
cash payment to adjust for fractional interests in Warrant Shares issuable upon
such exercise in accordance with the Warrant Agreement. If less than all of the
Warrants evidenced by a Warrant certificate are to be exercised, a new Warrant
certificate will be issued for the remaining number of Warrants.
No fractional Warrant Share will be issued upon exercise of the Warrants.
If any fraction of a Warrant Share would, except for the foregoing provision, be
issuable on the exercise of any Warrants (or a specified portion thereof), the
Issuer shall pay an amount in cash equal to the current market price per Warrant
Share, as determined on the day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction, computed to the nearest
whole U.S. cent.
Certificates for Warrants have been and will be issued in registered form
only, and no service charge will be made for registration of transfer or
exchange upon surrender of any Warrant certificate at the office of the Warrant
Agent maintained for that purpose. The Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration, transfer or exchange of Warrant certificates.
The holders of the Warrants have no right to receive dividends. The
holders of the Warrants are not entitled to share in the assets of the Issuer in
the event of liquidation, dissolution or winding up of the Issuer's affairs.
In the event of taxable distribution to holders of Issuer Stock which
results in an adjustment to the number of Warrant Shares or other consideration
for which a Warrant may be exercised, the holders of the Warrants may, in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend. See "Certain United States
Federal Income Tax Considerations."
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SEPARATION
Each Warrant was originally issued as part of a Unit consisting of: (i)
$1,000 principal amount at maturity of Notes of the Note Issuers; and (ii) 10
Warrants to purchase 10 shares of Common Stock. Pursuant to the terms of the
Indenture and the Warrant Agreement, the Notes and the Warrants were to become
separately transferable on the "Separation Date," being the earliest of: (i)
September 1, 1998; (ii) the date on which a registration statement with respect
to the Notes or a registration statement with respect to the Warrants and the
Warrant Shares was filed with the Commission under the Securities Act; (iii) the
occurrence of a Change of Control (as defined in the Indenture) or a sale or
recapitalization of the Issuer, Holdings or the Company occurs (a "Triggering
Event"); (iv) 30 days after a Qualified Public Offering; (v) the occurrence of
an Event of Default (as defined in the Indenture); or (vi) such earlier date as
determined by Merrill Lynch & Co. in its sole discretion. The Separation Date
occurred on filing of the Registration Statement.
NO VOTING RIGHTS
Neither the holders of the Warrants nor, prior to a Qualified Public
Offering, the holders of the Warrant Shares will have any right to vote on any
matter submitted to shareholders, including any right to vote for the election
of directors of the Issuer. Upon the consummation of a Qualified Public
Offering, holders of the Warrant Shares will have full voting rights as
shareholders of the IPO Entity. Prior to the Issue Date, the Trust, Sommer
Enterprises, London Clubs, LCNI, the Issuer and the Warrant Agent on behalf of
the holders of Warrants and Warrant Shares entered into the Equity Participation
Agreement under which the parties agreed that they would not effect a Qualified
Public Offering unless the Trust and London Clubs (directly or indirectly) and
the holders of the Warrants and the Warrant Shares each hold their respective
equity interests in the IPO Entity.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon the exercise of the
Warrants and the Exercise Price both will be subject to adjustment in certain
events (subject to certain exceptions) including (i) the payment by the Issuer
of dividends (and other distributions) on Issuer Stock payable in Issuer Stock,
(ii) subdivisions, combinations and reclassifications of Issuer Stock, (iii) the
issuance to all holders of Issuer Stock of rights, options or warrants entitling
them to subscribe for Issuer Stock or of securities convertible into or
exchangeable for Issuer Stock, for a consideration per share of Issuer Stock
which is less than the current market price per share of such Issuer Stock and
(iv) the distribution to all holders of Issuer Stock of any of the the Issuer's
assets, debt securities or any rights or warrants to purchase securities
(excluding those rights and warrants referred to in clause (iii) above and
excluding cash dividends less than a specified amount). In addition, the
Exercise Price may be reduced in the event of purchases of Issuer Stock pursuant
to a tender or exchange offer made by the Issuer or any subsidiary thereof at a
price greater than the sale price of such Issuer Stock at the time such tender
or exchange offer expires.
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least 1% in the Exercise
Price; PROVIDED, HOWEVER, that any adjustment which is not made will be carried
forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Issuer, or the
sale of all or substantially all of the assets of the Issuer to another
corporation, each Warrant shall thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such consolidation,
merger or sale had the Warrants been exercised immediately prior thereto.
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AUTHORIZED SHARES
The Issuer has authorized for issuance such number of shares of Common
Stock as shall be issuable upon the due exercise of all outstanding Warrants.
Such shares of Common Stock, when paid for and issued, will be duly and validly
issued, fully paid and non-assessable, free of preemptive rights and free from
all taxes, liens, charges and security interests with respect to the issue
thereof (other than any such tax, lien, charge or security interest imposed upon
or granted by the holder of the Common Stock).
AMENDMENT
From time to time, the Issuer and the Warrant Agent, without the consent
of the holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making
changes that do not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants shall require the written
consent of the holders of a majority of the then outstanding Warrants (excluding
Warrants held by the Issuer or any of its affiliates). The consent of each
holder of the Warrants affected shall be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
purchasable upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided in the Warrant Agreement).
GOVERNING LAW
The Warrant Agreement and the Warrants are governed by, and construed in
accordance with, the laws of the State of New York without regard to the
principles of conflicts of law thereof.
ADDITIONAL INFORMATION
Any holder of Warrants or prospective investor may obtain a copy of the
Warrant Agreement and the Warrant Registration Rights Agreement without charge
by writing to Aladdin Gaming Enterprises, Inc., c/o Aladdin Gaming, LLC, 831
Pilot Road, Las Vegas, Nevada 89119; Attention: Corporate Secretary.
REPORTS
Whether or not the Issuer is subject to the reporting requirements of the
Exchange Act, the Issuer shall cause copies of (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuer was required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Holdings Group, and, with respect to the annual information
only, a report therein by the Issuer's certified independent accountants and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if the Issuer was required to file such reports, in each case within
the time periods specified in the Commissions's rules and regulations, to be
filed with the Commission (to the extent permitted) and the Warrant Agent and
mailed to the holders of the Warrants at their addresses appearing in the
registrar of Warrants maintained by the Warrant Agent to the same extent as such
reports are furnished to the holders of the Notes in accordance with the
Indenture.
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DESCRIPTION OF NOTEHOLDER COMPLETION GUARANTY
AND DISBURSEMENT AGREEMENT
NOTEHOLDER COMPLETION GUARANTY
The Trust, London Clubs and Bazaar Holdings (collectively, the
"Guarantors") have entered into a guaranty of performance and completion (the
"Noteholder Completion Guaranty") in favor of the Trustee (for the benefit of
the Noteholders). The following summary of the material terms and provisions of
the Noteholder Completion Guaranty does not purport to be a complete summary of
the Noteholder Completion Guaranty and is qualified in its entirety by reference
to the Noteholder Completion Guaranty, including definitions of certain terms
used below. The Noteholder Completion Guaranty provides that the Guarantors
jointly and severally guarantee, among other things, to the Trustee (for the
benefit of the Noteholders) and covenant and agree to make any and all payments
to or on behalf of the Company as may be necessary in order to permit and assure
that:
(i) the Company will promptly carry out the work required for the
construction of the Aladdin with due diligence and continuity, in an
expeditious and first-class workmanlike manner in accordance with the
Approved Plans and Specifications (as defined below) in all material
respects and will correct as soon as possible any material defect in
such work or material deviation from the Approved Plans and
Specifications;
(ii) the Company will punctually pay all costs, expenses and liabilities
incurred by the Company in connection with the construction of the
Aladdin in accordance with the Approved Plans and Specifications, and
all claims and demands for labor, material and services incurred by the
Company prior to completion of the work and in connection with cost
overruns of any type and all amounts which the Company may be required
to pay from time to time in order to keep the project "In Balance" as
such term is defined in the Noteholder Completion Guaranty;
(iii) the Company will complete the construction of the required Minimum
Aladdin Facilities on schedule and in accordance with the Approved
Plans and Specifications lien-free other than Permitted Liens;
(iv) the Company will provide the expertise necessary to supervise such work
at no cost to the Trustee;
(v) in the event the Guarantors fail to pay and/or perform their respective
obligations under the Noteholder Completion Guaranty, the Trustee (in
addition to any other rights and remedies afforded by applicable law)
may pay and perform the Guaranteed Obligations on behalf of the
Guarantors, in which case the Guarantors, upon demand, must reimburse
the Trustee for all costs, expenses and liabilities incurred in
connection therewith; and
(vi) the Guarantors shall pay the Trustee all reasonable out-of-pocket costs
and expenses of the Trustee in connection with the enforcement of the
Noteholders' rights and remedies under the Noteholder Completion
Guaranty.
The obligations of the Guarantors under the Noteholder Completion Guaranty
are subject to certain important qualifications. In particular, the Trustee may
not exercise any rights or declare any default under the Noteholder Completion
Guaranty and shall not pursue any remedies thereunder including, but not limited
to demanding payment or performance during any period that the Bank Completion
Guaranty is in effect and the Guarantors thereunder have not been released in
writing by the Bank Lenders. Notwithstanding the foregoing, however, the Trustee
shall be permitted to exercise any and all rights, declare a default, commence
enforcement proceedings and pursue any and all remedies under the Noteholder
Completion Guaranty:
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(i) at any time prior to the date that any funds have been advanced or
disbursed to the Company pursuant to the Bank Credit Facility;
(ii) at any time prior to Completion and from after the date on which all
indebtedness evidenced and secured by the Bank Credit Facility has been
indefeasibly paid in full and the Bank Lenders have released the
Guarantors in writing from their obligations under the Bank Completion
Guaranty; and
(iii) at any time after which all of the following events have occurred and
are continuing:
(a) an event of default under the Bank Completion Guaranty has occurred
and is continuing and such event of default has remained uncured for
the number of applicable Trigger Days (as defined herein);
(b) a Funding Cessation (as defined herein) has occurred and is
continuing for the aggregate number of applicable Trigger Days;
PROVIDED, HOWEVER, in no event shall aggregate Funding Cessations
exceed 180 days in the aggregate (which shall be extended for the
number of days during which a Force Majeure Event (as defined below)
or Insolvency Proceeding of the Company which impairs the Bank
Lenders directly or indirectly from enforcing the Bank Completion
Guaranty has occurred and is continuing which such extension shall
terminate upon the filing by the Bank Lenders of an action against
the Guarantors under the Bank Completion Guaranty to enforce the
obligations of the Guarantors thereunder which are susceptible of
performance notwithstanding the Insolvency Proceeding of the Company)
in any consecutive 365 day period; and
(c) the construction work which has been substantially completed in
accordance with the Approved Plans and Specifications (as certified
by the Construction Consultant) on the date in question has not
progressed to the stage of completion set forth for such date
(subject to any extensions based upon Force Majeure Events or an
Insolvency Proceeding of the Company which impairs the Bank Lenders,
directly or indirectly, from enforcing the Bank Completion Guaranty
has occurred and is continuing, which such extension shall terminate
upon the filing by the Bank Lenders of an action against the
Guarantors under the Bank Completion Guaranty to enforce the
obligations of the Guarantors thereunder which are susceptible of
performance notwithstanding the Insolvency Proceeding of the Company)
in the Construction Benchmark Schedule (as defined in the Noteholder
Completion Guaranty).
The Noteholder Completion Guaranty also provides that performance in all
material respects of the obligations of the Guarantors under the Bank Completion
Guaranty (as in effect on the Issue Date, or as may be amended from time to time
so long as in connection with each such amendment the Construction Consultant
certifies to the Trustee that, after giving effect to such amendment, (i) the
Minimum Aladdin Facilities are still capable of being completed by the Operating
Deadline, and (ii) the Guarantors have consented to such amendment) shall be
deemed to be performance of the corresponding obligations under the Noteholder
Completion Guaranty and performance in all material respects of the obligations
of the Guarantors under the Noteholder Completion Guaranty shall be deemed to be
performance of the corresponding obligations under the Bank Completion Guaranty.
Under the Noteholder Completion Guaranty, the Trustee covenants and agrees
that (i) the right of the Trustee to demand payment and/or performance of the
obligations under the Noteholder Completion Guaranty, to exercise any rights,
remedies and options and/or to commence enforcement proceedings under the
Noteholder Completion Guaranty shall be subject to the delivery by the Trustee
of a written notice to the Administrative Agent no later than 10 business days
prior to the making of such demand for payment and/or performance, exercise of
rights remedies and options, or commencement of enforcement proceedings, as
applicable, (ii) the Bank Lenders shall have all rights at law and equity
including, without
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limitation, the right to seek an injunction or other extraordinary remedy to
prevent or prohibit the making of any demand for payment and/or performance,
exercise of rights remedies and options, or commencement of enforcement
proceedings by the Trustee which is in contravention of the "standstill"
provisions of the Noteholder Completion Guaranty described above, and (iii) the
Noteholder Completion Guaranty shall not have been amended, modified, and/or
amended and restated without the prior written consent of the Administrative
Agent in its sole discretion; provided that the consent of the Administrative
Agent shall not be required in connection with to corrective amendments required
to be made to the Noteholder Completion Guaranty as and when corresponding
amendments are made to the Bank Completion Guaranty.
In addition, the Trustee on its own behalf and on behalf of the
Noteholders has covenanted and agreed that the rights, remedies and options of
the Trustee under the Noteholder Completion Guaranty in no way restrict the
rights and remedies of the Administrative Agent and the Bank Lenders under the
Bank Credit Facility or any security therefor including, without limitation, the
right to commence and prosecute to completion enforcement of the Bank Credit
Facility and any documents evidencing or securing the obligations under the Bank
Credit Facility. The Trustee agreed on its own behalf and on behalf of the
Noteholders that no Person shall have any right whatsoever to interpose a right
of offset, defense, claim or counterclaim with respect to any enforcement of the
Bank Credit Facility documents based upon a claim that the Trustee has the right
to performance of the guaranteed obligations before such enforcement can be
commenced or prosecuted or judgment thereon can be executed by or on behalf of
the Bank Lenders.
"Approved Plans and Specifications" shall mean all plans, specifications,
design documents, schematic drawings and related items for the design,
architecture and construction of the Aladdin, as delivered to the Trustee on the
Issue Date, as the same may be (x) finalized in a manner that reflects a natural
evolution of their status on the date hereof and in a manner consistent with the
standards set forth in the Credit Agreement with respect to the Bank Credit
Facility (the "Bank Credit Agreement") and (y) amended in accordance with the
Bank Credit Agreement.
"Construction Benchmark Schedule" shall have the meaning set forth in the
Noteholder Completion Guaranty and the Bank Credit Agreement.
A "Funding Cessation" shall occur at any time that funds are unavailable
to the Company (from any source whatsoever) to fund draws under the Bank Credit
Facility in an amount equal to 75% of the draw request in question or the
Construction Consultant fails to deliver the On Schedule Certificate as
contemplated by the Engagement Letter among Rider Hunt (NV) L.L.C., the
Administrative Agent, the Disbursement Agent, the Trustee, and others.
"Force Majeure Event" shall mean any event which is defined as a "Force
Majeure" in the Design/ Build Contract and/or that causes a delay in the
construction of the Aladdin and is outside the Company's control but only to the
extent (a) such event does not arise out of (i) the negligence, willful
misconduct or inefficiencies of the Company, (ii) late performance by the
Design/Builder or ADP, (iii) any cause or circumstances resulting in delays,
stoppage or any other interference with the construction of the Aladdin caused
by the insolvency, bankruptcy or any lack of funds by the Company, any of the
other Project Parties (as defined herein), the Energy Provider, Unicom, and/or
ADP, or (iv) delays, stoppage or other interference with the construction of the
Aladdin caused by the insolvency, bankruptcy or any lack of funds by Bazaar,
Aladdin Music and/or the construction contractors and project architects with
respect to the Mall Project, the Music Project and/or the Energy Project, and
(b) such event consists of an Act of God (such as tornado, flood, hurricane,
etc.), fires and other casualties; strikes, lockouts or other labor disturbances
(except to the extent taking place at the Project Site only); riots,
insurrections or civil commotions; embargoes, shortages or unavailability of
materials, supplies, labor, equipment and systems that first arise after the
Issue Date, but only to the extent caused by another act, event or condition
covered by this clause (b); sabotage; vandalism; the requirements of law,
statutes, regulations and other legal requirements enacted after the Issue Date
(unless the Company should, in the exercise of due diligence
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and prudent judgment, have anticipated such enactment); orders or judgments; or
any similar types of events, provided, that (x) the Company has sought to
mitigate the impact of the delay, (y) any delay resulting from the foregoing
shall not exceed 365 days, and (z) the period during which a Force Majeure Event
exists shall commence on the date that the Company has given the Trustee and the
Administrative Agent written notice describing in reasonable detail the event
which constitutes a Force Majeure Event and the Trustee and the Administrative
Agent have confirmed the existence of such Force Majeure Event on the date of
such notice and shall end on the date that such Force Majeure Event no longer
exists, whether or not notice is given to the Trustee and the Administrative
Agent, as determined by the Construction Consultant.
"Trigger Days" shall be defined as follows:
(i) an aggregate of 60 calendar days during any period in which the Bank
Lenders have disbursed more than $1 and up to and including $35.0
million of the Bank Credit Facility to the Company;
(ii) an aggregate of 90 calendar days during any period in which the Bank
Lenders have disbursed more than $35.0 million and up to and including
$70.0 million of the Bank Credit Facility to the Company;
(iii) an aggregate of 120 calendar days during any period in which the Bank
Lenders have disbursed more than $70.0 million and up to and including
$110.0 million of the Bank Credit Facility to the Company; and
(iv) an aggregate of 180 calendar days during any period in which the Bank
Lenders have disbursed more than $110.0 million of the Bank Credit
Facility to the Company.
DISBURSEMENT AGREEMENT
The Company, Holdings, Scotiabank, as the Administrative Agent under the
Bank Credit Facility, the Trustee, Scotiabank, as the Disbursement Agent on
behalf of the Bank Lenders and the Trustee (the "Disbursement Agent"), and as
Securities Intermediary and the Servicing Agent entered into the Disbursement
Agreement concurrently with the closing of the Offering. The following summary
of the material provisions of the Disbursement Agreement does not purport to be
a complete summary of the Disbursement Agreement and is qualified in its
entirety by reference to the Disbursement Agreement, including the definitions
therein of certain terms used below. Capitalized terms that are used hereunder
but not otherwise defined in this Prospectus have the meanings assigned to them
in the Disbursement Agreement.
Pursuant to the Disbursement Agreement, on the Issue Date approximately
$35 million of the net proceeds of the Offering were deposited into the Note
Construction Disbursement Account, which is subject to the sole dominion and
control of the Disbursement Agent on behalf of the Trustee (for the benefit of
the Noteholders) and the proceeds from the Term B Loan and the Term C Loan were
advanced to the Company and thereafter deposited by the Company into the Cash
Collateral Account, which will be subject to the sole dominion and control of
the Disbursement Agent on behalf of the Bank Lenders who have made the Term B
Loans and the Term C Loans. All funds in the Note Construction Disbursement
Account are pledged to the Disbursement Agent for the benefit of the Trustee to
secure repayment of the Notes and all funds in the Cash Collateral Account are
pledged to the Disbursement Agent to secure repayment of the Term B Loans and
Term C Loans. The Disbursement Agreement establishes the conditions to, and the
sequencing of, the making of disbursements of the proceeds of the Offering, the
funds from the Term B Loan and Term C Loan and the advances of the Term A Loan
and from other sources. Pursuant to the Disbursement Agreement, (i) all of the
proceeds from the Offering must be expended before any proceeds from the Term B
Loan and Term C Loan may be disbursed; (ii) the proceeds from the Term B Loan
and the Term C Loan will be disbursed pro rata; and (iii) advances under the
Term A Loan will only be made after all of the proceeds of the Term B Loan and
Term C Loan are
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expended (other than to fund draws under Letters of Credit which are issued as
part of the Bank Credit Facility). The drawdown of funds under the FF&E
Financing will not be subject to the provisions of the Disbursement Agreement.
The Disbursement Agreement authorizes disbursement from the Note
Construction Disbursement Account and the Cash Collateral Account only upon the
satisfaction of various conditions precedent set forth in the Disbursement
Agreement. These conditions include, among other things:
(i) delivery by the Company of a disbursement request and certificate
certifying as to, among other things, (a) the application of funds to be
disbursed, (b) the substantial conformity of construction undertaken to
date with the Approved Plans and Specifications, as amended from time to
time, in accordance herewith, (c) the expectation that the Aladdin will
be completed by the Operating Deadline, (d) the accuracy of the budget
for the construction of the Aladdin, as amended from time to time in
accordance with the Bank Credit Agreement, (e) the sufficiency of
remaining funds to complete the Aladdin by the Operating Deadline, (f)
compliance with line item budget allocations, taking into account
allocations for contingencies; (g) the accuracy of the representations
and warranties contained in the Disbursement Agreement, the other Loan
Documents, the Bank Completion Guaranty, the Noteholder Completion
Guaranty, and the other material project documents (collectively, the
"Operative Documents"), as if made on such date (except those that
relate to a different date) unless the failure of the foregoing to be
the case would not have a material adverse effect on the financial
condition, business, property, prospects or the ability of the Company,
and to the Company's knowledge each of AHL, Holdings, London Clubs,
LCNI, Design/Builder and Fluor (collectively, the "Project Parties") to
perform in all material respects their respective obligations under the
Operative Documents to which they are a party; (h) the Operative
Documents continue to be in full force and effect and (i) the absence of
an event of default with respect to certain material covenants in the
Operative Documents which would be reasonably likely to cause a material
adverse effect on the financial condition, business, property, prospects
or the ability of the Company or (to the Company's knowledge) any of the
Project Parties to perform their respective obligations under the
Operative Documents to which they are a party;
(ii) the absence of any default or an event of default (each as defined in
the Bank Credit Agreement) with respect to the Operative Documents
which would be reasonably likely to cause a material adverse effect on
the financial condition, business, property or prospects of the
Company, or to the Company's knowledge of the Project Parties and their
ability to perform in all material respects their respective
obligations under the Operative Documents to which they are a party;
(iii) delivery by the Construction Manager, the Construction Consultant and
the Project Architect of certificates corroborating various matters set
forth in the Company's disbursement request and certificate;
(iv) compliance by the Guarantors under the Bank Completion Guaranty and
London Clubs and AHL, as Sponsors, of their respective obligations
under the Keep-Well Agreement;
(v) receipt by the Company of the governmental approvals required to be in
effect at such time;
(vi) delivery by the Company to the Disbursement Agent of the acknowledgment
of payment and lien releases required under the Disbursement Agreement;
(vii) the procurement of all insurance policies required under the
Disbursement Agreement, including required endorsements,
(viii) the absence of pending material litigation which materially and
adversely affects the financial condition, business, property,
prospects or ability of the Company or the Project Parties to
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perform in all material respects their respective obligations under the
Operative Documents to which they are a party;
(ix) all of the documents evidencing the Disbursement Agent's security
interest in the proceeds, if any, in the Note Construction Disbursement
Account (for the sole and exclusive benefit of the Trustee and the
Noteholders) and in the Series A Preferred Interests, and the Bank
Lenders' security interest in the collateral pledged as security under
the Bank Credit Facility being in full force and effect;
(x) the absence of any material adverse change in the financial condition,
business, property, prospects or the ability of the Company and the
Project Parties to perform in all material respects their respective
obligations under the Operative Documents to which they are a party;
(xi) delivery of title insurance endorsements which increase the amount of
title insurance coverage by the amount of such advances and which
insure the first priority of the Deed of Trust;
(xii) payment of all applicable fees and expenses; and
(xiii) delivery of amounts required in order for the Project Budget and all
contingencies and reserves to be In Balance.
The Disbursement Agreement establishes procedures for the approval by the
Bank Lenders of amendments to the Approved Plans and Specifications. Pursuant to
the Disbursement Agreement, the Approved Plans and Specifications may be amended
by the Company, the Guarantors and the Bank Lenders at any time so long as in
connection with each such amendment, the Construction Consultant certifies to
the Trustee that (i) after giving effect to the amendment, the Approved Plans
and Specifications (as so amended) continue to call for the construction of the
Aladdin Minimum Facilities; (ii) after giving effect to the amendment, the
Approved Plans and Specifications (as so amended), will continue to permit the
Aladdin Minimum Facilities to be completed on or prior to the Operating
Deadline, and (iii) the Guarantors have consented in writing to such amendment.
Pursuant to the Disbursement Agreement, with the approval of each
disbursement, the Construction Consultant (to the extent that the circumstances
factually permit the Construction Consultant to do so in good faith) has agreed
to provide the Lenders and the Trustee with a certificate which provides in
substance that as of such date the Minimum Aladdin Facilities continue to be
capable of being completed in accordance with the Approved Plans and
Specifications on or before the Operating Deadline (the "On Schedule
Certificates"). In addition, the Administrative Agent has agreed to send to the
Trustee a copy of each written notice of any default or event of default under
the Bank Credit Agreement which the Administrative Agent sends to the Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS
The following discussion summarizes the material terms of certain material
financing agreements which are either in place or are currently being negotiated
between the Company (and/or the Controlling Stockholders) and various other
parties. This summary does not purport to be complete and is qualified in its
entirety by reference to the full agreements described herein once finalized and
executed. Capitalized terms used but not otherwise defined herein shall have the
meaning ascribed to such terms in the agreement being described (unless
otherwise indicated).
BANK CREDIT FACILITY
GENERAL DESCRIPTION OF THE BANK CREDIT FACILITY. The Company has entered
into the Bank Credit Facility with a syndicate of lenders (the "Bank Lenders"),
Scotiabank, as Administrative Agent, CIBC Oppenheimer Corp., as the
documentation agent ("Documentation Agent"), and Merrill Lynch Capital
Corporation ("Merrill"), as the syndication agent ("Syndication Agent"). The
Bank Credit Facility, which comprises senior secured construction/term loan
facilities, consists of three construction/term loans: (i) the $136.0 million
Term A Loan that has a stated maturity date of seven years from the closing date
of the Bank Credit Facility (the "Bank Closing Date"), (ii) the $114.0 million
Term B Loan that has a stated maturity date of eight and one half years from the
Bank Closing Date, and (iii) the $160.0 million Term C Loan that has a stated
maturity date of ten years from the Bank Closing Date (each term loan, a
"Loan"). The Loans will convert from construction loans into amortizing term
loans on a date (the "Conversion Date") which is the earlier of (x) the issuance
of a permanent certificate of occupancy for the Aladdin (which must include
appropriate parking facilities) and operating permits for the Plant or (y) the
completion of the Aladdin and the Plant as determined by the Administrative
Agent and the Construction Consultant. The proceeds of the Bank Credit Facility
shall be used by the Company to finance a portion of the main Project Costs. The
maximum amount of the Bank Credit Facility is $410.0 million plus, subject to
certain conditions, certain additional amounts as described under "Description
of the Notes--Certain Covenants."
On the date on which the initial Advance was made, the Bank Lenders that had
committed to make the Term B Loan and the Term C Loan, advanced their respective
committed amounts thereof to an account (the "Cash Collateral Account") over
which the Disbursement Agent has dominion and control over, and a perfected
first security interest for the benefit of the Bank Lenders which have advanced
the Term B Loan and the Term C Loan. The proceeds of the Term B Loan and the
Term C Loan were not permitted to be disbursed from the Cash Collateral Account
until all of the proceeds of the Offering had been expended. In June, 1998, the
Company began to use a portion of such proceeds in the construction of the
Aladdin. The use of the remaining proceeds of the Term B Loan and Term C Loan in
the construction of the Aladdin is subject to the satisfaction of the conditions
in the Disbursement Agreement. The proceeds of the Term B Loan and the Term C
Loan must be fully disbursed from the Cash Collateral Account prior to any
advance of the Term A Loan (other than advances of the Term A Loan which are
made to reimburse Scotiabank (in such capacity, the "LC Issuer") for
disbursements made in respect of Letters of Credit which have been drawn upon).
Disbursements from the Cash Collateral Account (with respect to the Term B Loan
and the Term C Loan) and advances of the Term A Loan shall be made in accordance
with the Disbursement Agreement but no advances under the Bank Credit Facility
shall be made on or after the Conversion Date.
LETTERS OF CREDIT. The Bank Credit Facility provides that the Company may
from time to time (prior to a certain period preceding the Conversion Date)
request that one or more letters of credit (the "Letters of Credit") be issued
or extended if required as a deposit by suppliers and/or contractors providing
materials to the Aladdin; PROVIDED, HOWEVER, no Letter of Credit shall be issued
for the Gaming Equipment and Specified Equipment which is covered by the FF&E
Financing. The aggregate amount of such Letters of Credit shall not exceed $20.0
million.
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MATURITY DATE OF THE BANK CREDIT FACILITY. The entire outstanding principal
balance of the Loans, together with all unpaid interest thereon and other
amounts due to the respective Bank Lenders under the documents pursuant to which
the Loans were made (the "Loan Documents") is due and payable in immediately
available funds on the stated maturity date of each Loan.
The maturity dates of the Loans shall be the earlier of (a) the date upon
which the Loans become immediately due and payable by reason of the occurrence
of an event of default under the Loan Documents (beyond the expiration of
applicable grace, notice and cure periods) and (b) the above mentioned stated
maturity date for each Loan.
INTEREST RATE. At the Company's option, the Loans will bear interest at
either Scotiabank's (i) alternate base rate (the "Alternate Base Rate" or "ABR")
or (ii) reserve adjusted LIBOR plus, in each case, the applicable following
margins.
(a) In the case of the Term A Loan and prior to the date on which is 6
months after the Conversion Date, the following margin applies: Alternate
Base Rate +200 bps and reserve adjusted LIBOR +300 bps.
(b) As regards the Term A Loan, from and after the date which is six
months after the Conversion Date, the applicable margin set forth in the
currently effective compliance certificate applies:
<TABLE>
<CAPTION>
ALTERNATE BASE
TOTAL DEBT TO EBITDA RATE LIBOR
- ----------------------------------------------------------- ------------------ ------------
<S> <C> <C>
greater than or equal to 4.0x.............................. +175 bps +275 bps
less than 4.0x and greater than or equal to 3.5x........... +150 bps +250 bps
less than 3.5x and greater than or equal to 3.0x........... +100 bps +200 bps
less than 3.0x and greater than or equal to 2.5x........... +75 bps +175 bps
less than 2.5x............................................. +50 bps +150 bps
</TABLE>
(c) With respect to the proceeds of the Term B Loan and the Term C Loan
which are being held in the Cash Collateral Account, the Alternate Base Rate
margin shall be +100 bps and the reserve adjusted LIBOR margin is +200 bps.
(d) With respect to all portions of the Term B Loan and the Term C Loan
which have been disbursed from the Cash Collateral Account, the Term B Loan
and Term C Loan will bear interest based at either LIBOR or the Alternate
Base Rate, in both cases, plus a certain margin.
OPTIONAL PREPAYMENTS. The Bank Credit Facility allows the Company to
prepay, at its option, certain of the Loans under certain conditions.
SCHEDULED AMORTIZATION. From and after the Conversion Date, the principal
amount of the Bank Credit Facility will be amortized (the "Scheduled
Amortization") on certain scheduled quarterly dates (ranging from 20 scheduled
quarters for the Term A Loan, 26 scheduled quarters for the Term B Loans and 32
scheduled quarters for the Term C Loan) and in certain amounts (ranging from
$4.0 million to $10.0 million per quarter for the Term A Loan, $300,000 to $20.0
million per quarter for the Term B Loan, and $400,000 to $25.5 million per
quarter for the Term C Loan).
MANDATORY PREPAYMENTS. From and after the Conversion Date, the Company
shall make mandatory prepayments of principal (the "Mandatory Prepayments") in
addition to the Scheduled Amortization on certain scheduled quarterly dates and
in certain amounts based on a percentage of the Excess Cash Flow from the
Aladdin. In addition to the foregoing payments and the Scheduled Amortization,
the entire outstanding principal balance of the Bank Credit Facility shall
become immediately due and payable (and any outstanding Letters of Credit shall
be cash collateralized) and the obligation of any Bank Lender which has
committed to make a Term A Loan or participate in the Letters of Credit shall
automatically terminate (a) upon a sale, transfer or conveyance of or borrowing
against (whether or not secured by) the
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Aladdin not otherwise permitted by the Loan Documents, (b) a change in control
(as defined in the Bank Credit Facility) or (c) if no disbursement of any
proceeds of the Term B Loan or the Term C Loan is made from the Cash Collateral
Account within twelve months after the Bank Closing Date (subject to Force
Majeure Events). Subject to certain Bank Lenders' rights to elect not to receive
a Mandatory Prepayment, Mandatory Prepayments of the Bank Credit Facility will
be applied in the inverse order against the Scheduled Amortization PRO RATA
among the Term A Loan, the Term B Loan and the Term C Loan. The Loan Documents
provide, in relevant part, that the amount of any Mandatory Prepayment of the
Term B Loan and the Term C Loan which is due from the Company with respect to a
change of control of the Company or the interests of the Sponsors (excluding a
transfer of the Sponsor interests resulting from the exercise of warrants issued
in connection with the Notes) shall be 101% of the principal amount of the Term
B Loan and the Term C Loan.
COMMITMENT FEE. From and after the Bank Closing Date and until the
Conversion Date, a non-refundable fee (the "Term A Loan Commitment Fee") in the
amount of 0.5% per annum of the unfunded portion of the Term A Loan shall accrue
on the daily average unfunded portion of the Term A Loan. The Term A Loan
Commitment Fee shall be payable to the Bank Lenders which have made a commitment
to make the Term A Loan on the last business day of each calendar quarter in
arrears in proportion to their respective unfunded commitments of the Term A
Loan.
SECURITY. As security for the Bank Credit Facility, the Company has entered
into a deed of trust in favor of the Bank Lenders securing the Notes and all
obligations of the Company under the Loan Documents, encumbering the Aladdin
(including any and all leasehold interests) as a first priority lien, subject
only to those title exceptions approved by the Administrative Agent.
The Company has also assigned all present and future of leases, rents,
issues and profits in favor of the Bank Lenders, assigning to the Bank Lenders
such leases pertaining to the Aladdin, including the Ground Leases and the
Theater Lease and, to the extent they are assignable, the contracts, agreements,
proposals, permits, approvals, plans and specifications pertaining to the
Aladdin.
In addition, the Company has entered into security agreements granting to
the Bank Lenders a continuing first priority security interest in all accounts,
accounts receivable, all reserves, all licenses (other than liquor licenses and
those granted pursuant to Gaming Approvals to the extent they cannot be
assigned), Specified Equipment and Gaming Equipment installed in, affixed to,
placed upon and used in connection with the Aladdin which are owned or leased by
the Company (subject to the rights of the FF&E Lender under the FF&E Financing),
the Marks and all other tangible or intangible personal property owned by the
Company.
As further security for the Bank Credit Facility, (a) AHL has entered into a
pledge and security agreement pledging all of its interest in Sommer Enterprises
to the Bank Lenders; (b) Sommer Enterprises has entered into a pledge and
security agreement pledging all of its interests in the Issuer and Holdings to
the Bank Lenders; (c) the Issuer has entered into a pledge and security
agreement pledging all of its interests in Holdings (other than the interests
relating to the Warrants which have been issued by the Issuer in connection with
the Offering) to the Bank Lenders; (d) Holdings has entered into a pledge and
security agreement pledging all of its interest in the Company to the Bank
Lenders other than the Series A Preferred Interests; (e) the Company has entered
into a pledge and security agreement pledging all of its interest in AMH to the
Bank Lenders; and (f) AMH has entered into a pledge and security agreement
pledging all of its interest in Aladdin Music to the Bank Lenders; (g) LCNI has
entered into a pledge and security agreement pledging all of its interest in
Holdings to the Bank Lenders; and (h) Holdings has entered into a pledge and
security agreement pledging all of its interest in Capital to the Bank Lenders.
The pledges of the equity securities of those entities registered as holding
companies or licensed by the Nevada Commission will require the approval of the
Nevada Commission in order to remain effective. In addition, if such companies
are registered and licensed (as applicable), separate approvals will be required
to foreclose on the pledges and such approvals will require the licensing of the
Bank Lenders unless such requirement is waived by the Nevada Gaming Authorities
upon application by the Bank Lenders.
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Furthermore, if the Company is licensed by the Nevada Gaming Authorities at any
time during the term of the Bank Credit Facility, the Bank Lenders will be
subject to being called forward by the Nevada Gaming Authorities, in their
descretion, for licensing or a finding of suitablility as lenders to a Company
Licensee.
IN BALANCE REQUIREMENTS. The Bank Credit Facility and the Disbursement
Agreement include loan balancing provisions requiring the Company to deposit
additional monies into the Cash Collateral Account if the Administrative Agent
and the Bank Lender's Consultant reasonably determine that the Bank Credit
Facility is not "In Balance." The Bank Credit Facility will be considered "In
Balance" when undisbursed portions of the Bank Credit Facility allocated to each
line item category in the Budget equals or exceeds such line item category,
contingency requirements have been satisfied and the guaranteed maximum price is
in effect.
AFFIRMATIVE COVENANTS. The Bank Credit Facility contains customary
affirmative covenants for the type of transaction proposed, including, without
limitation, the following: (a) the Company will construct the Aladdin and
perform all the work required under the other Loan Documents, (b) the Company
will operate the Aladdin as a first-class casino hotel, (c) the Company will
maintain adequate reserves and (d) the Company will provide the Administrative
Agent with certain financial information.
NEGATIVE COVENANTS. The Bank Credit Facility contains customary negative
covenants for the type of transaction proposed, including, without limitation,
the following: (a) restrictions on the incurrence of debt, sale leasebacks and
contingent liabilities; (b) restrictions on making dividends or similar
distributions; (c) restrictions on the incurrence of liens or other
encumbrances; (d) restrictions on the sale of assets or other similar transfers;
(e) restrictions on investments or acquisitions; (f) restrictions on mergers,
consolidations and similar combinations; (g) restrictions on transactions with
affiliates; (h) limitations on capital expenditures; (i) restrictions on
adjustments or reallocations against line items in the Budget; and (j)
restrictions on any amendment or modification of certain material agreements.
Any restrictions on the transfer of and agreements not to encumber the equity
securities of any registered holding company of the Company will require the
approval of the Nevada Commission in order to remain effective.
FINANCIAL COVENANTS. The Bank Credit Facility contains certain financial
covenants, including, without limitation, the following: minimum fixed charge
coverage; minimum interest coverage; maximum debt to EBITDA; minimum EBITDA and
minimum net worth.
EVENTS OF DEFAULT. The Bank Credit Facility contains events of default
customary for the type of transaction proposed including, without limitation, a
cross-default to other indebtedness or agreements of the Company, London Clubs,
the other Sponsors and the Guarantors under the Bank Completion Guaranty.
SENIOR DISCOUNT NOTES
GENERAL DESCRIPTION OF THE NOTES. Pursuant to an Indenture dated as of
February 26, 1998 (the "Indenture"), the Note Issuers issued 221,500 $1,000
principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the
"Notes"). The Notes were issued as part of 221,500 Units, each Unit consisting
of one Note and 10 Warrants. Pursuant to their terms the Notes and Warrants
became separately transferrable on the Separation Date, which date occurred upon
filing of the Registration Statement and the registration statement with respect
to the New Notes (the "Exchange Offer Registration Statement") with the
Commission.
MATURITY. The Notes mature on March 1, 2010.
ACCRETED VALUE AND INTEREST. The initial Accreted Value of the Notes was
$519.40 per $1,000 principal amount at maturity of the Notes. The Notes accrete
at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the
initial Accreted Value, calculated from February 26, 1998 (the "Issue Date").
The Notes will accrete to an aggregate principal amount of $221.5 million by
March 1, 2003. Cash interest will not accrue on the Notes prior to March 1,
2003. Commencing on September 1, 2003, cash
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interest on the Notes will be payable, at a rate of 13 1/2% per annum,
semiannually in arrears on March 1 and September 1 of each year until maturity.
SECURITY. The Notes are secured by a first priority pledge of the proceeds
deposited in the Note Construction Disbursement Account and by a first priority
pledge of all of the issued and outstanding Series A Preferred Interests.
SERIES A PREFERRED INTERESTS. On the Issue Date, the Series A Preferred
Interests had a liquidation preference of $115.0 million. The liquidation
preference of the Series A Preferred Interests accretes on a semi-annual bond
equivalent basis using a 360 day year comprised of twelve 30-day months. On
March 1, 2003, the liquidation preference of the Series A Preferred Interests
will be $221.5 million. All Series A Preferred Interests are held by Holdings
and pledged to the Trustee for the benefit of the holders of the Notes. From and
after September 1, 2003, distributions on the Series A Preferred Interests will
be payable in cash. Holdings is obligated under the Indenture to utilize such
cash distributions to make payments on the Notes.
The Series A Preferred Interests are mandatorily redeemable on March 1,
2010. After March 1, 2003, the Series A Preferred Interests are redeemable at
the option of the Company, so long as the proceeds thereof are used by Holdings
to make a redemption of the Notes or an offer to purchase Notes, in each case,
in accordance with the terms of the Indenture. See "--Optional Redemption" and
"--Gaming Redemption." Except for the pledge to the Trustee for the benefit of
the holders of the Notes, the exercise of remedies in respect of such pledge or
any transfer after foreclosure under such pledge, the Series A Preferred
Interests are nontransferable.
OPTIONAL REDEMPTION. The Notes are redeemable at the option of the Note
Issuers, in whole or in part, on or after March 1, 2003, at a declining premium
to their Accreted Value, plus accrued and unpaid interest and Liquidated Damages
(as defined in the Indenture), if any, to the date of redemption.
Notwithstanding the foregoing, on or prior to March 1, 2001, the Note Issuers
may redeem up to an aggregate of 35% of the Accreted Value of the Notes at a
redemption price of 113 1/2% of the Accreted Value thereof, plus Liquidated
Damages, if any, thereon to the redemption date, with the proceeds of a
Qualified Public Offering resulting in aggregate net proceeds of at least $50.0
million.
GAMING REDEMPTION. The Notes are subject to mandatory disposition and
redemption requirements following certain determinations by any Gaming
Authority.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control (as defined
in the Indenture) of Holdings, the holders of the Notes have the right to
require the Note Issuers to purchase their Notes at a price equal to 101% of the
Accreted Value thereof, plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of purchase.
COVENANTS. The Indenture contains certain covenants that (subject to
certain exceptions) restrict the ability of the Note Issuers and certain of
their subsidiaries to, among other things: (i) make restricted payments; (ii)
incur additional Indebtedness (as defined in the Indenture) and issue preferred
stock; (iii) incur Liens (as defined in the Indenture); (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. See "Risk Factors."
EVENTS OF DEFAULT. The Indenture provides for customary events of default,
including: (i) default for 30 days or more in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes; (ii) default in
payment when due of the Accreted Value of or premium, if any, on the Notes;
(iii) failure by the Note Issuers to comply with certain covenants; (iv) default
under certain other indebtedness of Holdings or its restricted subsidiaries
(subject to certain grace periods and minimum thresholds); (v) failure by
Holdings or any of its restricted subsidiaries to pay certain final judgments;
(vi) certain events of bankruptcy or insolvency with respect to Holdings or any
of its significant subsidiaries; (vii) certain defaults
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under the Keep-Well Agreement which remain uncured for 180 days, or in the
performance of the Noteholder Completion Guaranty; (viii) certain breaches by
Holdings of the pledge agreements securing the Notes; (ix) the termination or
unavailability of the Bank Credit Facility in certain circumstances prior to the
date the Aladdin is Operating; (x) (a) failure of the Desert Passage to be
Operating on or prior to 90 days after the date the Aladdin becomes Operating
and (b) at any time thereafter and prior to the date on which the Desert Passage
becomes Operating, the Company's fixed charge coverage ratio for its most
recently ended four full fiscal quarters is not at least 1.75 to 1.0; (xi) after
the Aladdin becomes Operating, revocation, termination, suspension or other
cessation or suspension of gaming operations for a period of more than 90 days
at the Aladdin; (xii) the failure of the Aladdin to be Operating by the
Operating Deadline; (xiii) the transfer of the Aladdin Site as a result of the
exercise of remedies by the Bank Lenders or the acceptance by the Bank Lenders
of a deed in lieu of foreclosure; and (xiv) the transfer of the Common
Membership Interests as a result of the exercise of remedies by the Bank Lenders
in respect of the pledge of such Common Membership Interests pursuant to Bank
the Lender's security documents.
REGISTRATION RIGHTS. Pursuant to a registration rights agreement (the "Note
Registration Rights Agreement") dated as of February 26, 1998 between the Note
Issuers and the Initial Purchasers, the Note Issuers agreed to (a) file within
45 days after the Issue Date with the Commission the Exchange Offer Registration
Statement with respect to an offer to exchange the Notes (the "Exchange Offer")
for new notes of the Note Issuers with terms substantially identical to the
Notes (the "New Notes") (except that the New Notes generally will not contain
terms with respect to restrictions on the resale or transfer thereof) and (b)
use their reasonable best efforts to cause such Exchange Offer Registration
Statement to become effective under the Securities Act within 150 days after the
Issue Date. In the event that applicable law or interpretations of the staff of
the Commission do not permit the Note Issuers to effect the Exchange Offer, or
if certain holders of the Notes (having a reasonable basis to do so) notify the
Note Issuers that they are not permitted to participate in, or would not receive
freely traceable New Notes pursuant to, the Exchange Offer, the Note Issuers
will use their reasonable best efforts to cause to become effective a
registration statement (the "Shelf Registration Statement") with respect to the
resale of the Notes. The Note Issuers, under certain circumstances, will be
required to pay certain liquidated damages if the Note Issuers are not in
compliance with certain of their obligations under the Note Registration Rights
Agreement.
Contemporaneously with the filing of the Registration Statement with the
Commission, the Note Issuers filed the Exchange Offer Registration Statement
with the Commission relating to the Exchange Offer. The Note Issuers expect to
complete the Exchange Offer in August, 1998.
For purposes of the Notes, "Accreted Value" means, (i) as of any date of
determination prior to March 1, 2003, with respect to any Note, the sum of (a)
the initial offering price (which shall be calculated by discounting the
aggregate principal amount at maturity of such Note at a rate of 13 1/2% per
annum, compounded semi-annually on each March 1 and September 1 from March 1,
2003 to the date of issuance) of such Note and (b) the portion of the excess of
the principal amount of such Note over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on a
daily basis at a rate of 13 1/2% per annum of the initial offering price of such
Note, compounded semi-annually on each March 1 and September 1 from the date of
issuance of the Notes through the date of determination, computed on the basis
of a 360-day year of twelve 30-day months and (ii) as of any date of
determination on or after March 1, 2003, with respect to any Note, $1,000.
FF&E FINANCING
LEASE FACILITY. The Company has entered into a lease facility (the "Lease
Facility") with the FF&E Lender for the purpose of acquiring approximately $60
million of new furniture and equipment (other than gaming equipment) for the
Aladdin. The Lease Facility contains provisions as described herein and is
structured as a lease intended for security (the "Lease"). The Company will be
considered the owner of the Specified Equipment (as defined herein) for tax
purposes and the lease will be treated as an operating lease for accounting
purposes. The lease will commence on the date on which the Aladdin will be
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completed (the "Construction Completion Date" or the "Basic Lease Term
Commencement Date") and will terminate three years from the Basic Lease Term
Commencement Date (the "Basic Lease Term"), however, the Lease may be renewed up
to two one-year renewals from the end of the Basic Lease Term (the "Renewal
Lease Term").
Payments will be made quarterly, in arrears, calculated such that there will
be 80% amortization of principal at the end of the Basic Lease Term and the
maximum two Renewal Lease Terms. The remaining balloon payment will be twenty
percent of the principal.
A lease rental factor (the "Lease Rental Factor") will be calculated to be
5.6639% of 100% of the Company's acquisition cost of the Specified Equipment up
to $60.0 million (the "Lease Funding Amount") per quarter. The Lease Rental
Factor was calculated at an interest rate of 10.444% which represents a spread
of 478 bps over the reserve adjusted 90-day LIBOR (the "Base Index") (5.9375%).
Five days prior to the Basic Lease Term Commencement Date, the Lease Rental
Factor will be adjusted and calculated on the basis of the floating rate Base
Index plus the higher of (a) 478 bps, or (b) the weighted average spread used to
calculate the interest rate on the Bank Credit Facility plus 125 bps, and such
spread shall be maintained throughout the Basic Lease Term and any available
Renewal Lease Terms. The Lease Rental Factor will be adjusted quarterly based on
changes to the Base Index.
Subject to the satisfaction of the conditions precedent and to there being
no default, the FF&E Lender will commence funding of deliveries of the Specified
Equipment and/or the Gaming Equipment (as defined herein) beginning six months
prior to the Construction Completion Date (the "Interim Funding Date").
An interim lease funding amount (the "Interim Lease Funding Amount") of up
to $60.0 million will be available, subject to no default then having occurred
and continuing under the Company's financing, construction or other material
agreements, and satisfaction of all conditions precedent to funding. Advances of
the Interim Lease Funding Amount shall be made once per month during the Interim
Funding Period. Any Interim Lease Funding Amount advanced under the Lease
Facility shall be made under an interim schedule, which shall be converted to a
final schedule under the Lease on the Basic Lease Term Commencement Date.
The interim lease repayment terms (the "Interim Lease Repayment Terms") will
be floating rate interest-only payments due monthly in arrears during the period
from the Interim Funding Date through the Construction Completion Date (the
"Interim Funding Period") based on the Interim Lease Funding Amount. At the
Company's option, interest will be calculated at either (a) the reserve adjusted
30-day LIBOR on the date of determination ("30-day LIBOR") plus the higher of
(i) 478 bps, or (ii) the weighted average spread used to calculate the interest
rate of the Bank Credit Facility plus 125 bps, or (b) the prime rate published
in the Wall Street Journal on the date of the determination (the "Prime Rate")
plus 275 bps, and such spread shall be fixed throughout the Interim Funding
Period, and 30-day LIBOR or the Prime Rate will be adjusted monthly based on
changes thereto.
Subject to certain provisions, at the end of the Basic Lease Term or any
Renewal Lease term, the Company may (i) purchase all, but not less than all, of
the Specified Equipment at a fixed purchase price, estimated to represent the
Specified Equipment's then fair value, (ii) renew the Lease for all, but not
less than all, of the Specified Equipment for up to two additional one-year
terms, or (iii) return all, but not less than all, of the Specified Equipment to
the FF&E Lender subject to certain return conditions, including payment of a
contingent rental amount.
Upon termination of the Lease at the end of the Basic Lease Term or any
Renewal Lease term, should the Specified Equipment be returned to the FF&E
Lender by the Company, the FF&E Lender will calculate a contingent rental for
the full lease term, on a quarterly basis, based on certain factors.
TERM LOAN FACILITY. The Company has entered into a $20 million five year
term loan facility (the "Term Loan Facility") with the FF&E Lender for the
purposes of purchasing new gaming equipment for
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the Aladdin. The Term Loan Facility contains terms as described herein. The term
loan commencement date is the Construction Completion Date (the "Term Loan
Commencement Date").
Payments shall be made quarterly, in arrears, calculated such that principal
will be amortized as follows:
<TABLE>
<CAPTION>
QUARTER PERCENT AMORTIZATION
- --------- ---------------------
<S> <C>
1-4 3.25
5-8 3.5
9-12 4.0
13-16 4.5
17-19 4.75
20 24.75
</TABLE>
The interest rate (the "Interest Rate") will be calculated five days prior
to the Term Loan Commencement Date on the basis of the floating rate Base Index
plus the higher of (a) 478 bps, or (b) the weighted average spread used to
calculate the interest rate on the Bank Credit Facility on such date plus 125
bps, and such spread shall be maintained throughout the five year term. The
Interest Rate will be adjusted quarterly, based on changes to the Base Index, if
applicable.
An interim term loan funding amount (the "Interim Term Loan Funding Amount")
of up to $20.0 million will be available, subject to no default then having
occurred and continuing under the Company's financing, construction or other
material agreements and satisfaction of all conditions precedent to funding.
Advances of the Interim Term Loan Funding Amount shall be made once per month
during the Interim Funding Period. An Interim Term Loan Funding Amount advanced
under the Term Loan Facility shall be evidenced by an interim promissory note,
which shall be converted to a final promissory note on the Term Loan
Commencement Date.
The interim term loan repayment terms (the "Interim Term Loan Repayment
Terms") will be floating rate interest-only payments due monthly in arrears
during the Interim Funding Period based on the Interim Term Loan Funding Amount.
At the Company's option, interest will be calculated at either (a) the 30-day
LIBOR plus the higher of (i) 478 bps, or (ii) the weighted average spread used
to calculate the interest rate of the Bank Credit Facility plus 125 bps, or (b)
the Prime Rate plus 275 bps, and such spread shall be fixed throughout the
Interim Funding Period and 30-Day LIBOR or the Prime Rate will be adjusted
monthly based on changes thereto.
SECURITY. The security interests granted by the Company will be a first
priority security interest in a pool of new furniture and equipment (other than
gaming equipment) (the "Specified Equipment"), and specified new gaming
equipment including gaming devices such as slot machines, cashless wagering
systems and associated equipment (the "Gaming Equipment"), and assignment of all
improvements and/or additions to the Specified Equipment and the Gaming
Equipment hereafter acquired. The Specified Equipment and the Gaming Equipment
will be required to be free of all junior liens or encumbrances. Any and all
existing and to be issued obligations of the Company shall acknowledge that the
Term Loan Facility and the Lease Facility have a first priority lien on the
Gaming Equipment and the Specified Equipment. During the Interim Funding Period,
the Company shall assign to the FF&E Lender its rights under the purchase
contracts for the Specified Equipment.
CONDITIONS PRECEDENT. The FF&E Financing is subject to customary conditions
precedent.
COVENANTS AND EVENTS OF DEFAULT. Except for covenants related to the
Specified Equipment or the Gaming Equipment, the covenants and events of default
in the FF&E Financing are similar to those in the Bank Credit Facility. The
disposition of collateral consisting of Gaming Equipment is subject to the
requirements of the Nevada Act, including the approval of the Nevada Board or
the licensing of the Lenders before foreclosure, taking possession or other
disposition of such Gaming Equipment.
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BANK COMPLETION GUARANTY
London Clubs, the Trust and Bazaar Holdings (collectively, the
"Guarantors") have entered into a guaranty of performance and completion (the
"Bank Completion Guaranty") in favor of each of the Administrative Agent and the
Bank Lenders. The Bank Completion Guaranty provides that the Guarantors jointly
and severally guarantee to the Bank Lenders under the Bank Credit Facility,
among other things (the "Guaranteed Obligations"), that:
(i) the Company will promptly carry out the work required for the
redevelopment of the Aladdin in accordance with the approved plans and
specifications and to correct as soon as possible any material defect in
such work or material deviation from the approved plans and
specifications;
(ii) the Company will punctually pay all costs, expenses and liabilities in
connection with the redevelopment of the Aladdin, including all
construction period interest incurred on the Bank Credit Facility,
prior to completion of the work and in connection with cost overruns of
any type;
(iii) the Company will complete the redevelopment lien-free and on schedule;
(iv) the Company will provide the expertise necessary to supervise the
redevelopment of the Aladdin at no cost to the Bank Lenders;
(v) in the event the Guarantors fail to pay their respective obligations
under the Bank Completion Guaranty, the Bank Lenders may pay and perform
the Guaranteed Obligations on behalf of the Guarantors, in which case
the Guarantors, upon demand, must reimburse the Bank Lenders all cost,
expenses and liabilities in connection with the completion of the
redevelopment of the Aladdin; and
(vi) the Guarantors shall pay the Bank Lenders all reasonable out-of-pocket
costs and expenses of the Bank Lenders in connection with the
enforcement of the Bank Lenders' rights and remedies under the Bank
Completion Guaranty.
The Bank Completion Guaranty has (i) negative covenants which, among other
things, prohibit the Guarantor from incurring certain liens and certain types of
indebtedness and (ii) affirmative covenants which, among other things, require
that each of the Guarantors provide certain financial information and maintain
the corporate existence of each Guarantor and its subsidiaries.
Should certain London Clubs specified exceptional events (a "Specified
Event") under the Bank Completion Guaranty occur, at the option of the required
lenders, such Specified Event shall constitute an event of default under the
Bank Completion Guaranty and consequently under the Bank Credit Facility, and
the Bank Lenders, without any further notice to a Guarantor, shall be entitled
to exercise all rights and remedies available under the Bank Completion Guaranty
and any other Loan Documents.
The following is a summary of the Specified Events:
(i) any time London Clubs fails to comply with certain covenants,
including but not limited to financial covenants, in the Bank Completion
Guaranty and to the extent such non-compliance is curable, such
non-compliance is not cured within twenty-five (25) days;
(ii) any borrowed money for a sum in excess of L2,500,000 or the
equivalent in any other currency of London Clubs or any material subsidiary
has by reason of breach or default become due and payable prior to its
stated maturity or due date or if such borrowed money is not paid at the
maturity thereof or due date therefor, or if payable on demand, is not paid
on demand;
(iii) London Clubs or any material subsidiary becomes insolvent or
applies for or consents to the appointment of a liquidator, receiver or
trustee in bankruptcy or similar official or London Clubs or any material
subsidiary fails generally to pay its debts as and when they become due;
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(iv) a petition is presented (but only if such petition remains
undischarged 90 days after presentation thereof) or a meeting is convened or
an order is made or other action or proceedings are taken with a view to the
appointment of an administrator, winding-up, liquidation or dissolution of
London Clubs or any material subsidiary or London Clubs or any material
subsidiary stops or threatens to stop payments generally or ceases or
threatens to cease to carry on its business or a substantial part thereof or
London Clubs or any material subsidiary merges, consolidates or amalgamates
with any other company or entity in a transaction not otherwise permitted
under the L65,000,000 Facilities Agreement among, London Clubs, various
banks and National Westminster PLC (the predecessor-in-interest to the The
Bank of Nova Scotia) as arranger and agent;
(v) a distress, execution or other legal process is levied against any
of the assets of London Clubs or any material subsidiary and is not
discharged or paid out within 90 days, except where such distress, execution
or legal process is in the reasonable opinion of the required lenders being
contested in good faith by London Clubs or the relevant material subsidiary;
or
(vi) an encumbrancer takes possession or a receiver or an administrative
receiver is appointed of the whole or any substantial part of the assets or
undertaking of London Clubs or any material subsidiary.
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CERTAIN MATERIAL AGREEMENTS
The following discussion summarizes the material terms of certain material
agreements which have been entered into or are currently being negotiated
between the Company (and/or the Controlling Stockholders) and various other
parties. This summary does not purport to be complete and is qualified in its
entirety by reference to the full agreements described herein once finalized and
executed. Capitalized terms used but not otherwise defined in this Prospectus
shall have the meaning ascribed to such terms in the agreement being described
(unless otherwise indicated).
AGREEMENTS WITH RESPECT TO THE ALADDIN
HOLDINGS OPERATING AGREEMENT
The Holdings Members have entered into an operating agreement (the "Holdings
Operating Agreement") setting forth their agreement as to the relationships
between Holdings and the Holdings Members and among the Holdings Members
themselves and as to the conduct of the business and internal affairs of
Holdings. The following is a summary of certain key provisions of the Holdings
Operating Agreement.
PURPOSE. Holdings was organized for the purposes of developing,
constructing, financing, owning and operating hotels and casinos and related
businesses and to engage in such other lawful enterprises as may be incidental
or appurtenant thereto.
CLASSES OF INTERESTS. Holdings is capitalized with three classes of shares
(which represent units of membership interests in Holdings): Common Shares (the
"Holdings Common Membership Interests"), Series A Preferred Shares (the
"Holdings Series A Preferred Interests") and Series B Preferred Shares (the
"Holdings Series B Preferred Interests" and together with the Holdings Common
Membership Interests and the Holdings Series A Preferred Interests, the
"Holdings Interests"). Holdings' authorized capital stock consists of 10,000,000
Holdings Common Membership Interests, 1,500,000 Holdings Series A Preferred
Interests and 1,500,000 Holdings Series B Preferred Interests.
Holdings will periodically distribute cash, to the extent available, to the
holders of Holdings Common Membership Interests (or, if any such holder is a
pass-through entity, its equity interest holders) to the extent of the increase
in their cumulative United States federal, state or local income tax liability
in respect of their interests in Holdings for such period and make any
additional distributions of cash to Holdings Members that may be necessary to
cover United States federal, state or local income taxes arising from the
ownership of an interest in Holdings. No other distributions shall be made to
any Holdings Interests until all distributions to cover tax liability in respect
of any Holdings Interests for such period have been made.
The Holdings Series A Preferred Interests will be issued to LCNI or Sommer
Enterprises in consideration for any payment required pursuant to the Bank
Completion Guaranty, the Noteholder Completion Guaranty or the Keep-Well
Agreement (or a payment to the Company to cover any EBITDA shortfall under the
Bank Credit Facility) which is made by Sommer Enterprises, LCNI or their
respective affiliates to the Company where such payment is not required to be
made to pay down the Company's bank debt pursuant to Section 13 of the Keep-Well
Agreement. Except for distributions to cover any tax liability in respect of any
Holdings Interests, the Holdings Series A Preferred Interests will have a
distribution, redemption and liquidation preference over all Holdings Common
Membership Interests and Holdings Series B Preferred Interests. To the extent of
any net profits left to be allocated after special allocations, the capital
account in respect of the Holdings Series A Preferred Interests will cumulate
and compound semi-annually at the rate of 12% per annum on the capital account
balance in respect thereof at the time of compounding and, subject to the
limitations on Restricted Payments set forth in the Indenture, will be paid when
a supermajority of the Holdings Board determines that there is sufficient cash
available to do so. Holdings Series A Preferred Interests will be automatically
redeemed when distributions have been made to the extent of the capital account
balance in respect thereof. Should Holdings liquidate at any time prior to the
redemption of the Holdings Series A Preferred Interests, the Holdings Series A
Preferred Interests will be entitled to a distribution of cash, to the extent
available, before any distributions are made
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to the Holdings Series B Preferred Interests or Holdings Common Membership
Interests, in an amount equal to the capital account of the Holdings Series A
Preferred Interests.
The Holdings Series B Preferred Interests will be issued to LCNI in the
event of and in exchange for a payment required by London Clubs to pay down the
Company's bank debt pursuant to Section 13 of the Keep-Well Agreement. Except
for distributions to cover any tax liability in respect of any Holdings
Interests, the Holdings Series B Preferred Interests will have a distribution,
redemption and liquidation preference over all Holdings Common Membership
Interests. To the extent of any net profits left to be allocated after special
allocations and allocations to Holdings Series A Preferred Interests, the
capital account in respect of Holdings Series B Preferred Interests will
cumulate and compound quarterly at a rate equal to the rate on the bank debt of
the Company which was paid down by the payment required pursuant to the
Keep-Well Agreement, such rate to be applied to the capital account balance in
respect of the Holdings Series B Preferred Interests at the time of compounding
and, subject to the limitations on Restricted Payments set forth in the
Indenture, will be paid when a supermajority of the Holdings Board determines
that there is sufficient cash available to do so after all Holdings Series A
Preferred Interests have been redeemed. Holdings Series B Preferred Interests
will be automatically redeemed when distributions have been made to the extent
of the capital account balance in respect thereof. Should Holdings liquidate at
any time prior to the redemption of the Holdings Series B Preferred Interests,
the Holdings Series B Preferred Interests will be entitled to a distribution of
cash, to the extent available, before any distributions are made to the Holdings
Common Membership Interests, in an amount equal to the capital account of the
Holdings Series B Preferred Interests.
Other than distributions to cover any tax liability in respect of any
Holdings Interests, the Holdings Common Membership Interests will be entitled to
distributions only after all discretionary and mandatory distributions have been
made to all other interests in Holdings.
The Indenture contains restrictions on the payment of distributions to the
Holdings Interests.
Distributions to all Holdings Interests are payable only out of the assets
of Holdings at the time of such distribution, and in no event shall any holder
of an interest in Holdings be obligated to make a contribution to Holdings for
the payment of distributions.
Except for matters affecting rights of the holders of Holdings Series A
Preferred Interests and Holdings Series B Preferred Interests to distributions,
including upon redemption, (which may not be diminished or affected without the
vote of the holders of at least two-thirds of the issued and outstanding shares
of the affected class) and matters affecting the anti-dilution protections,
rights to move their investment directly into Holdings in certain circumstances
and tag-along participation rights of the holders of the Warrants and the
Warrant Shares (which may not be amended without the consent of the Issuer), all
management and voting rights are vested in the Holdings Common Membership
Interests.
ADJUSTMENTS IN INTERESTS. Subject to the receipt of applicable Gaming
Approvals, the percentages of the Holdings Common Membership Interests held
directly by each Holdings Member (each, a "Holdings Percentage Interest") will
be adjusted by the issuance of additional Holdings Common Membership Interests
and/or cancellation of issued and outstanding Holdings Common Membership
Interests in the following circumstances:
(i) on the opening date of the Aladdin (the "Opening Date") LCNI's
Holdings Percentage Interest shall be decreased by 0.5% and Sommer
Enterprises' Holdings Percentage Interest shall be increased by 0.5%;
(ii) in the event of defaults in payment of a Holdings Member's or its
Affiliates' share of payments required pursuant to the Keep-Well Agreement
(or payments to the Company to cover any EBITDA shortfall under the Bank
Credit Facility), the defaulting Holdings Member's Holdings Percentage
Interest shall be reduced and the non-defaulting Holdings Member's Holdings
Percentage Interest shall be increased by 1, 1.5 or 2 times (depending on
whether the defaulting Holdings
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Member is in default for 30 days, 45 days or 60 days from the date of such
default) multiplied by a dilution fraction, the numerator of which is the
delinquent contribution and the denominator of which is $200 million;
(iii) upon the exercise of any Warrants, the relative Holdings
Percentage Interests of all Holdings Members other than LCNI and the Issuer
will be adjusted so that all such Holdings Members share proportionately the
dilutive effect of such exercise on their directly and indirectly held
Holdings Percentage Interests (unvested Holdings Common Membership Interests
will also be adjusted thereupon);
(iv) upon any adjustment of the Issuer's Holdings Percentage Interest
pursuant to the Warrant Agreement (which may occur in the event of:
dividends or distributions by Holdings; subdivisions or combinations of
Holdings Common Membership Interests; issuance of Holdings Common Membership
Interests or any rights to purchase Holdings Common Membership Interests for
less than fair value; and similar events that typically trigger
anti-dilution protection adjustments for holders of warrants), the Holdings
Percentage Interest of the Holdings Members other than the Issuer will be
correspondingly adjusted to accommodate such adjustment in the Issuer's
Holdings Percentage Interest, so that all such Holdings Members share
proportionately the effect of such adjustment on their directly and
indirectly held Holdings Percentage Interest (unless such Holdings Members
agree to some other arrangement for sharing such effect); and
(v) Upon vesting of any Restricted Membership Interests, the Percentage
Interests of LCNI and Sommer Enterprises shall be reduced so that LCNI bears
25% of the dilutive effect thereof (assuming that no adjustments of the type
described in (iii) above have occurred) and Sommer Enterprises bears all the
remaining dilutive effect thereof, and their capital amounts shall be
correspondingly reduced to accommodate the capital account of the new
member.
In certain circumstances provided in the Equity Participation Agreement,
the holders of Warrants and Warrant Shares will have the right to move their
investment directly into Holdings, in which event the Percentage Interest of the
Issuer will be reduced to accommodate such interest.
SPECIAL CAPITAL ACCOUNT ADJUSTMENT. Upon the redemption of any Notes by
Holdings, upon receipt of applicable Gaming Approvals, Sommer Enterprises'
capital account in Holdings in respect of its Holdings Common Membership
Interests will be reduced by the product of LCNI's Holdings Percentage Interest
at the time of such redemption multiplied by the Accreted Value on the Issue
Date of the Notes being redeemed and LCNI's capital account shall be increased
by the same amount.
SUPERMAJORITY APPROVALS. The following actions by Holdings or the Company
will require approval of the holders of at least 80% of the Holdings Common
Membership Interests:
(i) the admission of a new Holdings Member, the acceptance of any
capital contributions not provided for in the Holdings Operating Agreement,
the Bank Completion Guaranty, the Noteholder Completion Guaranty, the
Keep-Well Agreement or the Contribution Agreement (as defined in the
Holdings Operating Agreement), or the issuance of additional shares or
securities of Holdings convertible into or exchangeable for shares or the
granting of any options or other rights to acquire from Holdings, or other
obligation of Holdings to issue, any shares or securities convertible into
or exchangeable for shares (other than in respect of the matters referred to
in item (xvi), below); (ii) other than distributions by subsidiaries of
Holdings or Priority Distributions to Holdings Common Membership Interests
or distributions to cover any tax liability in respect of any Holdings
Interests, any declaration, setting aside or payment of any distribution;
(iii) any voluntary dissolution or liquidation of Holdings or the Company or
the sale of all or substantially all of the assets of Holdings and the
Company; (iv) any merger or consolidation of Holdings with any person; (v)
any amendment to the articles of Holdings or the Holdings Operating
Agreement; (vi) (A) during the period that the Keep-Well Agreement is in
force, the creation, incurrence, assumption or guarantee of any indebtedness
(excluding obligations under leases made in the ordinary course of business)
and (B) after the
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Keep-Well Agreement is no longer in force, the creation, incurrence,
assumption or guarantee of any indebtedness (excluding obligations under
leases made in the ordinary course of business) in excess of $10 million in
any individual transaction (such threshold limit to be increased at the end
of each fiscal year by an amount determined by the Holdings Board to
correspond to increases in consumer prices in the United States for such
fiscal year); (vii) the creation of any lien, pledge or other security
interest in assets of Holdings or any subsidiary of Holdings securing
indebtedness of any third party which is not for the benefit of any business
carried on by Holdings or the Company; (viii) the commencement of a
voluntary case under Title 11 of the United States Code entitled
"Bankruptcy" (the "Bankruptcy Code") or any other voluntary proceeding under
any debtor relief laws or any voluntary general assignment for the benefit
of creditors; (ix) any material transactions (other than transactions
provided for in Sections 6.7(a) or 6.9 of the London Clubs Purchase
Agreement) between Holdings or the Company, on the one hand, and any
Holdings Member or any affiliate of any Holdings Member, on the other hand;
(x) any entry into any new business opportunity unrelated to the Aladdin;
(xi) the appointment or removal of Holdings' independent auditors; (xii) any
material amendment to, or any material waiver under, the Bazaar Lease (such
consent not to be unreasonably withheld); (xiii) any material amendment to,
or any material waiver under, the Reciprocal Easement Agreement (such
consent not to be unreasonably withheld); (xiv) any arrangement or agreement
for Holdings to pay a salary to any Holdings Member or any affiliate of any
Holdings Member (other than pursuant to the Consulting and Employment
Agreements and other than in respect of the matters referred to in (xvi),
below); (xv) the employment of any member of an Executive Management
Committee (as defined herein) of Holdings or the Company or any material
amendment to the terms of employment of any such person; (xvi) the adoption
of, or any material amendment to, any employee benefit, profit sharing,
incentive, bonus, pension, retirement or employee stock option plans (such
consent not to be unreasonably withheld in the context of industry
practice); (xvii) any license of the Aladdin trademark to any person other
than a subsidiary of Holdings or in connection with the Complex and the
operations in respect thereof (such consent not to be unreasonably
withheld); (xviii) any contract (including leases) outside the ordinary
course of business or for capital expenditure not included in Holdings'
annual budgets (such consent not to be unreasonably withheld); and (xix) the
initiation or settlement of any material litigation outside the ordinary
course of business and the selection of counsel therefor (such consent not
to be unreasonably withheld).
Unless London Clubs has appointed a majority of the Holdings Board, the
above supermajority approval rights will cease in the event that London Clubs is
bankrupt or responsible for an event of default under the Keep-Well Agreement,
the Bank Completion Guaranty or the Noteholder Completion Guaranty.
London Clubs will also have broad approval and consultation rights in
respect of material contracts and decisions relating to the Redevelopment (as
defined in the Holdings Operating Agreement), including (without limitation)
relating to certain aspects of the construction phase of the Aladdin, the Mall
Project and the Music Project.
MANAGEMENT. The business and affairs of Holdings are managed by the
Holdings Board, which holds Board meetings at least quarterly. Holdings' Board
consists of three nominees of the Issuer and two nominees of London Clubs, each
of which shall serve for a 3 year term unless they resign, are removed or are
otherwise disqualified to serve at an earlier time. The initial members of the
Holdings Board (the "Holdings Board Members") are Jack Sommer, Ronald B. Dictrow
and Richard J. Goeglein as appointees of the Issuer and Alan L. Goodenough and
G. Barry C. Hardy as appointees of London Clubs. Jack Sommer is Chairman of the
Holdings Board. A Holdings Board Member appointed by London Clubs and a Holdings
Board Member appointed by the Issuer will have the right to be on each committee
of the Board. The Holdings Board Members may be removed at any time by their
appointing Holdings Member. In the event of a vacancy on the Holdings Board, the
Holdings Member who appointed the previous Holdings Board Member shall appoint
the new Holdings Board Member.
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In certain circumstances related to (i) a failure to make its share of
payments under the Bank Completion Guaranty and the Keep-Well Agreement, or (ii)
the requirement to make a certain level of payments under the Keep-Well
Agreement (other than payments caused by certain losses of the Salle Privee),
whether or not London Clubs and Sommer Enterprises each pay their share of such
payments, Sommer Enterprises shall cause the Issuer to change the composition of
Holdings' Board by the appointment of new Holdings Board Members designated by
the non-defaulting Holdings Member and/or the removal of Holdings Board Members
appointed by the defaulting Holdings Member and/or the appointment of a new
independent Board Member designated by the non-defaulting Holdings Member. If a
Holdings Member holding a majority of Holdings Common Membership Interests has
defaulted in its payment obligations under the Keep-Well Agreement, the Bank
Completion Guaranty or the Noteholder Completion Guaranty, London Clubs and
Sommer Enterprises also will be required to vote all Holdings Common Membership
Interests owned or controlled by them so that they have equal voting power as
Holdings Members.
The Holdings Members will agree to take all necessary action to ensure that
each Holdings Member shall have identical rights to those they have in respect
of Holdings with respect to the board of management (or comparable bodies) and
management of the Company.
TRANSFERS OF SHARES. Except for transfers pursuant to the Loan Documents,
transfers of Holdings Common Membership Interests are only permitted:
(i) to affiliates of the transferring Holdings Member or persons approved by
all Holdings Members holding Holdings Common Membership Interests;
(ii) to persons other than certain prohibited transferees after giving other
Holdings Members holding Holdings Common Membership Interests a right of first
refusal and the right to tag-along ratably; and
(iii) in some circumstances related to estate planning by Holdings Members.
Certain transfers in ownership interests in Holdings Members holding
Holdings Common Membership Interests and in any entity owning a majority of a
Holdings Member (other than London Clubs) holding Holdings Common Membership
Interests are also prohibited without first affording the other Holdings Members
holding Holdings Common Membership Interests a right of first refusal over such
Holdings Member's Holdings Common Membership Interests. The exercise and
transfer of Warrants or the transfer of Warrant Shares will not be restricted by
this provision.
Holdings or its nominee have the right to call a Holdings Member's Holdings
Common Membership Interests (but not the Holdings Common Membership Interests
held by Enterprises) at seventy-five percent of the fair market value of such
Holdings Common Membership Interests if there is (i) a change in control of such
Holdings Member, other than a permitted transfer of an ownership interest in a
Holdings Member as described above or a change in control of London Clubs, (ii)
a transfer of Holdings Common Membership Interests by such Holdings Member in
breach of the Holdings Operating Agreement or (iii) a breach by such Holdings
Member of the non-compete covenants described below.
INITIAL PUBLIC OFFERING. The Holdings Operating Agreement provides that the
Holdings Members anticipate executing an initial public offering ("IPO") as soon
as it is commercially reasonable to do so after the Opening Date. Sommer
Enterprises and LCNI have rights to demand an IPO if one has not occurred within
3 years of the Opening Date, although Sommer Enterprises may defer such a demand
by LCNI for up to a year. The members or stockholders of the IPO entity
immediately prior to the IPO will enter into a Stockholders and Registration
Rights Agreement substantially in the form scheduled to the Holdings Operating
Agreement providing for arrangements between such members or stockholders as to
certain management matters, transfer restrictions, tag along rights and
registration rights.
If permitted by law and market requirements, LCNI and Sommer Enterprises
have rights to acquire additional Holdings Common Membership Interests (or their
equivalents in an IPO Entity) as part of or prior to an IPO at a price based on
the IPO price discounted to reflect the absence of underwriting fees and costs.
LCNI also has rights to effect purchases from Holdings or Sommer Enterprises to
maintain a Percentage Interest of 20% or more.
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LIABILITY, EXCULPATION AND INDEMNIFICATION. The Holdings Operating
Agreement contains provisions relieving members, officers, employees and the
Holdings Board Members and those of Holdings' subsidiaries from certain
liability, fiduciary duties and conflicts and will also provide for various
indemnities to such persons, payment of expenses and provision of errors and
omissions insurance.
GAMING MATTERS. Admission of new Holdings Members, transfers of Holdings
Interests and payment of distributions by Holdings will be subject to receipt of
Nevada Gaming Approvals. Holdings Members and their affiliates, directors and
employees will cooperate to obtain applicable Gaming Approvals from the Nevada
Gaming Authorities, as necessary. If Nevada gaming problems arise prior to a
finding of unsuitability by the Nevada Gaming Authorities, a Holdings Member
causing such problem (or whose director, officer or affiliate caused such
problem) shall cooperate to remedy it, and, if not remedied, may be forced to
sell its Holdings Common Membership Interests to Holdings or its nominee at fair
market value.
NON-COMPETE. LCNI and Sommer Enterprises have agreed that they and their
affiliates will refrain from certain competitive activities (with appropriate
geographic and temporal limitations and exceptions for certain existing
activities of their affiliates), unless Holdings (without the participation of
the Holdings Member affected or its nominee Holdings Board Members) has first
refused to pursue such activities.
TERM. Holdings shall continue until December 1, 2097, or such other time as
agreed in writing by all Holdings Members. In the event of the death or
bankruptcy of a Holdings Member, Holdings and the other Holdings Members will
have certain rights to purchase such bankrupt or deceased member's Holdings
Common Membership Interests.
COMPANY OPERATING AGREEMENT
Holdings and the Company have entered into an operating agreement (the
"Company Operating Agreement") which sets forth provisions governing the conduct
of the business and internal affairs of the Company. The following is a summary
of certain key provisions of the Company Operating Agreement.
PURPOSE. The Company was organized for the purposes of developing,
constructing, financing, owning and operating hotels and casinos and related
businesses and to engage in such other lawful enterprises as may be incidental
or appurtenant thereto.
CLASSES OF INTERESTS. The Company is capitalized with two classes of shares
(which represent units of membership interests in the Company): Common
Membership Interests and Series A Preferred Interests. The Company's authorized
capital stock will consist of 10,000,000 Common Membership Interests and
1,150,000 Series A Preferred Interests.
The Series A Preferred Interests have a distribution, redemption and
liquidation preference over the Common Membership Interests. Beginning in the
sixth year after the initial issuance of the Series A Preferred Interests,
periodic distributions of cash, to the extent available, will be made by the
Company first to the Series A Preferred Interests in an amount equal to the
interest payable on the Notes for such period and, prior to the end of the
twelfth year after the issuance of the Series A Preferred Interests, the Company
will distribute cash, to the extent available, in redemption of the Series A
Preferred Interests in an amount equal to their redemption preference. The
redemption preference of the Series A Preferred Interests will accrete so that
such preference will, at all times, equal the Accreted Value of the Notes (plus
any premium payable to the holders of the Notes). In addition, should the
Company liquidate at any time prior to the redemption of the Series A Preferred
Interests or should all or any part of the Series A Preferred Interests be
redeemed prior to the end of the twelfth year after their issuance as a result
of the Change of Control Payment, the Series A Preferred Interests shall be
entitled to a distribution of cash, to the extent available, before any
distributions are made to any other classes of Interests, in an amount equal to
their liquidation preference which will accrete so that such preference at all
times equals the Accreted Value of the Notes (plus any premium payable to the
holders of the Notes) at such time.
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After all discretionary or required distributions of cash are made to the
Series A Preferred Interests for any period, the Company will distribute cash,
to the extent available, to the holders of Common Membership Interests to the
extent of the increase in the cumulative United States federal, state or local
income tax liability of such holders of Common Membership Interests (or, if any
such holder is a pass-through entity, its equity interest holders) in respect of
their interests in the Company for such period and make any additional
distributions of cash to Members that may be necessary to cover United States
federal, state or local income taxes arising from ownership of an interest in
the Company ("Company Tax Distributions").
After distributions to the Series A Preferred Interests and Company Tax
Distributions, the Board will make a priority distribution of cash, to the
extent available, on the Common Membership Interests to permit Holdings to
satisfy any additional obligations it may have to make payments on the Notes
("Priority Distributions to Common Interests").
MANAGEMENT. The business and affairs of the Company are managed by the
Company's Board. Pursuant to the Holdings Operating Agreement, the Holdings
Members will have identical rights with respect to the Company's Board and
management as they have in respect of the Holdings Board and management.
The Company's Board is responsible for establishing and overseeing all
policies and procedures in connection with the operation of the Company's
business, but shall delegate the day-to-day management responsibility to an
executive management committee (the "Executive Management Committee"). The
Executive Management Committee includes the following persons: the President and
Chief Executive Officer of the Company, the Chief Financial Officer of the
Company, the Senior Vice President of the Company who is the President and Chief
Operating Officer of the Aladdin, the Senior Vice President of the Company who
is the President and Chief Operating Officer of the Music Project and Casino,
the Senior Vice president Human Resources of the Company, the Senior Vice
President Electronic Gaming of the Company and the Managing Director of the
Salle Privee.
LIABILITY, EXCULPATION AND INDEMNIFICATION. The Company Operating Agreement
contains provisions relieving members, officers, employees and the members of
the Company's Board ("Company Board Members") and those of the Company's
subsidiaries from certain liability, fiduciary duties and conflicts and will
also provide for various indemnities to such persons, payment of expenses and
provision of errors and omissions insurance.
TERM. The Company shall continue until January 24, 2097, or such other time
as agreed in writing by all Company Members.
EQUITY PARTICIPATION AGREEMENT
The Issuer, Sommer Enterprises, LCNI and the Warrant Agent, for and on
behalf of the holders of the Warrants and the Warrant Shares, have entered into
an agreement (the "Equity Participation Agreement") under which (a) the parties
agreed that they will not effect a public offering of common stock of any IPO
Entity unless LCNI, Sommer Enterprises and the holders of the Warrants and
Warrant Shares each are given the right to hold their respective equity
interests in the IPO Entity; (b) the Issuer agreed that prior to any such public
offering (or if the Issuer is the IPO Entity, at all times), it will not become
an "investment company" (as that term is defined in the Investment Company Act
of 1940, as amended) required to register under that Act (c) the parties granted
the holders of the Warrant Shares certain rights to participate in the tag along
arrangements under the Holdings Operating Agreement and agree to effect certain
adjustments to the percentage ownership of Holdings Common Membership Interests
and certain redemptions of Warrant Shares to give effect to such tag along
rights, as described below and (d) the Warrant holders will have the right to
convert their Warrant Shares into Common Membership Interests in the Company in
the event that the Issuer takes certain actions, including certain mergers or
consolidations, disposition of all or substantially all of the Issuer's assets,
transfers of Issuer's Holdings Common
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Membership Interests, certain recapitalizations of Issuer, voluntary dissolution
or liquidation of Issuer, repurchases of Issuer's stock which is not pro-rata
among the stockholders, and certain issuances of Issuer's stock.
Pursuant to the Equity Participation Agreement, holders of Warrant Shares
are entitled to cause the Issuer to partially exercise its rights to participate
in certain sales by Holdings Members of Holdings Common Membership Interests to
a non-affiliated party. The proceeds of any such sale of Holdings Common
Membership Interests by the Issuer will be used to redeem the Common Stock in
the Issuer of such holders who elected to exercise such rights.
Holders of Warrants and Warrants Shares should note, however, that under the
Indenture certain sales of Holdings Common Membership Interests could constitute
a change of control under the Indenture. In that event, Holdings would be
required to redeem the Notes at a redemption price equal to 101% of their
Accreted Value.
SALLE PRIVEE MANAGEMENT AGREEMENT
The Company, London Clubs and a subsidiary of London Clubs, LCNI, are
parties to the Salle Privee Management Agreement in respect of the Salle Privee.
Under such agreement, LCNI will (a) provide advice and consulting services
regarding the development and fitting out of the Salle Privee, (b) provide
certain worldwide marketing and promotional services in relation to the Salle
Privee and (c) direct the operations of the Salle Privee in accordance with
certain policies and procedures developed by LCNI in consultation with the
Company, and in accordance with the Company's budgets and marketing plans. Under
such agreement, London Clubs has agreed to guaranty the obligations of LCNI.
OPERATIONS AND MANAGEMENT. Under the Salle Privee Management Agreement,
LCNI will direct the operations of the Salle Privee in consultation with the
Executive Management Committee of the Company. LCNI will also provide worldwide
marketing and promotional services targeted at its international clientele,
including a plan for cross-marketing the Salle Privee with London Clubs' and its
affiliates' other gaming facilities throughout the world.
CREDIT MANAGEMENT/GAMING LIMITS. The Salle Privee will be subject to the
Company's financial control facilities and credit management will be
administered by the Company's central credit oversight committee, in
consultation with LCNI. Basic risk management policies regarding gaming limits
and credit facilities for the Salle Privee will be established by the Company's
Board based upon the input and recommendations of LCNI. LCNI will have the right
to permit certain clientele from time to time to exceed the normal wagering
limits. In consideration for such flexibility, LCNI has agreed to reimburse the
Company for any net losses suffered by the Company in connection with such
above-limit wagering.
LONDON CLUBS FEE. In consideration for the services to be furnished by
London Clubs under the Salle Privee Management Agreement, the Company will pay
to London Clubs an Incentive Marketing and Consulting Fee calculated as follows:
(i) 10% of the Salle Privee EBITDA (defined in the Salle Privee Management
Agreement as gross revenues attributable to the Salle Privee, less all costs and
expenses directly attributable to the Salle Privee), up to and including $15.0
million in Salle Privee EBITDA; plus (ii) 12.5% of the Salle Privee EBITDA, in
excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of
the Salle Privee EBITDA, in excess of $17.0 million, up to and including $20.0
million; plus (iv) 50% of the Salle Privee EBITDA, in excess of $20.0 million.
The foregoing thresholds will be adjusted in accordance with consumer price
index changes every five years.
TERM. The term of the Salle Privee Management Agreement is sixty-nine (69)
years unless terminated earlier by either party after the other's default, in
connection with Nevada or United Kingdom gaming problems, by mutual agreement,
by a party upon London Clubs, LCNI's or the Company's bankruptcy or upon LCNI no
longer having an equity interest in Holdings.
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LONDON CLUBS PURCHASE AGREEMENT
Pursuant to an Amended and Restated Purchase Agreement dated as of February
26, 1996 by and among London Clubs, LCNI, AHL, Sommer Enterprises, the Trust and
the Company (the "London Clubs Purchase Agreement") LCNI acquired 25.0% (subject
to adjustment pursuant to the Holdings Operating Agreement as described above)
of the Holdings Common Membership Interests for a purchase price of $50.0
million.
The Music Project is expected to be developed and owned by Aladdin Music.
Pursuant to the London Clubs Purchase Agreement, London Clubs, through its
wholly owned subsidiary LCNI, has agreed that so long as Aladdin Music obtains
financing for the Music Project on terms satisfactory to LCNI, and provided that
certain other conditions are met, Aladdin Music may develop and own the Music
Project in accordance with the terms described herein. If such conditions are
not met, LCNI has the right to select the method in which it will participate in
the Music Project, if at all. See "Risk Factors--Completion of the Mall Project
and the Music Project."
Pursuant to the London Clubs Purchase Agreement, the Company has reimbursed
the Trust on the Issue Date $3 million for certain costs relating to the
development of the Aladdin incurred by the Trust during 1996 and 1997 and has
agreed to reimburse the Trust for out of pocket expenses of the Trust related to
the development of the Aladdin after the Issue Date not to exceed $900,000.
In consideration for its obligations under the Keep-Well Agreement and
related arrangements, under the London Clubs Purchase Agreement, the parties
have agreed that London Clubs will receive (a) an initial fee of 1.0% of a
$265.0 million portion of the Company's bank debt which is supported and
enhanced by the Keep-Well Agreement (such fee to be payable on the closing date
of the Bank Credit Facility), and (b) an annual fee of 1.5%, payable in arrears,
of the Company's annual average indebtedness with respect to a $265.0 million
portion of the Company's bank debt which is supported and enhanced by the
Keep-Well Agreement for each relevant twelve month period ending on an
anniversary of the Bank Closing Date, which amount shall reflect the extent, if
any, by which the obligations under the Keep-Well Agreement are reduced or
eliminated over time (such fees shall accrue from the closing date of the Bank
Credit Facility and shall be paid from available proceeds after the opening date
of the Aladdin).
DESIGN/BUILD CONTRACT
OVERVIEW. The Company and the Design/Builder have entered into the
Design/Build Contract for the design and construction of the Aladdin, the strip
facade and related retail space of the Mall Project (the "Work") for a
guaranteed maximum price ("GMP"). The GMP is guaranteed by the Design/Builder to
be a maximum of $267.0 million. The GMP includes the Design/Builder's Fee (as
defined in the Design/Build Contract), the cost of the Design/Builder's
Controlled Insurance Program ("CIP") and the Design/ Builder's costs necessarily
incurred by Design/Builder in the proper performance of its design/build
obligations under the Design/Build Contract (such costs collectively, the
"Costs"). The Design/Builder's Fee shall be the lesser of (a) the lump sum fixed
amount of $13.6 million and (b) 6.5% of the aggregate of all trade subcontracts
plus the price of any trade work performed by the Design/Builder. The Design/
Builder's General Conditions Costs shall not exceed the total sum of $22.0
million. Any costs incurred in excess of $22.0 million are nonreimbursable and
will be paid by the Design/Builder. The Costs shall not be higher than prices
and rates approved in advance by the Company, unless the Design/Builder has
received the Company's prior written consent to incur premium expenses. The
Costs include only: (i) labor costs for the Design/Builder in connection with
the Work; (ii) trade subcontract costs; (iii) costs of materials and equipment
incorporated in the completed construction; (iv) costs of other materials and
equipment, temporary facilities and related items; (v) miscellaneous costs, such
as premiums for insurance not covered by the CIP, but required by the
Design/Build Contract, sales, use or similar taxes, fees and assessments
associated with permits, licenses and inspections that are the responsibility of
the Design/Builder; (vi) other costs incurred in the performance of the Work and
to the extent approved in advance in writing
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by the Company; and (vii) costs associated with emergency repairs to damaged,
defective or nonconforming Work.
As an incentive to control costs, the Company has agreed to pay the
Design/Builder 60% of the aggregate net savings made by the Design/Builder in
incurring costs below the trade budget of $230.0 million with respect to labor,
equipment and materials from the various subcontractors and vendors performing
work under the Design/Build Contract. The Design/Builder will be liable for any
costs exceeding the GMP, unless the Company changes the scope of the Work. If
the Company requests certain changes to the scope of the Work, then pursuant to
the Bank Completion Guaranty, the Trust, Bazaar Holdings and London Clubs have
jointly and severally agreed, whenever there is a construction cost increase
caused by any such change, and subject to certain qualifications, to contribute
cash to the Company to fund such increases.
COMPENSATION FOR EARLY/LATE COMPLETION. In lieu of the Company procuring,
at the Design/Builder's cost, a liquidated damages insurance policy or a
business interruption insurance policy to compensate the Company for late
completion of the Work, the Company has paid the Design/Builder $2.0 million as
a bonus advance (the "Bonus Advance"). The Design/Builder may use the Bonus
Advance to buy liquidated damages insurance or it may choose to self-insure. In
either event, the Design/Builder can keep the Bonus Advance if the project is
finished on or before the date set for Substantial Completion. The Substantial
Completion Date (as defined in the Design/Build Contract) is 790 calendar days
from either January 12, 1998 or the date notice to proceed is received from the
Company, whichever is later. Said period is referred to in the Design/Build
Contract as the "Contract Time" and may only be adjusted in accordance with the
Design/Build Contract. As a further bonus, the Design/Builder shall be entitled
to receive $100,000 for each day, up to but not to exceed 90 days, that the Work
is substantially completed in advance of the date of Substantial Completion.
If the Design/Builder fails to achieve Substantial Completion of the Work
within the Contract Time, the Design/Builder must pay back the $2.0 million
Bonus Advance to the Company. Furthermore, the Design/Builder must pay the
Company, as liquidated damages, $100,000 per day starting on the first day after
the Substantial Completion date and continuing up to, but not exceeding, 90 days
thereafter.
PAYMENT. The Design/Builder must make an itemized application for payment,
on or about the 25th day of each month, based on an approved schedule of values
certified by the Design/Builder and ADP and supported by such data to
substantiate the Design/Builder's right to payment. Simultaneously with each
payment the Design/Builder must and must cause all subcontractors and vendors to
waive their mechanics lien rights for the labor, equipment and materials covered
by the payments made to the Design/Builder. The Design/Builder agrees to pay
when due all bills for labor, materials, equipment or services connected with
the Work. If a person or entity who provided any service, labor, equipment or
materials to the Design/ Builder in connection with the Complex files a lien
against the Company's property, the Design/Builder shall promptly bond the lien
with a legally sufficient undertaking. The Company may also deduct the amount of
the lien from any payments due to the Design/Builder until such lien is bonded
or otherwise discharged. The Company is entitled to retain 10% of all monies due
to the Design/Builder under the monthly applications for payment (excluding the
Design/Builder's fee and General Conditions) until the Work is 50% complete. The
Design/Builder may, at its sole cost and expense, substitute an irrevocable
letter of credit for any retainage held by the Company or on the Company's
behalf.
WARRANTIES AND GUARANTEES. The Design/Builder's construction warranties
and/or guarantees extend for one year after the Substantial Completion date. The
Design/Builder guarantees that its construction workmanship shall conform to
good construction practices applicable to projects of this type and that the
Work shall comply with the Design/Build Contract requirements, all applicable
laws, codes and regulations. The Design/Builder also guarantees that all
materials, equipment and supplies incorporated into the Work will be new, of the
best quality of the kind specified in accordance with industry standards, and
shall be fit for its intended purpose. Furthermore, the Design/Builder warrants
that: (i) the Design/Builder and
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its subcontractors are experienced, qualified and, where required by law,
licensed to perform their respective portions of the Work; and (ii) the design
of the Work will be in accordance with all agreed upon requirements, and all
applicable federal, state and local codes, rules, ordinances and regulations.
The Design/Builder agrees to prosecute the enforcement of all subcontractor and
vendor warranties at its sole costs and expense during the one year period after
the Substantial Completion Date. The Design/Builder shall assign to the Company
all subcontractor or vendor warranties and/or guarantees still surviving and in
effect more than one year after the Substantial Completion Date. The
Design/Builder's warranties and/or guarantees exclude damages or defects caused
by modifications to the Work directed by the Company and not performed by the
Design/Builder or its subcontractors, if the modifications to the Work were
performed without the knowledge and written consent of the Design/Builder. The
Design/Builder's warranty shall not apply to damages or defects caused by
ordinary wear and tear, insufficient maintenance, improper operation or improper
use by the Company.
INSURANCE. The Company and the Design/Builder have elected to implement the
CIP whereby the Company shall pay the Design/Builder for all associated premiums
to provide the following insurances: General Liability, Workers' Compensation,
Excess Liability, Contractual Liability and All Risk Builder's Risk for the
Company, the Design/Builder and all subcontractors of every tier. The
Design/Builder agreed that, where necessary or requested, each policy it
procures will identify the Company as either a Named Insured or an Additional
Insured and must contain full waivers of subrogation. The following is a
synopsis of the coverage for each of the required policies:
- - WORKERS' COMPENSATION. The Workers' Compensation policy covers liability
imposed by the workers' compensation and/or occupational disease statute of
the State of Nevada and any other state or governmental authority having
jurisdiction or related to the Work being performed. Employers' liability is
limited to $1.0 million bodily injury per accident per employee, $1.0
million bodily injury per disease per employee and $1.0 million policy limit
by disease. The extensions of coverage include other states, voluntary
compensation and employer's liability coverage, 60 day notice of
cancellation except 10 days for non-payment, Borrower/Servant coverage as
necessary, designated work place endorsement, alternate employer endorsement
and amendment of Notice of Occurrence.
- - COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General Liability
Insurance shall be provided with a combined single limit for bodily injury
and property damage of not less than $2.0 million per occurrence with a $2.0
million annual aggregate. Coverage includes, but is not limited to, personal
injury liability, blanket contractual liability covering contractual
liability assumed under the Design/ Build Contract, employees included as
additional insureds, broad form property damage liability, cross liability,
incidental medical malpractice coverage, excavation, collapse and
underground hazard. Extensions of coverage includes blanket waiver of
subrogation, fellow employee amendment-supervisor and above, unintentional
errors and omissions, stop gap liability for monopolistic fund states,
cancellation and non-renewal-60 days, except 10 days for non-payment,
amendment of notice of occurrence, contingent loading and unloading of
vehicles-excess, limitation of coverage to designated premises of project
and absolute asbestos exclusion.
- - EXCESS INSURANCE. Design/Builder shall provide excess insurance on a
following form basis with limits for bodily injury and property damage of
not less than $100.0 million per occurrence and annual aggregate. This
insurance policy or policies will contain three years extended coverage on
products and completed operations after that portion of the Complex is put
to its intended use or a notice of final completion of the Work has been
issued by the Company, whichever occurs last.
- - RISK OF LOSS. The Design/Builder shall insure for all risk of loss to
property of the Company, the Design/Builder or any subcontractor on a
"completed value basis." The Design/Builder's risk of loss under the
Design/Build Contract is limited to all work in place, and all materials and
equipment not in place but stored on or off the work site and intended for
permanent use therein. Furthermore, the Design/Builder agrees to insure or
self-insure all inland or ocean transit damage losses (in excess of
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carrier liability) to the property of the Company and to the property
purchased for the account of the Company for incorporation in the Work.
ADDITIONAL INSURANCE. Additionally, the Design/Builder has agreed to
procure and maintain the following, which is not included in the CIP: (i)
Automobile Liability Insurance, with limits of not less than $1.0 million
combined single limit for bodily injury and property damage; (ii) "all risk"
coverage the Design/Builder may deem necessary for protection against loss of
owned or rented capital equipment and tools, including any tools owned by
mechanics, and any tools, equipment, scaffolding, staging, towers and forms
owned or rented by it or its subcontractors; (iii) "Off-Site Work," including
Workers' Compensation and Commercial General Liability Insurance; (iv) umbrella
liability in excess of Employer's Liability, General Liability and Automobile
Liability (no more restrictive than the underlying insurance) with limits of
$5.0 million; and (v) a project-specific insurance policy for errors and
omissions in the amount of $5.0 million from ADP. The policy referred to in (v)
is subject to the Company's review and approval and covers all aspects of the
design of those parts of the Complex covered by the Work.
TERMINATION OF CIP. In the event of non-enrollment or termination of the
CIP, the Design/Builder and/or its subcontractors agree to provide, pay for, and
maintain in effect the following types of coverage with insurance companies
satisfactory to the Company: Commercial General Liability Insurance, Workers'
Compensation, Automobile Liability Insurance, Tools and Equipment Floater
Policy, Insurance for "Off-Site Work," and Umbrella Liability. For all of these
policies the Design/Builder must obtain a waiver of subrogation against the
Company and all other named insureds and their agents and employees.
INDEMNIFICATION. The Design/Builder agrees and will cause each of its
subcontractors and vendors to agree in writing to defend, indemnify and hold
harmless to the fullest extent permitted by law the Company from and against all
liability incurred by the Company in the defense, settlement or satisfaction of
any claim of third parties which arise or are alleged to arise out of any
negligence, act or omission by the Design/Builder, subcontractor, or vendor or
their employees or agents or which arise or are alleged to arise from the
performance of the Work or any warranty and/or guarantee work pursuant to the
Design/Build Contract or any subcontract or purchase order with any
subcontractor or vendor. Neither the Design/ Builder nor any of its
subcontractors or vendors agree to indemnify the Company to the extent harm
results from the Company's gross negligence or willful misconduct, or where
indemnity is precluded pursuant to the applicable provisions of the laws of the
State of Nevada.
FORCE MAJEURE. Any delays in or failure of performance by either the
Company or the Design/Builder arising from a "Force Majeure" occurrence, which
includes, but is not limited to, labor disputes, civil disturbances, riots,
fire, weather which is both severe and unusual, governmental actions, acts of
war, or acts of God, shall not constitute a default under the Design/Build
Contract. A Force Majeure occurrence shall not constitute a waiver of either
party's obligations under the Design/Build Contract; however, time adjustments
shall be made to the Contract Time.
CANCELLATION OF DESIGN/BUILD CONTRACT. The Design/Build Contract may be
canceled for convenience by the Company in whole or in part, at any time, and
due to any circumstances by written notice. After such cancellation, the
Design/Builder shall do only such work as may be necessary to preserve and
protect the Work already in progress. The Design/Builder shall make every
reasonable effort to process cancellation, upon terms least costly to the
Company, of all existing orders to vendors and subcontractors. Upon such
cancellation, the Design/Builder agrees to waive any claims for delays,
acceleration, disruptions, or consequential damages, direct or indirect,
including, but not limited to, loss of anticipated income or profits and
unabsorbed or unrealized overhead for home office or field office on account
thereof, and agrees that the sole remedy is to receive payment of: (i) the
contract sum earned for work completed and accepted, equivalent to the portion
of the Work partially completed, based on the percentage of the Work performed
using the approved schedule of values for the Design/Builder's monthly payment
requisition, (ii) the actual reasonable cost incurred by the Design/Builder in
securing and protecting the Work in progress against loss, damage or
deterioration, (iii) reasonable demobilization costs, (iv) standby costs,
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(v) reasonable cancellation or deferment charges of suppliers, (vi) the actual
cost to the Design/Builder of materials, and equipment in possession of the
Company not sold or disposed of, and left at the Project Site, (vii) all actual
costs associated with relocation of key personnel, who were specially
transferred by the Design/Builder to Las Vegas specifically for the Work, and
(viii) other special reasonable costs and fees for terminating or suspending the
Work, preserving the Work accomplished, and turning such Work product over to
the Company.
CLAIMS AND DISPUTES. All claims arising under the Design/Build Contract
shall be directed by the Design/Builder in the first instance to the entity that
is the on-site representative of the Company promptly after the claim arises.
The decision of the Company's on-site representative may be appealed by notice
in writing directly to the Company. If the Company has not made a decision in
writing within 10 days thereafter, either party may invoke arbitration. Any
controversy, claim, or dispute arising out of or in connection with the
Design/Build Contract shall, upon the written request of either party, be
settled by arbitration in accordance with the Construction Industry Rules and
the Supplementary Procedures for Large, Complex Disputes of the American
Arbitration Association then in effect. The judgment of the award may be entered
in any court having jurisdiction thereof. All arbitration hearings shall be held
in Las Vegas, Nevada and will be administered by the Nevada Regional Office of
the American Arbitration Association.
FLUOR GUARANTY
In lieu of performance and payment bonds, Fluor has entered into the Fluor
Guaranty. Fluor has made certain guarantees regarding the performance by the
Design/Builder of all the Design/Builder's obligations under the Design/Build
Contract. The Fluor Guaranty is absolute, irrevocable and continuing. If
Design/Builder fails to perform any of its obligations under the Design/Build
Contract, or commits any breach, Fluor shall immediately take such steps as may
be necessary to have the Design/Builder perform the Design/Builder's obligations
under the Design/Build Contract, or remedy any breach or take such steps as may
be necessary itself, or through a third party other than the Design/Builder, to
perform all of the Design/Builder's obligations under the Design/Build Contract,
or to remedy any breach. The Company is not required to proceed first or at all
against the Design/Builder or any other person before enforcing the terms of the
Fluor Guaranty.
ENERGY AGREEMENTS
Pursuant to a development agreement (the "Development Agreement"), the
Energy Provider will design, engineer, procure and construct a facility (the
"Plant") capable of serving the Company's specified electricity requirements,
chilled water requirements and hot water requirements (collectively, the
"Services") of certain parts of the Complex. Pursuant to an energy services
agreement (the "ESA"), the Energy Provider will own and operate the Plant to
distribute the Services to the Aladdin and the Music Project for an initial
twenty year term. TrizecHahn will utilize the Plant for the provision of
electricity and cold water for the Mall Project.
DEVELOPMENT AGREEMENT
The Company has entered into a Development Agreement with the Energy
Provider, pursuant to which the Energy Provider will develop and construct the
Plant to serve the energy requirements of certain parts of the Complex. Once
developed and constructed in accordance with the Development Agreement, the
Plant will supply the Services to such parts of the Complex pursuant to the
Energy Service Agreement, described below. The design and construction of the
Plant will be at the sole cost and expense of the Energy Provider; provided,
however, the Energy Provider shall not be responsible for costs in excess of $40
million unless agreed to by the Energy Provider. Specifically, the Energy
Provider will be responsible, at its sole cost and expense, for, among other
things: (i) designing, engineering, procuring, constructing, start-up, and
performance testing of the Plant; (ii) compliance with applicable Laws and
Government
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Approvals; (iii) safeguards for the protection of the Plant; (iv) obtaining all
necessary construction materials, equipment and supplies; (v) providing all
necessary labor and personnel; (vi) developing and complying with a Quality
Control and Inspection Program; and (vii) completing the Plant in accordance
with the schedule set forth in the Development Agreement. As discussed below,
payments to the Energy Provider for the Capacity Charge (as defined herein)
under the Energy Service Agreement will be based, in part, on the costs incurred
by the Energy Provider for the design and construction of the Plant.
The Energy Provider will appoint a Project Manager who will be responsible
for daily supervision of all activities relating to the design and construction
of the Plant. The Project Manager will serve as a single point of contact for
the Company with the Energy Provider. The Energy Provider also will develop a
Project Plan, which will be comprised of a schedule for the development and
construction of the Plant. The Project Plan will include a definition of the
work to be completed as well as a schedule of milestones and Critical Path
Activities. In consultation with the Company, the Energy Provider will prepare a
request for proposals for an Engineering, Procurement and Construction
Contractor ("EPC Contractor"), and will solicit bids from at least three
qualified contractors. From the bids that are received that are acceptable to
the Company, the Energy Provider will retain an EPC Contractor. The EPC
Contractor will provide a guaranteed maximum price for the design and
construction of the Plant. The Energy Provider and the EPC Contractor will then
prepare design development plans and specifications for the Plant. The Plant
will be constructed in accordance with such plans and specifications. The
Company has the right to inspect all of the work performed and to comment on all
aspects of the design and construction of the Plant.
In the event the Energy Provider has failed to achieve Critical Path
Activities when and as set forth in the Project Plan, and the Company reasonably
and in good faith believes that such failure is reasonably likely to prevent the
Energy Provider from achieving Substantial Completion by the Substantial
Completion Deadline and Final Completion by the Final Completion Deadline, the
Company may so inform the Energy Provider. If the Energy Provider does not
improve performance to the Company's satisfaction, the Company may require an
increase in the Energy Provider's labor force, number of shifts, overtime
operations, days of work per week and/or equipment, all costs of which shall be
borne by the Energy Provider. The Energy Provider also will have a Contingency
Plan in place which provides for the rental by the Energy Provider of
transportable boiler and chiller plants to ensure delivery of hot water and
chilled water in accordance with the terms of the Energy Service Agreement in
the event completion of the Plant is delayed for any reason. Unless the delay is
due to a Force Majeure Event or the fault of the Company, the Contingency Plan
will be implemented at the Energy Provider's sole cost and expense.
If the Energy Provider is in default of its obligations pursuant to the
Development Agreement and the Energy Provider either fails to cure such default
within ten days or fails to satisfy the Company that the default can be cured
within a time period reasonably satisfactory to the Company and promptly
commences and pursues remedial action, the Company may terminate the Development
Agreement. As explained below, Unicom, the Energy Provider's ultimate parent,
has guaranteed completion of the Plant in accordance with the Development
Agreement up to a maximum liability of $30.0 million. See "--Unicom Guaranty."
Upon the Company's termination of the Development Agreement, Unicom Corporation
either will complete the Plant in accordance with the terms of the Development
Agreement or will pay up to $30.0 million to have the Plant so completed.
In the event the performance of the Company or the Energy Provider is
delayed or prevented due to a Force Majeure Event (as defined in the Energy
Service Agreement) and such delay or prevention could not reasonably be avoided
or mitigated, the party claiming such delay or prevention will be excused from
performing its obligations under the Development Agreement for the period of
delay or interruption caused by the Force Majeure Event. Within 72 hours after a
party does become or should become aware of a Force Majeure Event, such party
will notify the other. Within seven days of such notice, the party claiming the
Force Majeure Event will deliver a notice to the other describing the
anticipated impact of the Force Majeure Event and within 10 days of the end of
the Force Majeure Event will provide a notice of extension of its obligations.
If the parties disagree as to the latter notice and are unable to resolve their
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dispute, the dispute will be resolved in accordance with the dispute resolution
provisions of the Development Agreement, described below.
The Company will not be responsible for the Work or for the Energy
Provider's failure to perform the Work in accordance with the terms of the
Development Agreement. Nor will the Company be responsible for the acts or
omissions of the Energy Provider or its agents, contractors or employees. The
Company assumes no responsibility for injury or claims resulting from failure of
the Work to comply with applicable Laws or Government Approvals or from Defects
or Deficiencies.
The Company and the Energy Provider agree to cooperate and to communicate
with each other concerning the terms of the Development Agreement and other
matters relating to the Plant. If a dispute arises between the Company and the
Energy Provider, the parties jointly may request that the dispute be resolved by
arbitration in accordance with the provisions of the Commercial Arbitration
Rules of the American Arbitration Association. If the parties do not agree to
submit the dispute to arbitration, either party may bring the dispute to any
court of competent jurisdiction for resolution. The Development Agreement will
be governed by and construed in accordance with the laws of the State of Nevada.
Neither the Company nor the Energy Provider may assign its interest or
delegate its duties under the Development Agreement without the prior written
consent of the other (not to be unreasonably withheld), except that either party
may assign its interest in the Development Agreement if a concurrent assignment
of its interests in the ESA has been made pursuant to the ESA to the same
entity.
LEASE
Pursuant to a lease (the "Lease"), the Company has leased the Plant Site to
the Energy Provider for a fixed monthly base rent of $1.00. The Lease, which has
a 20-year term and provides for 5-year renewal terms, is a "net" lease, pursuant
to which the Energy Provider will pay all Impositions. The Energy Provider may
not use the Plant Site to provide services other than the Services without the
prior consent of the Company. In the event the Company gives such consent, the
fixed monthly base rent will be adjusted and other reasonable modifications will
be made to the Lease.
UNICOM GUARANTY
The obligations of the Energy Provider to complete the Plant in accordance
with the Development Agreement and in a manner capable of delivering the energy
requirements in accordance with the Energy Service Agreement are guaranteed by
the Energy Provider's ultimate parent, Unicom ("the Unicom Guaranty"). Unicom
agrees that the Unicom Guaranty shall be a continuing guaranty and that the
Company shall not be required to prosecute enforcement or other remedies against
the Energy Provider or any other guarantor of the Energy Provider's obligations
before calling on Unicom for performance. Unicom agrees that if for any reason
the Energy Provider shall fail or be unable to punctually and fully perform or
cause to be performed any of its obligations under the Development Agreement,
Unicom shall perform or cause to be performed such obligations promptly upon
demand. Unicom's obligations are limited to an amount equal to $30.0 million
dollars (or, under certain circumstances, an amount less than $30.0 million) and
shall not be reduced until Substantial Completion of the Plant. Upon Substantial
Completion, the Unicom Guaranty shall be reduced by the amount invested by the
Energy Provider, except that ten percent shall be retained to provide assurance
that Final Completion shall occur in accordance with the milestone schedule
under the Development Agreement.
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ENERGY SERVICE AGREEMENT
The Company and the Energy Provider have agreed to the form of an energy
service agreement (the "ESA"), which is currently attached as an exhibit to the
Development Agreement. The ESA is expected to contain provisions as described
herein. The ESA sets forth the rights and obligations of the Company and the
Energy Provider relating to, among other things, the development, testing,
commissioning, operation and maintenance of the Plant; the making of Capacity
and Consumption Payments; risk allocation in the event of a force majeure;
events of default; rights of early termination and the consequences thereof;
liability and indemnity obligations; and assignment and transfer of interests
thereunder. The initial term of the ESA is twenty years from the Commencement
Date, with three five-year renewal terms.
CONDITIONS PRECEDENT. The obligations of the Company and the Energy
Provider under the ESA are subject to the satisfaction of various conditions
precedent, a number of which have already been satisfied. The Company expects
that all remaining conditions precedent will be timely satisfied in the ordinary
course of business.
OPERATION, MAINTENANCE AND REPAIR. The ESA requires that the operation,
maintenance and repair of the Plant be conducted in accordance with applicable
laws and regulations and the Project Scope, as defined in the ESA. The Energy
Provider will be required to have its personnel on duty at the Plant twenty-four
hours per day, seven days per week. The ESA sets forth a scheduling procedure
for scheduled maintenance. Inspection, testing, preventive and corrective
maintenance, repairs, replacements and improvements of the Plant will be carried
out during such scheduled maintenance periods.
PAYMENTS. The ESA provides for a two-part price structure consisting of a
capital component (the "Capacity Charge") to be paid monthly whether Services
are taken or not by the Complex and an energy component (the "Consumption
Charge") to be paid monthly for Services actually taken by the Complex. The
capital component will be paid in advance. The energy component will be paid in
arrears. The Capacity Charge and the Consumption Charge are expected to be
adjusted annually by reference to the Consumer Price Index or a similar index.
FORCE MAJEURE. Each party will be excused from performance of its
respective obligations under the ESA if performance of such obligations is
materially and adversely affected by a Force Majeure Event, although each party
is obligated to take reasonable steps to restore its ability to perform. Force
Majeure Events are circumstances that, by the exercise of reasonable diligence,
the party is unable to overcome or prevent. Force Majeure Events include, but
are not limited to, acts of God, war, civil commotion, embargoes, epidemics,
fires, cyclones, droughts and emergencies other than those caused by the
negligence or wilful misconduct of the party claiming a Force Majeure Event.
DEFAULTS. The ESA divides events of default into Energy Provider events of
default and Complex events of default. A party receiving notice of certain
defaults has thirty days to cure such default. If not cured within such time
period, an uncured default may lead to the termination of the ESA.
ENERGY PROVIDER DEFAULTS. If at any time after the Commencement Date the
Energy Provider fails to provide Services in accordance with the ESA (a
"Performance Failure"), the Energy Provider is required to: (i) provide
immediate notice to the Complex and provide the Complex with a corrective action
plan consistent with a contingency plan to be developed prior to the
Commencement Date; (ii) use best efforts to correct or cure such Performance
Failure; and (iii) provide immediate access to the Complex and work together
with the Complex to identify the source of the Performance Failure. After a
Performance Failure has existed for thirty two (32) consecutive hours, or thirty
two (32) hours of any forty eight hour (48) period, the Complex will: (i) be
entitled to assume control of the Plant and maintain such control until such
Performance Failure has been cured or corrected and take any action reasonably
intended to cure or correct such failure at the Energy Provider's expense; (ii)
be entitled to an abatement of the Capacity Charge for the affected Service;
(iii) have the right to hire, at the Energy Provider's expense, an
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independent consultant to review the circumstances surrounding the Performance
Failure and make written recommendations as to a corrective action to be
implemented at the Energy Provider's sole expense; and (iv) in the event the
Energy Provider fails to promptly implement the consultant's recommendations, be
entitled to terminate the ESA and purchase the Plant from the Energy Provider.
In the event the ESA is terminated pursuant to an Energy Supplier Default, the
purchase price for the Plant shall be equal to the Energy Provider's depreciated
basis calculated on a twenty year straight line method in the Plant, less any
costs incurred for required repair and/or maintenance.
OPTION TO PURCHASE. The Company shall possess a continuing option to
purchase the Plant at any time prior to the termination of the ESA, exercisable
by written notice given to the Energy Provider not less than one year prior to
the date upon which such purchase shall close as specified in the notice. It is
a condition to the Energy Provider's obligation to consummate the sale that the
Company shall assume, indemnify and hold the Energy Provider harmless from all
obligations of the Energy Provider accruing after the closing under all
contracts and agreements with respect to the Plant under which any performance
obligations will continue following such sale. At the closing, the Energy
Provider will assign and the Company will be obligated to assume all such
contracts and agreements.
ASSIGNMENT AND TRANSFER. Neither the Company nor the Energy Provider shall
be permitted under the ESA to assign or transfer its rights under the ESA
without the prior written consent of the other. Notwithstanding this, the ESA
provides that the Company may assign its rights to any affiliate and that both
the Company and the Energy Provider may assign their respective rights under the
ESA to lenders to whom either party provides a security interest in their
respective properties in connection with financing each of the properties. In
addition, the Energy Provider is prohibited from effecting changes in its
ownership, except that it may issue ownership interests to certain specified
entities which are public utilities or affiliates thereof.
DISPUTE RESOLUTION. In the event of a dispute under the ESA, either party
may at any time refer the dispute to be settled by binding arbitration pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
CONSTRUCTION, OPERATION AND RECIPROCAL EASEMENT AGREEMENT AND RELATED AGREEMENTS
The Company, Bazaar, AMH and the Energy Provider (collectively, the "REA
Parties") have entered into (except with respect to the Energy Provider, who is
not a signatory but is bound by) the Construction, Operation and Reciprocal
Easement Agreement (the "REA"). AMH is expected to assign its rights and
obligations under the REA to Aladdin Music, and Aladdin Music is expected to
assume such rights and obligations, upon execution of the Aladdin Music
Operating Agreement. The REA sets forth agreements among the REA Parties
regarding, among other things, easements, construction standards and
requirements, encroachments, use and operating covenants, maintenance
requirements, insurance requirements, casualty and condemnation and the sharing
of certain facilities and costs relating thereto. The REA has been recorded in
the Official Records of Clark County, Nevada and the agreements therein will run
with the land, affecting subsequent owners and lessees thereof.
The Site Work Development and Construction Agreement (the "Site Work
Agreement") entered into among the Company, AHL and Bazaar provides, among other
things, that the Company and AHL will, at their cost and expense, perform
certain demolition work and certain site work including certain infrastructure
improvements and the construction of the initial building shell for the Aladdin
Improvements (as defined herein) and the Bazaar Improvements (as defined
herein). The Site Work Agreement also provides that Bazaar will contribute
approximately $14.2 million (including interest) (the "Bazaar Site Work
Contribution") to the cost of the site work. In addition, subject to the
satisfaction of certain conditions being negotiated with Scotiabank and London
Clubs, it is intended by the parties that the Company will be responsible for
costs in excess of $36 million in connection with the construction of the
Carpark. The Site Work Agreement further provides that the Company will
construct the Aladdin
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Improvements and Bazaar will construct the Bazaar Improvements in accordance
with a certain construction schedule and pursuant to good and workmanlike
standards and with first-class materials.
The Site Work Agreement and the REA provide that the Company will: (i)
construct a first-class hotel and casino facility (the "Aladdin Improvements")
on the Gaming Site (as defined in the REA); (ii) lease the Bazaar Site (as
defined in the REA) to Bazaar, which covenants to construct and operate a
first-class Retail Facility (as defined in the REA) and related improvements
(the "Bazaar Improvements"); (iii) lease the Aladdin Music Site (as defined in
the REA) to AMH, which covenants to construct and operate a first-class hotel
and casino facility (i.e., the Music Project hotel and casino); and (iv) lease
the Utility Site (as defined in the REA) to the Energy Provider, which covenants
to construct and operate a central utility plant (the "Central Utility Plant").
The Bazaar Improvements include the Carpark and additional surface-level parking
facilities beneath and adjacent to the Retail Facility for approximately 350
motor vehicles (the "Common Parking Area").
The REA also provides that Bazaar grants, as to its ownership or leasehold
interest in its tract, to the other REA Parties, as to their ownership or
leasehold interests in their tracts, a non-exclusive easement for automobile
parking in and on the Common Parking Area. The use and operation of the Common
Parking Area is also subject to the Common Parking Area Use Agreement (the
"Parking Agreement") entered into between the Company and Bazaar, pursuant to
which Bazaar covenants to maintain and operate the Common Parking Area for the
non-exclusive use of all the REA Parties. The Parking Agreement provides, among
other things, that the Company (i) will pay a fee of $3.2 million per year,
payable monthly and adjusted annually pursuant to a consumer price index-based
formula, for usage of the Common Parking Area, (ii) will pay its proportionate
share of the operating costs attributable to the Common Parking Area, and (iii)
has the right to assign a portion of its usage rights and obligations to Aladdin
Music, although such assignment may not relieve the Company of any of its
obligations in connection therewith. If and when Planet Hollywood's subsidiary
becomes a member of Aladdin Music, the Parking Agreement, by its terms, shall be
amended and restated to add Aladdin Music as a party, and the Company's
proportionate share of the operating costs attributable to the Common Parking
Area shall be reduced.
The REA contains agreements pursuant to which the REA Parties, as to their
ownership or leasehold interests in their respective tracts, grant to the other
REA Parties, as to their ownership or leasehold interests in their respective
tracts, easements for, among other things, (i) vehicular and pedestrian access,
(ii) installation and operation of utilities, (iii) construction, (iv) common
structural support, (v) installation and maintenance of exterior lights to
highlight grantees' buildings, (vi) truck loading, (vii) encroachments and the
maintenance thereof, (viii) roof space for the installation and operation of
certain telecommunication and ventilation equipment, (ix) setbacks, (x)
maintenance and construction of grantees' buildings, (xi) construction and
operation of a proposed monorail and (xii) signage.
The REA sets forth covenants among the REA Parties to, among other things,
(i) perform the construction of the Redeveloped Aladdin (as defined in the REA)
in accordance with first-class standards, (ii) cooperate with one another and
with each REA Party's architects, engineers and contractors and (iii) exchange
certain plans and specifications and other information. Certain modifications of
any REA Party's plans or specifications will be subject to certain approval
rights of certain other affected REA Parties. The REA also provides that the
Company may construct certain optional improvements, including an office tower
and/or time-share facilities.
Pursuant to the terms of the REA, the Company has covenanted that it shall
complete (subject to force majeure) the Aladdin Improvements, and Bazaar has
covenanted that it shall complete (subject to force majeure) the Bazaar
Improvements, on or before the First Scheduled Opening Date (as defined in the
Site Work Agreement). Similarly, AMH has covenanted that it shall complete the
Music Project hotel and casino on or before the Second Scheduled Opening Date
(which is currently anticipated to be six (6) months after the First Scheduled
Opening Date).
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The REA provides that, subject to certain operational requirements of the
other REA Parties, each REA Party will operate the improvements on its tract in
a first-class manner, as more particularly set forth in the REA.
The REA contains agreements among the REA Parties to maintain their
improvements in good order and in first-class condition, reasonable wear and
tear excepted. The REA also allocates responsibility among the REA Parties to
maintain the Common Area (as defined in the REA) of the Site (as defined in the
REA). Responsibility for the payment of the costs for such Common Area
maintenance is allocated proportionately; and the Company has the right to
assign a portion of its payment obligation to AMH, although such assignment may
not relieve the Company of any of its obligations in connection therewith.
The REA contains provisions requiring that in the event of any casualty or
condemnation, each REA Party shall, at its cost and expense, restore the
improvements located on its respective tract or tracts, including the Common
Area thereon, regardless of the availability of insurance proceeds or
condemnation awards; provided, however, that (a) with respect to damage or
condemnation affecting the Common Parking Area, the costs and expenses in excess
of available insurance proceeds or condemnation awards shall be shared by each
REA Party in accordance with its respective tract's proportionate share of
parking spaces required in accordance with local law, and (b) certain
restoration obligations expire 25 years (or such longer period approved by the
REA Parties) after the Second Scheduled Opening Date.
The REA contains provisions establishing self-help remedies for REA Parties
affected by an REA Party's failure to meet its maintenance or restoration
obligations set forth in the REA.
Certain disputes between the REA Parties that arise under the REA are,
pursuant to the REA, to be decided pursuant to binding arbitration, as more
particularly set forth in the REA. The REA Parties' maximum liability to one
another under the REA is limited to such REA Parties' interests in the
Redeveloped Aladdin, as more particularly set forth in the REA.
AGREEMENTS RELATING TO THE MALL PROJECT OR THE MUSIC PROJECT
BAZAAR LLC OPERATING AGREEMENT
TH Bazaar Centers Inc. ("THB"), a wholly owned subsidiary of TrizecHahn, and
Bazaar Holdings (collectively, the "Bazaar Members") are parties to the Bazaar
LLC Operating Agreement setting forth their agreement as to the relationship
between Bazaar and the Bazaar Members and among the Bazaar Members themselves as
to the conduct of the business and internal affairs of Bazaar. The Bazaar
Operating Agreement may be amended or terminated by the Bazaar Members without
the consent of any of the Aladdin Parties, London Clubs, the Company, or the
holders of the Notes or the Warrants.
MANAGEMENT. Pursuant to the Bazaar LLC Operating Agreement, the business
and affairs of Bazaar shall be managed by a board of managers (the "Bazaar
Board"), consisting of four members (each, a "Bazaar Board Member"). Each Bazaar
Member has designated two Bazaar Board Members and may, from time to time,
change its designated representatives on the Bazaar Board. The number of
representatives on the Bazaar Board may be increased by the Bazaar Board so long
as each Bazaar Member maintains an equal number of representatives.
Notwithstanding the foregoing, if any Bazaar Member acquires or obtains a
greater than their current interest in Bazaar, then such Bazaar Member shall
have the right to designate a majority of the representatives on the Bazaar
Board, and the number of representatives selected by the other Bazaar Member
shall be reduced proportionately.
MALL GUARANTY. Subject to certain conditions, THB's parent, TrizecHahn,
THOP, Bazaar Holdings, AHL and the Trust have agreed to jointly and severally
assume recourse liability and enter into the Mall Guaranty in favor of the Mall
Lender upon completion of the Mall Financing, until certain earnings and loan to
value targets have been met.
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TRANSFER RESTRICTIONS. The Bazaar LLC Operating Agreement contains
customary restrictions on the transfer of interests by Bazaar Members. In
particular, no Bazaar Member may transfer its interests to a Prohibited
Transferee without the prior consent of the other Bazaar Members.
The term "Prohibited Transferee" includes: (a) any owner, operator or
manager of any resort hotel located in Clark County, Nevada, (b) any shopping
center owner, manager and/or developer if THB will continue to be a Bazaar
Member following the transfer, (c) any person or entity primarily engaged in the
business of owning or operating a casino or other similar type of gambling
facility, (d) any person who has been found unsuitable or has withdrawn an
application to be found suitable by the Nevada Gaming Authorities, or (e) FOCUS
2000, Inc., a Nevada corporation, or the then current owner or lessee of the
real property located at the northeast corner of the Strip and Harmon Avenue, in
Las Vegas, Nevada.
MARKETING AND SALE OF THE MALL PROJECT. Commencing on the fifth anniversary
of the opening of the Mall Project and continuing for five years, any Bazaar
Member (the "Selling Member") holding a 50% or greater interest in Bazaar may
cause Bazaar to offer the Mall Project for sale on the open market by delivering
written notice to the other Bazaar Member (the "Non-Selling Member"). If any
offer is received that the Selling Member desires to accept, the Selling Member
must give written notice specifying all terms of the proposed sale to the
Non-Selling Member, who shall have 30 days to elect to purchase the entire
interest at the terms specified in the notice; provided however, that if THB is
the Selling Member, then Bazaar Holdings, as Non-Selling Member, shall (subject
to certain conditions) have the additional option to purchase 12.5% of the
interest in Bazaar for the appropriate allocable share of the purchase price
(and other fees specified on such notice).
TERM. Bazaar will continue to operate as a limited liability company until
December 31, 2099, unless earlier dissolved or extended by unanimous agreement
of the Bazaar Members.
MALL FINANCING
Bazaar has entered into a building loan agreement with the Mall Lenders and
Fleet as Administrative Agent (the "Mall Agent") for the Mall Financing, whereby
the Mall Lenders will agree to lend up to $194.0 million to Bazaar to finance
the Mall Project. The proceeds from the Mall Financing will be used for the
construction of the themed Desert Passage, expected to contain approximately
522,000 square feet of retail space, and the approximately 4,800-space Carpark.
The Mall Project is expected to open by April of the year 2000, as such date may
be extended for force majeure events.
TERM. The Mall Financing has a stated maturity of five years from closing.
Bazaar shall have two one-year extension options if certain conditions are
satisfied and at the end of the initial five year term, any unfunded commitment
amount will be automatically cancelled.
AMORTIZATION AND PREPAYMENT. The Mall Financing will be interest-only
during the initial term. During the extension terms, Bazaar will be required to
amortize principal based on 25-year (during the first extension term) and
24-year (during the second extension term) mortgage-style amortization and an
interest rate derived based on the then prevailing 10 year Treasury rate plus
150 bps.
FEES. Bazaar will be required to pay a fee of 10 bps per annum on the
unfunded loan amount. Such fee shall be computed on an actual/360-day basis and
shall be payable quarterly in arrears from and after the closing.
SECURITY. The loan is secured by a deed of trust, assignment of leases and
rents and security agreement which shall be a first lien on Bazaar's interest in
the premises on which the Mall Project is built and the Mall Project itself.
COVENANTS. The Mall Financing contains a project financial covenant based
on loan to value and customary affirmative and negative covenants typical for
this type of transaction.
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EVENTS OF DEFAULT. The Mall Financing provides that all customary events of
default for similar loan transactions, consistent with the following, shall
constitute events of default under the loan documents, including: (i) (a)
insolvency or bankruptcy of the Borrower, TrizecHahn or THOP (and, under certain
circumstances, Bazaar Holdings), (b) breach of THOP and TrizecHahn guarantor
covenants or (c) judgements against TrizecHahn in excess of $25.0 million
individually or in the aggregate (which are not discharged or appealed within 60
days) and (ii) failure to pay debt service within five days after due.
CONDITIONS PRECEDENT. The Mall Financing provides that the Mall Agent's
obligation to make the initial advance of the Mall Financing is subject to the
satisfaction of certain conditions, including, among other things (i) that
Scotiabank consent to an amended Site Work Agreement, that provides that the
Company will be responsible for costs in excess of $36 million in connection
with the construction of the Carpark and (ii) that the contribution of a minimum
of 25% of total project costs be contributed as up-front equity prior to funding
of the loan, of which at least $35.0 million of such investment shall be in the
form of cash expended in the Mall Project.
MUSIC PROJECT MEMORANDUM OF UNDERSTANDING
The Company and Planet Hollywood have entered into a Memorandum of
Understanding and Letter of Intent, dated as of September 2, 1997, as amended by
a letter agreement dated as of October 15, 1997 (as so amended, the "Music
Project Memorandum of Understanding") in connection with the formation of a
joint venture between subsidiaries of the Company and Planet Hollywood to own,
develop and operate the Music Project. The Music Project Memorandum of
Understanding is intended to be an agreement (subject to certain limited
conditions) with respect to certain matters regarding the formation and
operation of Aladdin Music, however the parties have agreed to use their best
efforts promptly to complete and execute all agreements and other documents that
may be reasonably necessary to carry out the provisions of the Music Project
Memorandum of Understanding. The Company anticipates that such agreements will
include the following-described agreements, although the terms described below
are subject to further revision and may be modified by the Company and Planet
Hollywood prior to the execution of definitive documentation. See "Risk
Factors--Completion of the Mall Project and the Music Project."
ALADDIN MUSIC OPERATING AGREEMENT. It is expected that AMH and a subsidiary
of Planet Hollywood (the "Music Project Members") will enter into an operating
agreement (the "Aladdin Music Operating Agreement") to govern the operations of
Aladdin Music. The Company has formed AMH, which it anticipates will hold (on a
fully diluted basis through shares and warrants) a 50% member interest in
Aladdin Music. Prior to the exercise of its warrants (the "Music Project
Warrants"), AMH will own a 49% preferred membership interest ("Music Preferred
Shares") and a 49% common membership interest ("Music Common Shares") in Aladdin
Music, however, exercise of the Music Project Warrants will increase AMH's
percentage interest in Aladdin Music to 50%. Planet Hollywood, through a
subsidiary (the "Planet Hollywood Member"), will initially hold the remaining
interests in Aladdin Music.
CAPITAL CONTRIBUTIONS. Through AMH, the Company is expected to contribute
to Aladdin Music (i) a ground lease, at nominal rent, of the approximately 4.75
acre parcel of land for the Music Project (including a right to acquire the fee
interest in such land upon the receipt by the Company of necessary permits and
subdivision approvals) and (ii) $21.3 million in cash. The contribution value of
the ground lease will be $20.0 million. The Planet Hollywood Member will
contribute cash to Aladdin Music in the amount of $41.3 million. Substantially
all of the contributions of the Music Project Members are expected to be made
immediately prior to, or concurrently with, the closing of construction
financing with respect to the Music Project, however certain pre-development
costs of Aladdin Music incurred with respect to the Music Project will be
contributed to Aladdin Music prior to such date. These predevelopment costs
include design, architecture and organization costs.
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SHARES. Aladdin Music is expected to have two classes of shares (which
represent units of membership interests in Aladdin Music): Music Common Shares
and Music Preferred Shares (collectively, "Music Project Shares"). The
above-described contributions of the Music Project Members will be deemed
contributions in respect of Music Preferred Shares. Except with respect to
distributions to cover tax liability of Music Project Members (or, if any Music
Project Member is a pass-through entity, its equity interest holders) arising
from their interest in Music, the Music Preferred Shares will have distribution,
redemption and liquidation preferences over all Music Common Shares. Rights to
allocations to the capital account and distributions in respect of the Music
Preferred Shares will cumulate (but not compound) quarterly at the rate of 12%
per annum on the capital account balance in respect thereof. Preferred
distributions to the Planet Hollywood Member will have priority of payment over
preferred distributions to AMH. In addition, to the extent that there is
insufficient cash available for distribution to make such preferred
distributions, the amounts which are not distributed will accrue (but not
compound) for the benefit of the party entitled thereto. Distributions of such
accrued amounts to the Planet Hollywood Member will have priority over
distributions to AMH.
MANAGEMENT AND DAY-TO-DAY OPERATIONS. Management of Aladdin Music will be
the responsibility of a board of managers (the "Music Project Board"), comprised
initially of four members designated by the Planet Hollywood Member and three
members designated by AMH, until AMH exercises its warrants for the acquisition
of additional Music Project Shares, at which time the Music Project Board will
be comprised of four representatives each of AMH and the Planet Hollywood
Member. Major decisions of the Music Project Board will require the vote of a
supermajority of the board members. All decisions other than such major
decisions will be delegated to an operating committee comprised of two
representatives each of AMH and the Planet Hollywood Member (the "Operating
Committee"). The development of the Music Project and renovation of the Theater
will be coordinated by the Company under the Music Project Development
Agreement. Day-to-day management and operation of the Music Project and the
Theater will be delegated to the Company under the Music Project Management
Agreement.
TRANSFERS OF SHARES. Transfers of Music Project Shares will only be
permitted:
(i) to affiliates of Music Project Member, LCNI, or persons approved by
a majority of the interests held by Music Project Members; and
(ii) to persons other than certain prohibited transferees after giving
other Music Project Members a right of first negotiation for the acquisition
of such Shares.
LIABILITY, EXCULPATION AND INDEMNIFICATION. The Aladdin Music Operating
Agreement will contain provisions relieving the Music Project Members, officers,
employees and Music ProjectBoard Members and Operating Committee members from
certain liability, fiduciary duties and conflicts and will also provide for
various indemnities to such persons in respect of payment of expenses and errors
and omissions insurance.
GAMING MATTERS. Capital contributions, admission of new Music Project
Members, transfers of shares and payment of distributions by Aladdin Music will
be subject to receipt of Nevada Gaming Approvals. Music Project Members and
their affiliates, directors and employees will cooperate to obtain Gaming
Approvals from the Nevada Gaming Authorities, as necessary. If Nevada gaming
problems arise prior to a finding of unsuitability by the Nevada Gaming
Authorities, the Music Project Member causing such problem (or whose director,
officer or affiliate caused such problem) shall cooperate to remedy it and, if
not remedied, may be forced to sell its Music Project Shares to Aladdin Music or
its designee at fair market value.
TERM. Aladdin Music shall continue until January 24, 2097, or such other
time as agreed in writing by all Members.
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THE MUSIC PROJECT DEVELOPMENT AGREEMENT. Aladdin Music intends to contract
with the Company for the development of the Music Project and the Theater
renovation pursuant to a development agreement (the "Music Project Development
Agreement") on terms, and in form and substance, satisfactory to Aladdin Music
and the Company. Pursuant to the Music Project Development Agreement, the
Company will agree to provide services with respect to such development and
renovation, including (a) the selection of contractors, subcontractors and the
professional team including architects, engineers, surveyors, designers,
decorators and other technical and professional consultants; (b) the negotiation
on behalf of Aladdin Music of the agreements under which the contractors,
subcontractors and the professional team are to be retained by Aladdin Music;
(c) the supervision of the preparation of preliminary and final plans, including
landscaping, interior design and graphics; and (d) the preparation of
preliminary cost estimates and projections of cash flow requirements covering
the development costs during the Development Period, and the preparation and
updating from time to time of the development budget; subject, in each case, to
certain approval rights of Aladdin Music.
REIMBURSEMENT UNDER MUSIC PROJECT DEVELOPMENT AGREEMENT. The Company will
be reimbursed for its costs and expenses in connection with its activities under
the Music Project Development Agreement.
TERMINATION. Each of the Company and Aladdin Music are anticipated to have
certain limited termination rights with respect to the Music Project Development
Agreement. Any termination of the Music Project Development Agreement will
entitle the Company to terminate the Music Project Management Agreement.
INDEMNIFICATION. Aladdin Music shall indemnify and hold the Company
harmless from claims arising out of the performance by Company of services under
the Music Project Development Agreement. The Company shall indemnify and hold
Aladdin Music harmless from and against any and all claims arising from or in
connection with the Company's gross negligence or willful misconduct.
MUSIC PROJECT MANAGEMENT AGREEMENT. Aladdin Music intends to contract with
the Company for the day-to-day management and operations of the Music Project
and the Theater and certain promotional services, pursuant to a management
agreement in form and substance satisfactory to Aladdin Music and the Company
(the "Music Project Management Agreement"). The terms of the Music Project
Management Agreement are expected to be on terms at least as favorable as those
which would be available from an independent third party vendor.
COMPENSATION UNDER MUSIC PROJECT MANAGEMENT AGREEMENT. The Music Project
Management Agreement will provide for the provision of management services by
the Company for the Music Project and the Theater in exchange for a base
management fee (the "Base Management Fee"), payable quarterly, equal to 1.50% of
the net revenue from the Music Project and the Theater and for an additional
management fee (the "Incentive Management Fee"), payable quarterly, equal to 6%
of the Management Excess Net Revenue (which is the amount obtained by dividing
(i) the amount of quarterly Adjusted Music EBITDA in excess of the Adjusted
Management EBITDA Threshold by (ii) Profit Margin). "Adjusted Music EBITDA"
means for any period Aladdin Music's earnings before (i) deductions for
interest, taxes, depreciation and amortization, (ii) payment of the Incentive
Management Fee, the Incentive Marketing Fee, and (iii) payment of leases for
furniture, fixtures or equipment. "Profit Margin" means for any quarter,
quarterly Adjusted EBITDA divided by quarterly Net Revenue. "Incentive Marketing
Fee" means an additional marketing fee, payable quarterly from Aladdin Music to
Planet Hollywood pursuant to the Marketing and Consulting Agreement (as defined
herein) between Aladdin Music and Planet Hollywood, equal to 6% of the Marketing
and Consulting Excess Net Revenue. "Marketing and Consulting Excess Net Revenue"
means the amount obtained by dividing (i) the amount of quarterly Adjusted
EBITDA in excess of the Adjusted Marketing EBITDA Threshold by (ii) the Profit
Margin. The "Adjusted Management EBITDA Threshold" means quarterly Adjusted
EBITDA of $10.0 million. The "Adjusted Marketing EBITDA Threshold" means
quarterly Adjusted EBITDA of $8.75 million. The Incentive Management Fee shall
at all times (including, without limitation, if the Adjusted Management EBITDA
Threshold is met or
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<PAGE>
if there is sufficient cash available for distribution) be subordinate to debt
service. To the extent that the Adjusted Management EBITDA Threshold is met but
there is insufficient cash available for distribution for the payment of any or
all of such Incentive Management Fee and the payment of the Incentive Marketing
Fee, or if Aladdin Music is otherwise restricted by a lender from paying such
fees, the Incentive Management Fee shall be subordinate to the payment of the
Incentive Marketing Fee. Incentive Management Fees which are due but not paid
shall accrue (together with interest thereon) for the benefit of the Company.
The Incentive Management Fee shall not be payable to the Company for any quarter
in which the Adjusted Management EBITDA Threshold is not achieved. In addition,
pursuant to the Music Project Management Agreement, the Company shall provide
certain services to the Music Project and the Theater, including, without
limitation, accounting and financial services, MIS, general management and
investor relation services, promotional services and other agreed upon services
in the ordinary course of business by the Company for the Music Project and the
Theater in exchange for reimbursement of the fully allocated cost of such
services.
TERM. The term of the Music Project Management Agreement shall be thirty
(30) years, subject to an option on the part of the Company to extend the term
for three successive ten year periods.
TERMINATION FEE. In the event that the Music Project Management Agreement
is terminated by Aladdin Music prior to the expiration of its term (including
extension options) and prior to the time that the Music Project Warrants may be
exercised, then (except under certain circumstances) the Company shall be paid a
termination fee of $50.0 million and AMH shall have the right to put its
investments in Aladdin Music to Planet Hollywood for an amount equal to such
investment's fair market value. Once AMH is able to exercise the Music Project
Warrant, all provisions relating to the termination fee and fair market purchase
option shall terminate.
THE MARKETING AND CONSULTING AGREEMENT. Aladdin Music intends to contract
with Planet Hollywood and an affiliate of Planet Hollywood for the provision of
certain marketing and consulting services to be provided to the Music Project
and for the license to Aladdin Music of all rights to the trademarks, tradenames
and related agreements which are necessary or desirable to operate and maintain
a "music-themed" hotel and restaurant on the Music Project land, pursuant to a
marketing and consulting agreement in form and substance satisfactory to Planet
Hollywood and Aladdin Music (the "Marketing and Consulting Agreement"). The
Marketing and Consulting Agreement is expected to provide for the provision of
marketing and consulting services by Planet Hollywood (and/or its affiliates)
for the Music Project in exchange for a base fee (the "Base Marketing Fee"),
payable quarterly, equal to 2.00% of the Music Project's quarterly Net Revenue
and for an additional marketing fee (the "Incentive Marketing Fee"), payable
quarterly, equal to 6% of the Marketing and Consulting Excess Net Revenue. The
Incentive Marketing Fee shall not be payable for any quarter in which the
Adjusted Marketing EBITDA Threshold is not achieved. In addition, to the extent
that the Adjusted Marketing EBITDA Threshold is met but there is insufficient
cash available for distribution for the payment of any or all of such fees, or
if Aladdin Music is otherwise restricted by a lender from paying the Incentive
Marketing Fee, the Incentive Marketing Fee shall accrue (together with interest
thereon) for the benefit of Planet Hollywood. In addition to the Base Marketing
Fee and the Incentive Marketing Fee, the Marketing and Consulting Agreement
shall provide that Planet Hollywood shall be reimbursed, on a quarterly basis,
for its costs and expenses under the Marketing and Consulting Agreement in an
amount equal to 0.5% of quarterly Net Revenue, without supporting documentation
as well as for certain other approved expenses. The Marketing and Consulting
Agreement is further expected to provide that Planet Hollywood shall be
restricted from allowing the use or operation of similar "music concept" themed
restaurants at any location in Clark County, Nevada, other than at the Music
Project.
THE GROUND LEASE. AMH intends to assign its ground lease (the "Music
Project Lease") of the site designated for the Music Project to Aladdin Music.
The Music Project Lease is for nominal rent and includes the right of the lessee
to acquire fee title to the Music Project land upon completion of the
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<PAGE>
division of the Project Site into separate legal parcels. Pursuant to the Music
Project Lease, Aladdin Music shall be required to cooperate with such division
and to fund its pro rata share of the costs thereof, based upon the ratio that
the acreage of the Music Project land bears to the total acreage of the Project
Site.
THE THEATER LEASE. The Company is expected to enter into a lease agreement
(the "Theater Lease") with respect to the Theater pursuant to which, among other
matters, (i) Aladdin Music shall lease the Theater from the Company for a period
of at least 69 years on a "triple-net" basis, for nominal rent, (ii) the Company
shall have certain rights with respect to the lease-back of the Theater, (iii)
certain provisions shall be made relating to the promotional and security
services for the Theater, (iv) Aladdin Music shall agree to renovate the Theater
prior to the opening of the Aladdin and to maintain the Theater in a "first
class" condition during the term of the Theater Lease.
MUSIC PROJECT FINANCING
Prior to the commencement of the development of the Music Project, Aladdin
Music is expected to enter into a commitment letter for a credit facility with a
syndicate of lenders whereby the lenders will agree to finance the construction
of the Music Project. Currently, Aladdin Music is considering several proposals
for such financing. See "Risk Factors--Completion of the Mall Project and the
Music Project."
137
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion is a summary of certain material federal income tax
considerations relevant to the acquisition, ownership and disposition of the
Warrants by a U.S. Holder. A "U.S. Holder" means a holder of a Warrant which is
(i) an individual who is a citizen or resident of the United States for federal
income tax purposes, (ii) a corporation or partnership created or organized in
the United States or under the laws of the United States or any state thereof
(including the District of Columbia), (iii) an estate (other than a foreign
estate) or (iv) any trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust.
This summary is based upon current laws, regulations, rulings and judicial
decisions some of which are not clear and all of which are subject to change,
possibly with retroactive effect. Any such change could affect the continuing
validity of this discussion. In addition, the validity of the conclusions
contained in this summary depends upon the accuracy of representations made by
officers of Holdings and projections prepared by the financial advisors to
Holdings in connection with the Offering.
This summary does not purport to consider all the possible federal income
tax consequences of the purchase, ownership or disposition of the Warrants and
is not intended to reflect the particular tax position of any beneficial owner.
It addresses only U.S. Holders who hold the Warrants as capital assets and does
not address beneficial owners that may be subject to special tax rules, such as
foreign holders, banks, insurance companies, dealers in securities or
currencies, purchasers that hold the Warrants as a hedge against currency risks
or as part of a straddle with other investments or as part of a "synthetic
security" or other integrated investment (including a "conversion transaction")
comprised of a Warrant and one or more other investments, or purchasers that
have a "functional currency" other than the U.S. dollar. In addition, the
discussion does not address any aspect of state, local or foreign taxation.
HOLDERS OF THE WARRANTS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING, AND
DISPOSING OF THE WARRANTS AS WELL AS THE APPLICATION OF STATE, LOCAL, AND
FOREIGN INCOME AND OTHER TAX LAWS.
ISSUE PRICE
On the Issue Date the issue price of the Unit was allocated between the
Notes and the Warrants based on their relative fair market values. Holders who
purchased a Unit at original issue for its issue price have an initial tax basis
for the Warrants equal to the Warrants' issue price. With respect to the $519.40
issue price per Unit, Holdings has allocated $67.72 to the Warrants, which
represents their issue price. This allocation reflects Holdings' judgement as to
the relative value of the Note and Warrants at the time of issuance. The
allocation is binding on a U.S. Holder unless such U.S. Holder explicitly
discloses a different allocation on an attachment to its tax return for the
taxable year that includes the acquisition date of the Unit. The allocation is
not, however, binding on the IRS and there can be no assurance that the IRS
would not challenge this allocation or that such a challenge, if made, would not
be upheld in court.
TAXATION OF WARRANTS
CHARACTERIZATION OF THE WARRANTS. Although the matter is not free from
doubt, and the form of the Warrants may be respected for federal income tax
purposes, it is possible that the Warrants would be treated for federal income
tax purposes as the shares of Common Stock of the Issuer which such Warrants
entitle the holder to purchase due to, among other things, their minimal
Exercise Price and lack of any meaningful contingency. Although it is thus
unclear whether the Warrants will be treated as warrants or
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<PAGE>
stock for federal income tax purposes, the following discussion assumes that the
Warrants would be properly characterized as warrants and describes, as
appropriate, any differing federal income tax treatment that would result if the
Warrants are treated as stock.
EXERCISE. A holder of a Warrant generally will not recognize gain or loss
upon exercise of the Warrant. The holder's federal income tax basis in the stock
received will be equal to the holder's federal income tax basis in the Warrant
immediately prior to exercise (i.e., in the case of an initial purchaser in the
Offering, the portion of the cost of the Unit allocable to the Warrant), plus
the amount of cash paid upon exercise. The holding period of the stock acquired
upon exercise of the Warrant will begin on the day after the date of exercise of
the Warrant and will not include the period during which the Warrant was held.
If the Warrants are treated as stock from the date of issuance, the holder would
not recognize any gain or loss on the exercise of the Warrants, and the holding
period of the stock received would include the entire period during which the
Warrant was held.
ADJUSTMENTS. An adjustment to the exercise price of the Warrants made
pursuant to the anti-dilution provisions of the Warrants may, in certain
circumstances, result in constructive distributions to the holders of the
Warrants which could be taxable as dividends to the holders under Section 305 of
the Code. A holder's federal income tax basis in the Warrants generally would be
increased by the amount of any such dividend. The consequences of such an
adjustment generally should not differ if the Warrants are recharacterized as
stock on the date of issuance.
DISPOSITION. Upon a sale, exchange or other taxable disposition of a
Warrant or Warrant Shares, a holder generally will recognize gain or loss for
federal income tax purposes in an amount equal to the difference between (i) the
sum of the amount of cash and fair market value of any property received upon
such sale, exchange or other disposition and (ii) the holder's adjusted tax
basis in the Warrant or Warrant Shares being sold. Any gain or loss recognized
upon a sale, exchange or disposition of Warrants or Warrant Shares would be
long-term capital gain or loss if the Warrant or stock was held by the holder
for more than one year at the time of sale or exchange. In the case of an
individual holder of a Warrant or Warrant Shares, the maximum federal income tax
rate applicable to net long-term capital gains is twenty-eight percent (28%) if
the Warrant or Warrant Shares were held for greater than one year but less than
eighteen months and twenty percent (20%) if the Warrant or Warrant Shares were
held for more than eighteen months. The consequences of a sale or disposition to
the holder should not differ (except potentially as to holding periods--See
Taxation of Warrants--Exercise above) if the Warrants are recharacterized as
stock on the day they are issued.
LAPSE. Upon the lapse of a Warrant, a holder will recognize a capital loss
equal to such holder's adjusted tax basis in the Warrant. If the Warrant was
treated as stock on the date of issuance, and the Warrant was never exercised,
the treatment of such Warrant generally should not differ.
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<PAGE>
PLAN OF DISTRIBUTION
The Warrants and the Warrant Shares may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the Selling Holders
may from time to time offer the Warrants or the Warrant Shares to or through
underwriters, broker/dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling Holders
or the purchasers of such securities for whom they may act as agents. The
Selling Holders and any underwriters, broker/dealers or agents that participate
in the distribution of Warrants or the Warrant Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/ dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Warrants and the Warrant Shares may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of the Warrants and the Warrant Shares may be effected in transactions
(which may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which such securities may be listed or quoted
at the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the
Warrants or the Warrant Shares is made, a supplement to this Prospectus (a
"Prospectus Supplement"), if required, will be distributed which will set forth
the aggregate amount of Warrants or Warrant Shares being offered and the terms
of the offering, including the name or names of any underwriters, broker/dealers
or agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers. Each broker/dealer that receives the
Warrants or Warrant Shares for its own account pursuant to this Prospectus must
acknowledge that it will deliver the Prospectus and any Prospectus Supplement in
connection with any sale of such Warrants or Warrant Shares.
To comply with the securities laws of certain jurisdictions, if applicable,
the Warrants and Warrant Shares will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Warrants and Warrant Shares may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or any
exemption from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Warrants or Warrant Shares by the
Selling Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Warrant Registration Rights Agreement, certain expenses of
the registration of the Warrants and Warrant Shares hereunder will be paid by
the Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the Selling Holders will pay all underwriting discounts, selling commissions and
transfer taxes, if any applicable to any sales pursuant to the Registration
Statement. The Issuer has agreed to indemnify the Selling Holders against
certain civil liabilities, including certain liabilities under the Securities
Act, and the Selling Holders will be entitled to contribution in connection with
any such registration and any sales pursuant thereto. The Company will be
indemnified by the Selling Holders severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection with any such registration and any sales pursuant to
the Registration Statement.
LEGAL MATTERS
Certain legal matters in connection with the registration of Warrants
pursuant to this Prospectus will be passed upon for the Issuer by Skadden Arps,
Slate, Meagher & Flom LLP and in connection with the
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<PAGE>
Warrant Shares by Schreck Morris, Las Vegas, Nevada. Certain matters with
respect to tax issues will be passed upon by Skadden, Arps, Slate, Meagher &
Flom LLP.
EXPERTS
The balance sheets of the Issuer, Holdings, Capital and the Company as of
December 31, 1997 and the statements of changes in equity and cash flows of each
such entity for the period from their inception to December 31, 1997, together
with the notes thereto, appearing in this Prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of London Clubs as of March 29, 1998 and March 30,
1997 and for the 52 week period ended March 29, 1998, and the 53 week period
ended March 30, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse, independent accountants, given on
the authority of said firm as experts in accounting and auditing.
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<PAGE>
INDEX TO HISTORICAL FINANCIAL INFORMATION OF THE
ALADDIN PARTIES AND THE COMPANY
Set forth below is certain historical financial information concerning the
Company and the Aladdin Parties. Potential investors should note that the
Aladdin Parties and the Company are development stage companies and the attached
financial information is not indicative of future results of operations.
<TABLE>
<CAPTION>
<S> <C>
Aladdin Gaming Holdings, LLC
Report of Independent Public Accountants................................................................. F-4
Consolidated Balance Sheet............................................................................... F-5
Consolidated Statement of Members' Equity................................................................ F-6
Consolidated Statement of Cash Flows..................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
Financial Statements as of March 31, 1998................................................................ F-11
Aladdin Capital Corp.
Report of Independent Public Accountants................................................................. F-20
Balance Sheet............................................................................................ F-21
Statement of Stockholders' Equity........................................................................ F-22
Statements of Cash Flows................................................................................. F-23
Notes to Financial Statements............................................................................ F-24
Financial Statements as of March 31, 1998................................................................ F-26
Aladdin Gaming, LLC
Report of Independent Public Accountants................................................................. F-31
Balance Sheet............................................................................................ F-32
Statement of Members' Equity............................................................................. F-33
Statement of Cash Flows.................................................................................. F-34
Notes to Financial Statements............................................................................ F-35
Financial Statements as of March 31, 1998................................................................ F-37
Aladdin Gaming Enterprises, Inc.
Report of Independent Public Accountants................................................................. F-46
Balance Sheet............................................................................................ F-47
Statement of Stockholders' Equity........................................................................ F-48
Statement of Cash Flows.................................................................................. F-49
Notes to Financial Statements............................................................................ F-50
Financial Statements as of March 31, 1998................................................................ F-52
</TABLE>
F-1
<PAGE>
(This page intentionally left blank.)
F-2
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Members of
Aladdin Gaming Holdings, LLC and subsidiaries:
We have audited the accompanying consolidated balance sheet of ALADDIN
GAMING HOLDINGS, LLC (a Nevada Limited-Liability Company) and SUBSIDIARIES, as
of December 31, 1997, and the related consolidated statements of members' equity
and cash flows for the period from inception (December 1, 1997) through December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Gaming Holdings, LLC
and subsidiaries, as of December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 6, as to which
the date is February 26, 1998
F-4
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 6,895
---------
Total Assets.................................................................... $ 6,895
---------
---------
LIABILITIES AND MEMBERS' EQUITY
Due to Sommer Trust................................................................. $ 1,245
Advances to purchase membership interests........................................... 2,850
Members' equity..................................................................... 2,800
---------
Total Liabilities and Members' Equity........................................... $ 6,895
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
BALANCE, December 1, 1997........................................................... $ --
Members' contribution............................................................... 2,800
---------
BALANCE, December 31, 1997.......................................................... $ 2,800
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Sommer Trust............................................................... $ 1,245
Members' contributions............................................................ 2,800
Advances to purchase membership interests......................................... 2,850
---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 6,895
CASH AND CASH EQUIVALENTS, December 1, 1997......................................... --
---------
CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 6,895
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-7
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming
Holdings"), was established on December 1, 1997. Gaming Holdings is owned by
Aladdin Gaming Enterprises, Inc. (25%), a Nevada corporation, Sommer
Enterprises, LLC (72%), a Nevada limited-liability company, and GAI, LLC (3%), a
Nevada limited-liability company. See Note 5 regarding the agreement to purchase
membership interests. Aladdin Holdings, LLC, a Delaware limited liability
company ("Holdings"), indirectly holds a majority interest in Gaming Holdings.
The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer
(the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC,
a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust
Company of the West ("TCW"), which holds a 5% interest in Holdings.
Distributions shall be made in accordance with the respective ownership
interests subject to Gaming Holdings' operating agreement.
Since the planned principal operations had not commenced as of December 31,
1997, Gaming Holdings has accounted for its operations as a development stage
company. There were no operations during the period from inception (December 1,
1997) through December 31, 1997 and hence no statement of income has been
prepared.
2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Gaming
Holdings and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Gaming Holdings' wholly owned subsidiaries are Aladdin Capital Corp., a
Nevada corporation, and Aladdin Gaming, LLC, a Nevada limited-liability company.
3. INCOME TAXES
Gaming Holdings will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
4. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of Gaming Holdings' executive management have purchased
unvested restricted membership interests in 4.75% of Gaming Holdings' stock.
These membership interests will vest over approximately a four-year period. As
of December 31, 1997, none of these membership interests had vested.
5. COMMITMENTS
On September 24, 1997 Gaming Holdings, the Sommer Trust, Holdings, Sommer
Enterprises, London Clubs International plc, a company registered in the United
Kingdom ("London Clubs") and London Clubs Nevada Inc. ("LCNI") entered into a
purchase agreement (subsequently amended) providing for the acquisition by LCNI
of 25 percent of Gaming Holdings' common membership interests for a purchase
F-8
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. COMMITMENTS (CONTINUED)
price of $50.0 million. LCNI's obligation to purchase such membership interests
is subject to the satisfaction or waiver of various conditions.
6. SUBSEQUENT EVENTS
Private Offering
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Exchange Act of 1933. The private offering consisted of 221,500 units
(the "Units"), each unit consisting of (i) $1,000 principal amount at maturity
of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming,
LLC. The Note Construction Disbursement Account is comprised of approximately
$35 million remaining proceeds from the Offering, after the application of the
net proceeds to repay certain previously existing indebtedness and certain fees
and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
Equity Contributions
On February 26, 1998, LCNI contributed $50.0 million ("London Clubs
Contribution") for 25% of Gaming Holdings common membership interests. Sommer
Enterprises, LLC contributed a portion of land in exchange for common membership
interests in Gaming Holdings. Aladdin Gaming Enterprises, Inc. contributed the
portion of land and $7.0 million of predevelopment costs, which were originally
received from Sommer Enterprises, Inc. and the net proceeds (approximately $15
million) allocable from the sale of
F-9
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. SUBSEQUENT EVENTS (CONTINUED)
the Warrants to Gaming Holdings in exchange for 25% of the common membership
interests in Gaming Holdings.
Investments
Gaming Holdings contributed the land appraised at $150.0 million,
approximately $42 million in cash from the London Clubs Contribution and the
$7.0 million of predevelopment costs in exchange for 100% of the common
membership interests in Aladdin Gaming, LLC. Gaming Holdings also contributed
$115 million in cash, consisting of the net proceeds of the sale of the Units
and approximately $8 million from the London Clubs Contribution to Aladdin
Gaming, LLC in exchange for 100% of the Series A Preferred Interests.
F-10
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-11
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
(UNAUDITED)
ASSETS
Cash.............................................................................................. $ 406,559
Property and equipment:
Land............................................................................................ 33,407,500
Furniture and equipment......................................................................... 546,976
Construction in progress........................................................................ 13,492,315
Capitalized interest............................................................................ 544,283
--------------
Total property and equipment................................................................ 47,991,074
--------------
Other assets:
Restricted cash................................................................................. 308,293,229
Restricted land................................................................................. 6,842,500
Other assets.................................................................................... 1,964,435
Debt issuance costs, net of accumulated amortization of $285,255 as of March 31, 1998........... 36,884,511
--------------
Total other assets.......................................................................... 353,984,675
--------------
Total assets................................................................................ $ 402,382,308
--------------
--------------
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Current maturities of long-term debt............................................................ $ 187,324
Payable to related parties...................................................................... 360,629
Obligation to transfer land..................................................................... 6,842,500
Accrued expenses................................................................................ 4,352,850
--------------
Total current liabilities................................................................... 11,743,303
--------------
Long-term debt.................................................................................... 375,749,612
Advances to purchase membership interests......................................................... 2,850
Members' equity:
Common membership interest...................................................................... 28,607,979
Accumulated Deficit............................................................................. (13,721,436)
--------------
Total members' equity....................................................................... 14,886,543
--------------
Total liabilities and members' equity....................................................... $ 402,382,308
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 1, 1997
(INCEPTION)
THROUGH
MARCH31, 1998 MARCH 31, 1998
-------------- ------------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Pre-opening costs.......................................................... $ 11,462,928 $ 11,462,928
Other (income) expense:
Interest income.......................................................... (1,584,938) (1,584,938)
Interest expense......................................................... 4,387,729 4,387,729
Less: Interest capitalized............................................... (544,283) (544,283)
-------------- ------------------
Total other (income) expense......................................... 2,258,508 2,258,508
-------------- ------------------
Net loss................................................................... $ (13,721,436) $ (13,721,436)
-------------- ------------------
-------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 1997
THROUGH MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ALADDIN GAMING
SOMMER ENTERPRISES, LONDON CLUBS
ENTERPRISES, LLC INC. NEVADA, INC. GAI, LLC TOTAL
---------------- --------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997........ $ 669 $ 331 $ -- $ 1,800 $ 2,800
Net loss.......................... $ (6,449,075) $ (3,430,359) $ (3,430,359) $ (411,643) $ (13,721,436)
Members' contributions............ (47,317,023) 28,247,202 50,000,000 -- 30,930,179
Members' equity costs............. (1,092,750) (581,250) (581,250) (69,750) (2,325,000)
---------------- --------------- ------------- ----------- --------------
BALANCE, MARCH 31, 1998........... $ (54,858,179) $ 24,235,924 $ 45,988,391 $ (479,593) $ 14,886,543
---------------- --------------- ------------- ----------- --------------
---------------- --------------- ------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE PERIOD
ENDED DECEMBER 1, 1997
MARCH 31, 1998 (INCEPTION)
-------------------- THROUGH
MARCH 31, 1998
(UNAUDITED) ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (13,721,436) $ (13,721,436)
Increase in other assets.............................................. (1,964,435) (1,964,435)
Amortization of debt costs............................................ 285,255 285,255
Amortization of original issue discount............................... 1,388,083 1,388,083
Increase in accrued expenses.......................................... 4,352,850 4,352,850
Increase in accrued fee to related party.............................. 359,384 359,384
-------------------- ------------------
Net cash used in operating activities................................... (9,300,299) (9,300,299)
-------------------- ------------------
Cash flows from investing activities:
Payments for construction in progress and capitalized interest........ (7,036,598) (7,036,598)
Increase in restricted cash........................................... (308,293,229) (308,293,229)
-------------------- ------------------
Net cash used in investing activities................................... (315,329,827) (315,329,827)
-------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of notes....................................... 100,047,100 100,047,100
Proceeds from long-term debt.......................................... 274,000,000 274,000,000
Repayment of long-term debt........................................... (45,223) (45,223)
Debt issuance costs................................................... (37,169,766) (37,169,766)
Members' contributions................................................ 65,000,000 65,002,800
Repayment of existing debt............................................ (74,477,321) (74,477,321)
Members' equity costs................................................. (2,325,000) (2,325,000)
Payable to related parties............................................ -- 1,245
Advances to purchase membership interests............................. -- 2,850
-------------------- ------------------
Net cash provided by financing activities............................... 325,029,790 325,036,685
-------------------- ------------------
Net increase in cash.................................................... 399,664 406,559
Cash at the beginning of the period..................................... 6,895 --
-------------------- ------------------
Cash at the end of the period........................................... $ 406,559 $ 406,559
-------------------- ------------------
-------------------- ------------------
Cash paid for interest, net of amount capitalized....................... $ 364,756 $ 364,756
Non-cash investing and financing activities:
Members' contributions -- book value
Land................................................................ 33,407,500 33,407,500
Construction in progress............................................ 7,000,000 7,000,000
Equipment acquired equal to assumption of debt........................ 546,976 546,976
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Holdings, LLC, a Nevada limited company ("Gaming Holdings"),
was established on December 1, 1997. Gaming Holdings was initially owned by
Aladdin Gaming Enterprises, Inc. (25%), a Nevada corporation, Sommer
Enterprises, LLC (72%), a Nevada limited-liability company, and GAI, LLC (3%), a
Nevada limited- liability company. On February 26, 1998, (a) London Clubs
Nevada, Inc., (LCNI) contributed $50.0 million for a 25% interest of Gaming
Holdings common membership interests, (b) Sommer Enterprises, LLC contributed
land for common membership interests in Gaming Holdings and (c) Aladdin Gaming
Enterprises, Inc. contributed land, $7.0 million of predevelopment costs and
$15.0 million in cash for common membership interests in Gaming Holdings. After
such contributions, Sommer Enterprises, LLC owns 47% and LCNI owns 25% of Gaming
Holdings with the remaining membership interests unchanged.
Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"),
indirectly holds a majority interest in Gaming Holdings. The members of Holdings
are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust")
which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada
limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of
the West ("TCW"), which holds a 5% interest in Holdings.
Distributions shall be made in accordance with the respective ownership
interests subject to the Company's operating agreement.
Gaming Holdings, through its subsidiaries, plans to develop, construct and
operate a new hotel and casino, the Aladdin Hotel and Casino (the "Aladdin"), as
the centerpiece of an approximately 35 acre world-class resort, casino and
entertainment complex in Las Vegas, Nevada. The resort will be located at the
center of Las Vegas Boulevard ("the Strip").
2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Aladdin Gaming
Holdings, LLC and its subsidiaries (collectively known as the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation.
Gaming Holding's wholly owned subsidiaries are Aladdin Capital Corp., a
Nevada corporation, and Aladdin Gaming, LLC, a Nevada limited-liability company.
3. PREOPENING EXPENSES
The Company expenses preopening costs in the period during which they were
incurred.
4. INCOME TAXES
The Company will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
F-16
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (CONTINUED)
5. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of Aladdin Gaming Holdings, LLC's executive management have
purchased unvested restricted membership interests in 4.75% of Gaming Holdings,
LLC. These membership interests will vest over approximately a four-year period
beginning at the opening of the Aladdin Hotel and Casino. As of March 31, 1998,
none of these membership interests had vested.
6. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Act of 1933. The private offering consisted of 221,500 units (the
"Units"), each unit consisting of (i) $1,000 principal amount of maturity of
13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes was $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of March 31, 1998, the Note Construction Disbursement Account
comprised approximately $32.9 million remaining proceeds from the Offering,
after the application of the net proceeds to repay certain previously existing
indebtedness and certain fees and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
7. LONG-TERM DEBT
On February 26, 1998, Aladdin Gaming, LLC entered into a $410.0 million
Credit Agreement with various financial institutions and the Bank of Nova Scotia
as the administrative agent for the lenders. The Credit Agreement consists of a
Term A loan of $136.0 million, a Term B loan of $114.0 million and a Term C loan
of $160.0 million. Both the Term B and Term C loans were funded by the lenders
on February 26, 1998 and the funds are held by Aladdin Gaming, LLC for the
future development of the Aladdin. Under the Credit Agreement, the funds cannot
be utilized until the proceeds from the private offering are
F-17
<PAGE>
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
completely exhausted and certain other conditions to disbursement have been
satisfied. As of March 31, 1998, the Term A Loan has not been funded.
The Term B loan is for a maximum term of 8.5 years from the date of funding
and the Term C loan is for a maximum of 10 years. The Term B loan bears interest
at rate of 7.883% until the funds are utilized for the project at which time the
rate increases to 9.383%. The Term C loan bears interest at a rate of 8.485%
until the funds are utilized for the project at which time the rate increases to
10.485%. In addition to quarterly interest payments, each loan has various
principal payment requirements once the Aladdin is completed and operating.
Except in the case of defaults, no principal repayments are required prior to
the opening of the Aladdin.
8. RESTRICTED LAND
Approximately 12.4 acres of land was deeded to Aladdin Gaming, LLC on
February 26, 1998, with an obligation to transfer such land to Aladdin Bazaar,
LLC at a future date. Aladdin Bazaar, LLC intends to construct and operate a
themed entertainment shopping mall and a 4,800 space car parking facility (the
"Mall Project"). The Mall Project is expected to be an integral part of the
Aladdin entertainment complex.
9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
F-18
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Aladdin Capital Corp.:
We have audited the accompanying balance sheet of ALADDIN CAPITAL CORP. (a
Nevada Corporation), as of December 31, 1997, and the related statements of
stockholders' equity and cash flows for the period from inception (December 1,
1997) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Capital Corp., as of
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 3, as to which
the date is February 26, 1998
F-20
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,000
---------
Total Assets...................................................................... $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock, no par value, 2,500 shares authorized, issued and outstanding......... $ 1,000
---------
Total Liabilities and Stockholders' Equity........................................ $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-21
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
ISSUED AMOUNT TOTAL
--------- --------- ---------
<S> <C> <C> <C>
BALANCE, December 1, 1997............................................................ -- $ -- $ --
Issuance of common stock............................................................. 2,500 1,000 1,000
--------- --------- ---------
BALANCE, December 31, 1997........................................................... 2,500 $ 1,000 $ 1,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-22
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of stock............................................... $ 1,000
---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 1,000
CASH AND CASH EQUIVALENTS, December 1, 1997......................................... --
---------
CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-23
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Capital Corp., a Nevada corporation ("Capital"), was established on
December 1, 1997. Capital is wholly owned by Aladdin Gaming Holdings, LLC, a
Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a
Delaware limited liability company ("Holdings"), indirectly holds a majority
interest in Gaming Holdings. The members of Holdings are the Trust Under Article
Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in
Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly
owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest
in Holdings.
Since the planned principal operations had not commenced as of December 31,
1997, Capital has accounted for its operations as a development stage company.
There were no operations during the period from inception (December 1, 1997)
through December 31, 1997 and hence no statement of income has been prepared.
2. INCOME TAXES
Capital accounts for income taxes using the liability method as set forth in
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES. Under the liability method, deferred taxes are provided based on the
temporary differences between the financial reporting basis and the tax basis of
Capital's assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 1, 1997) through December 31, 1997 as Capital is a
development stage company and operations have not yet commenced.
3. SUBSEQUENT EVENTS
Private Offering
On February 26, 1998, Gaming Holdings, Capital (together with Gaming
Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a
private offering (the "Offering") under Rule 144A of the Securities Exchange Act
of 1933. The private offering consisted of 221,500 units (the "Units"), each
unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior
Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10
Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common
Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming,
F-24
<PAGE>
3. SUBSEQUENT EVENTS (CONTINUED)
LLC. The Note Construction Disbursement Account is comprised of approximately
$35 million remaining proceeds from the Offering, after the application of the
net proceeds to repay certain previously existing indebtedness and certain fees
and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other thing: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock, (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
F-25
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-26
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,000
---------
Total Assets.................................................................. $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock, no par value, 2,500 shares authorized, issued and outstanding......... $ 1,000
---------
Total Liabilities and Stockholders' Equity.................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Capital Corp., a Nevada corporation ("Capital"), was established on
December 1, 1997. Capital is wholly owned by Aladdin Gaming Holdings, LLC, a
Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a
Delaware limited liability company ("Holdings"), indirectly holds a majority
interest in Gaming Holdings. The members of Holdings are the Trust Under Article
Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in
Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly
owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest
in Holdings.
Capital was formed for the sole purpose of being a joint issuer of the
13 1/2% Senior Discount Notes due 2010 (See "Private Offering"). There were no
operations or cash transactions during the period from December 31, 1997 through
March 31, 1998 and hence no statement of income or cash flows has been prepared.
2. INCOME TAXES
Capital accounts for income taxes using the liability method as set forth in
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES. Under the liability method, deferred taxes are provided based on the
temporary differences between the financial reporting basis and the tax basis of
Capital's assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 1, 1997) through March 31, 1998 as Capital is a development
stage company and operations have not yet commenced.
3. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Capital (together with Gaming
Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a
private offering (the "Offering") under Rule 144A of the Securities Act of 1933.
The private offering consisted of 221,500 units (the "Units"), each unit
consisting of (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount
Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants
(the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no
par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes was $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of March 31, 1998, the Note Construction Disbursement Account
comprised approximately
F-28
<PAGE>
ALADDIN CAPITAL CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 (CONTINUED)
3. PRIVATE OFFERING (CONTINUED)
$32.9 million remaining proceeds from the Offering, after the application of the
net proceeds to repay certain previously existing indebtedness and certain fees
and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income.
In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
F-29
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Members of
Aladdin Gaming, LLC:
We have audited the accompanying balance sheet of ALADDIN GAMING, LLC (a
Nevada Limited-Liability Company), as of December 31, 1997, and the related
statements of members' equity and cash flows for the period from inception
(January 24, 1997) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Gaming, LLC, as of
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 4, as to which
the date is February 26, 1998.
F-31
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 5,650
---------
Total Assets...................................................................... $ 5,650
---------
---------
LIABILITIES AND MEMBERS' EQUITY
Due to Aladdin Gaming Holdings, LLC................................................. $ 4,650
Members' equity..................................................................... 1,000
---------
Total Liabilities and Members' Equity............................................. $ 5,650
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
BALANCE, January 24, 1997........................................................... $ --
Members' contribution............................................................... 1,000
---------
BALANCE, December 31, 1997.......................................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-33
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Aladdin Gaming Holdings, LLC............................................... $ 4,650
Members' contributions............................................................ 1,000
---------
INCREASE IN CASH AND CASH EQUIVALENTS............................................... 5,650
CASH AND CASH EQUIVALENTS, January 24, 1997......................................... --
<CAPTION>
---------
<S> <C>
CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 5,650
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-34
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Gaming, LLC, a Nevada limited-liability company (the "Company"), was
established on January 24, 1997. The Company is wholly owned by Aladdin Gaming
Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin
Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly
holds a majority interest in Gaming Holdings. The members of Holdings are the
Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds
a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability
company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"),
which holds a 5% interest in Holdings.
The Company term is 100 years. Distributions shall be made in accordance
with the respective ownership interests subject to the Company's operating
agreement.
Since the planned principal operations had not commenced as of December 31,
1997, the Company has accounted for its operations as a development stage
company. There were no operations during the period from inception (January 24,
1997) through December 31, 1997 and hence no statement of income has been
prepared.
2. INCOME TAXES
The Company will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
3. COMMITMENTS
The Company has entered into a consulting agreement with GAI, LLC to render
consulting services as are reasonably requested by the Board of the Company
until June 30, 2002.
The Company has entered into a commitment letter with an equipment finance
company for provision of approximately $80.0 million of financing to obtain
gaming and other specified equipment. The financing will be comprised of $60.0
million of operating leases and $20.0 million in loans.
The Company has entered into a commitment letter with certain bank lenders
for the provision of a bank credit facility. The facility will consist of three
separate term loans (Term Loan A, B and C) of $136.0 million, $114.0 million and
$160.0 million, respectively. Term A, B and C Loans will mature seven, eight and
one-half and ten years after their respective borrowing dates, respectively.
4. SUBSEQUENT EVENTS
Private Offering
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Exchange Act of 1933. The private offering consisted of 221,500 units
(the "Units"), each unit consisting of (i) $1,000 principal amount at maturity
of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will
F-35
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. SUBSEQUENT EVENTS (CONTINUED)
accrue at the rate of 13 1/2% per annum based on the accreted value at maturity
of the Notes and will be payable semi-annually in arrears on March 1 and
September 1 of each year, commencing on September 1, 2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in the Company. The
Note Construction Disbursement Account is comprised of approximately $35 million
remaining proceeds from the Offering, after the application of the net proceeds
to repay certain previously existing indebtedness and certain fees and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
Equity Contributions
Gaming Holdings contributed land appraised at $150.0 million, approximately
$42 million in cash from a contribution from London Clubs Nevada Inc. ("LCNI")
and $7.0 million of predevelopment costs in exchange for 100% of the common
membership interests in the Company. Gaming Holdings also contributed $115
million in cash, consisting of the net proceeds of the sale of the Units and
approximately $8 million from LCNI to the Company in exchange for 100% of the
Series A Preferred Interests.
Bank Indebtedness
On February 26, 1998, the Company entered into the bank credit facility for
$410 million as discussed above in Note 3.
F-36
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-37
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
(UNAUDITED)
ASSETS
Cash.............................................................................................. $ 405,314
Property and equipment:
Land............................................................................................ 33,407,500
Furniture and equipment......................................................................... 546,976
Construction in progress........................................................................ 13,492,315
Capitalized interest............................................................................ 398,160
--------------
Total property and equipment................................................................ 47,844,951
--------------
Other assets:
Due from Parent (Aladdin Gaming Holdings, LLC).................................................. 32,882,836
Restricted cash................................................................................. 275,405,744
Restricted land................................................................................. 6,842,500
Other assets.................................................................................... 1,964,434
Debt issuance costs, net of accumulated amortization of $167,849 as of March 31, 1998........... 26,004,300
--------------
Total other assets.......................................................................... 343,099,814
--------------
Total assets...................................................................................... $ 391,350,079
--------------
--------------
<CAPTION>
LIABILITIES AND MEMBER'S EQUITY
<S> <C>
Current liabilities:
Current maturities of long-term debt............................................................ $ 187,324
Payable to related parties...................................................................... 359,384
Obligation to transfer land..................................................................... 6,842,500
Accrued expenses................................................................................ 3,627,849
--------------
Total current liabilities................................................................... 11,017,057
--------------
Long-term debt.................................................................................... 274,314,429
Members' equity:
Preferred membership interest................................................................... 115,047,100
Common membership interest...................................................................... 3,333,563
Accumulated Deficit............................................................................. (12,362,070)
--------------
Total members' equity....................................................................... 106,018,593
--------------
Total liabilities and members' equity....................................................... $ 391,350,079
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (JANUARY 24, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998 FOR THE PERIOD
-------------- JANUARY 24, 1997
(INCEPTION)
(UNAUDITED) THROUGH
MARCH 31, 1998
------------------
(UNAUDITED)
<S> <C> <C>
Pre-opening costs............................................................. $ 11,462,928 $ 11,462,928
Other (income) expense:
Interest income............................................................. (1,584,938) (1,584,938)
Interest expense............................................................ 2,882,240 2,882,240
Less: Interest capitalized.................................................. (398,160) (398,160)
-------------- ------------------
Total other (income) expense.............................................. 899,142 899,142
-------------- ------------------
Net loss...................................................................... $(12,362,070) $ (12,362,070)
-------------- ------------------
-------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 1997
THROUGH MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1997.................................................... $ 1,000
Net loss...................................................................... (12,362,070)
Member's contribution -- preferred interest................................... 115,047,100
Member's contribution -- common interest...................................... 3,332,563
-----------
BALANCE, MARCH 31, 1998....................................................... 106,018,593
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (JANUARY 24, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD JANUARY
FOR THE THREE MONTHS 24,
ENDED 1997 (INCEPTION) THROUGH
MARCH 31, 1998 MARCH 31, 1998
(UNAUDITED) (UNAUDITED)
-------------------- ------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (12,362,070) $ (12,362,070)
Increase in other assets....................................... (1,964,434) (1,964,434)
Amortization of debt costs..................................... 167,849 167,849
Increase in accrued expenses................................... 3,627,849 3,627,849
Increase in accrued fee to related party....................... 359,384 359,384
-------------------- -------------
Net cash used in operating activities............................ (10,171,422) (10,171,422)
-------------------- -------------
Cash flows from investing activities:
Payments for construction in progress and capitalized
interest..................................................... (6,890,475) (6,890,475)
Increase in restricted cash.................................... (275,405,744) (275,405,744)
-------------------- -------------
Net cash used in investing activities............................ (282,296,219) (282,296,219)
-------------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt................................... 274,000,000 274,000,000
Repayment of long-term debt.................................... (45,223) (45,223)
Debt issuance costs............................................ (26,172,149) (26,172,149)
Member's contributions......................................... 77,972,163 77,973,163
Payable/(Receivable) from/to parent (Aladdin Gaming Holdings,
LLC)......................................................... (33,887,486) (33,882,836)
-------------------- -------------
Net cash provided by financing activities........................ 292,867,305 292,872,955
-------------------- -------------
Net increase in cash............................................. 399,664 405,314
Cash at the beginning of the period.............................. 5,650 --
-------------------- -------------
Cash at the end of the period.................................... $ 405,314 $ 405,314
-------------------- -------------
-------------------- -------------
Cash paid for interest, net of amount capitalized................ $ 364,756 $ 364,756
Non-cash investing and financing activities:
Member's contributions -- book value
Land......................................................... 33,407,500 33,407,500
Construction in progress..................................... 7,000,000 7,000,000
Equipment acquired equal to assumption of debt................. 546,976 546,976
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming, LLC, a Nevada limited company (the "Company"), was
established on January 24, 1997. The Company is wholly owned by Aladdin Gaming
Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin
Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly
holds a majority interest in Gaming Holdings. The members of Holdings are the
Trust under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds
a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability
company ("GW), a wholly owned subsidiary of Trust Company of the West ("TCW),
which holds a 5% interest in Holdings.
The Company term is 100 years. Distributions shall be made in accordance
with the respective ownership interest subject to the Company's operating
agreement.
The Company plans to develop, construct and operate a new hotel and casino,
the Aladdin Hotel and Casino (the "Aladdin"), as the centerpiece of an
approximately 35 acre world-class resort, casino and entertainment complex in
Las Vegas, Nevada. The resort will be located at the center of Las Vegas
Boulevard ("the strip").
2. PRE-OPENING EXPENSES
The Company expenses pre-opening costs in the period during which they were
incurred.
3. INCOME TAXES
The Company will file federal information tax returns only. Each member
reports taxable income or loss on their respective tax returns.
4. COMMITMENTS
The Company has entered into a consulting agreement with GAI, LLC to render
consulting services as are reasonably requested by the Board of the Company
until June 30, 2002.
The Company has entered into a commitment letter with an equipment finance
company for provision of approximately $80.0 million of financing to obtain
gaming and other specified equipment. The financing will be comprised of $60.0
million of operating leases and $20.0 million in loans.
5. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises,
Inc. consummated a private offering (the "Offering") under Rule 144A of the
Securities Act of 1933. The private offering consisted of 221,500 units (the
"Units"), each unit consisting of (i) $1,000 principal amount of maturity of
13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and
Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B
non- voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc.
The initial accreted value of the Notes was $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
F-42
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
5. PRIVATE OFFERING (CONTINUED)
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of March 31, 1998, the Note Construction Disbursement Account
comprised approximately $32.9 million remaining proceeds from the Offering,
after the application of the net proceeds to repay certain previously existing
indebtedness and certain fees and expenses. This amount is reflected on the
Company's balance sheet as Due from Parent (Aladdin Gaming Holdings, LLC), as
the funds are held by the parent company until disbursed.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
6. LONG-TERM DEBT
On February 26, 1998, Aladdin Gaming, LLC entered into a $410.0 million
Credit Agreement with various financial institutions and the Bank of Nova Scotia
as the administrative agent for the lenders. The Credit Agreement consists of a
Term A loan of $136.0 million, a Term B loan of $114.0 million and a Term C loan
of $160.0 million. Both the Term B and Term C loans were funded by the lenders
on February 26, 1998 and the funds are held by Aladdin Gaming, LLC for the
future development of the Aladdin. Under the Credit Agreement, the funds cannot
be utilized until the proceeds from the private offering are completely
exhausted and certain other conditions to disbursement have been satisfied. As
of March 31, 1998, the Term A Loan has not been funded.
The Term B loan is for a maximum term of 8.5 years from the date of funding
and the Term C loan is for a maximum of 10 years. The Term B loan bears interest
at rate of 7.883% until the funds are utilized for the project at which time the
rate increases to 9.383%. The Term C loan bears interest at a rate of 8.485%
until the funds are utilized for the project at which time the rate increases to
10.485%. In addition to quarterly interest payments, each loan has various
principal payment requirements once the Aladdin is completed and operating.
Except in the case of defaults, no principal repayments are required prior to
the opening of the Aladdin.
7. RESTRICTED LAND
Approximately 12.4 acres of land was deeded to the Company on February 26,
1998, with an obligation to transfer such land to Aladdin Bazaar, LLC at a
future date. Aladdin Bazaar, LLC intends to construct and operate, a themed
entertainment shopping mall and a 4,800-space car parking facility (the "Mall
Project"). The Mall Project is expected to be an integral part of the Aladdin
entertainment complex.
F-43
<PAGE>
ALADDIN GAMING, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
8. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. The Company currently operates
as one segment.
F-44
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Aladdin Gaming Enterprises, Inc.:
We have audited the accompanying balance sheet of ALADDIN GAMING
ENTERPRISES, INC. (a Nevada Corporation), as of December 31, 1997, and the
related statements of stockholders' equity and cash flows for the period from
inception (December 3, 1997) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aladdin Gaming Enterprises,
Inc., as of December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 15, 1998, except
for Note 4, as to which
the date is February 26, 1998.
F-46
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 669
Investment in subsidiary............................................................ 331
---------
Total Assets.................................................................... $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock, no par value, 2,500 shares authorized, 1 share issued and
outstanding....................................................................... $ 1,000
---------
Total Liabilities and Stockholders' Equity...................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-47
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
ISSUED AMOUNT TOTAL
--------- --------- ---------
<S> <C> <C> <C>
BALANCE, December 3, 1997............................................................ -- $ -- $ --
Issuance of common stock............................................................. 1 1,000 1,000
--------- --------- ---------
BALANCE, December 31, 1997........................................................... 1 $ 1,000 $ 1,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-48
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Investment in subsidiary........................................................... $ (331)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of stock................................................ 1,000
---------
INCREASE IN CASH AND CASH EQUIVALENTS................................................ 669
CASH AND CASH EQUIVALENTS, December 3, 1997.......................................... --
---------
CASH AND CASH EQUIVALENTS, December 31, 1997......................................... $ 669
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-49
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), was
established on December 3, 1997. Enterprises holds a 25% interest in Aladdin
Gaming Holdings, LLC, and is wholly owned by Sommer Enterprises, LLC, a Nevada
limited-liability company ("Sommer Enterprises"). Aladdin Holdings, LLC, a
Delaware limited liability company ("Holdings"), holds a majority interest in
Sommer Enterprises. The members of Holdings are the Trust Under Article Sixth
u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in
Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly
owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest
in Holdings.
Enterprises' interest in Aladdin Gaming Holdings, LLC has been accounted for
under the equity method.
Since the planned principal operations had not commenced as of December 31,
1997, Enterprises has accounted for its operations as a development stage
company. There were no operations during the period from inception (December 3,
1997) through December 31, 1997 and hence no statement of income has been
prepared.
2. INCOME TAXES
Enterprises accounts for income taxes using the liability method as set
forth in Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES. Under the liability method, deferred taxes are provided based on
the temporary differences between the financial reporting basis and the tax
basis of Enterprises' assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 3, 1997) through December 31, 1997 as Enterprises is a
development stage company and operations have not yet commenced.
3. AGREEMENTS
Enterprises will enter into a Shareholders' Agreement with the Sommer Trust
providing that the Sommer Trust shall have the right to elect the Board of
Directors of Enterprises and otherwise manage the day to day affairs of
Enterprises unless and until a qualified public offering occurs or the Sommer
Trust no longer owns any equity in Enterprises.
4. SUBSEQUENT EVENTS
Private Offerings
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Enterprises consummated a
private offering (the "Offering") under Rule 144A of the Securities Exchange Act
of 1933. The private offering consisted of 221,500 units (the "Units"), each
unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior
Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10
Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common
Stock, no par value, of Enterprises.
F-50
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
4. SUBSEQUENT EVENTS (CONTINUED)
The initial accreted value of the Notes is $519.40 per $1,000 principal
amount at maturity of the Notes. The Notes will mature on March 1, 2010. The
Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis)
based on the initial accreted value, calculated from February 26, 1998. Cash
interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum based on the
accreted value at maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
2003.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming,
LLC. The Note Construction Disbursement Account is comprised of approximately
$35 million remaining proceeds from the Offering, after the application of the
net proceeds to repay certain previously existing indebtedness and certain fees
and expenses.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments; (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
Equity Contributions
On February 26, 1998, Sommer Enterprises, LLC contributed a portion of land
and $7.0 million of predevelopment costs in exchange for 100% of the Class A
Common Stock in Enterprises. Enterprises contributed the portion of land, the
$7.0 million of predevelopment costs and the net proceeds (approximately $15
million) allocable from the sale of the Warrants to Gaming Holdings in exchange
for 25% of the common membership interests in Gaming Holdings.
F-51
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MARCH 31, 1998
F-52
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED)
--------------
<S> <C>
ASSETS
Cash.............................................................................................. $ 669
Investment in unconsolidated Affiliate............................................................ 24,235,924
--------------
$ 24,236,593
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock, Class A, no par value, 2,000,000 shares authorized, 1,107,501 shares issued and
outstanding as of March 31, 1998................................................................ $ 4,416,734
Common Stock, Class B, no par value and non- voting 8,000,000 shares authorized, 2,215,000 shares
issued and outstanding as of March 31, 1998..................................................... 8,831,468
Additional Paid-in Capital........................................................................ 15,000,000
Accumulated Deficit............................................................................... (4,011,609)
--------------
$ 24,236,593
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 3, 1997
(INCEPTION)
THROUGH
MARCH 31, 1998 MARCH 31, 1998
-------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Equity in loss of unconsolidated affiliate.................................... $ (3,430,359) $ (3,430,359)
Income tax expense (benefit).................................................. -- --
-------------- ------------------
Net loss.................................................................. $ (3,430,359) $ (3,430,359)
-------------- ------------------
Basic loss per share.......................................................... $ (2.27) $ (2.27)
Shares used in per share calculation.......................................... 1,513,584 1,513,584
Dilutive loss per share....................................................... $ (2.27) $ (2.27)
Shares used in per share calculation.......................................... 1,513,584 1,513,584
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 31, 1997
THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK COMMON STOCK PAID RETAINED
CLASS A CLASS B IN CAPITAL EARNINGS TOTAL
-------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997......... $ 1,000 $ -- $ -- $ -- $ 1,000
Net loss........................... -- -- -- (3,430,359) (3,430,359)
Issuance of Class A common stock,
1,107,500 shares issued.......... 4,415,734 -- -- -- 4,415,734
Issuance of Class B common stock,
2,215,000 shares issued.......... -- 8,831,468 -- -- 8,831,468
Issuance of Warrants to purchase
Class B common stock, 2,215,000
Warrants issued.................. -- -- 15,000,000 -- 15,000,000
Equity costs from unconsolidated
affiliate........................ -- -- -- (581,250) (581,250)
-------------- -------------- -------------- ------------- -------------
BALANCE, MARCH 31, 1998............ $ 4,416,734 $ 8,831,468 $ 15,000,000 $ (4,011,609) $ 24,236,593
-------------- -------------- -------------- ------------- -------------
-------------- -------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED)
(UNAUDITED) FOR THE PERIOD
FOR THE THREE DECEMBER 3, 1997
MONTHS ENDED (INCEPTION) THROUGH
MARCH 31, 1998 MARCH 31, 1998
-------------- -------------------
<S> <C> <C>
Cash Flows used for Investing Activities:
Investment in unconsolidated affiliate...................................... $(15,000,000) $ (331)
Cash Flows From Financing Activities:
Proceeds from the issuance of stock......................................... -- 1,000
Proceeds from the Issuance of Warrants...................................... 15,000,000 --
-------------- ------
Increase in Cash and Cash Equivalents......................................... -- 669
Cash on Cash Equivalents at Beginning of Period............................... 669 --
-------------- ------
Cash and Cash Equivalents at End of Period.................................... $ 669 $ 669
-------------- ------
-------------- ------
Non-cash investing and financing activities:
Equity Contributions -- Non cash............................................ 13,247,202 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), was
established on December 3, 1997. Enterprises holds a 25% interest in Aladdin
Gaming Holdings, LLC ("Gaming Holdings") and is wholly owned by Sommer
Enterprises, LLC, a Nevada limited- liability company ("Sommer Enterprises").
Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), holds
a majority interest in Sommer Enterprises. The members of Holdings are the Trust
Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95%
interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company
("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which
holds a 5% interest in Holdings.
Enterprises' interest in Aladdin Gaming Holdings, LLC has been accounted for
under the equity method.
Enterprises has no other business or activities other than its investment in
Aladdin Gaming Holdings, LLC which is a development stage company. Aladdin
Gaming Holdings, LLC through its subsidiaries plans to develop, construct and
operate a new hotel and casino, the Aladdin Hotel and Casino (the "Aladdin") as
the centerpiece of an approximately 35 acre world-class resort, casino and
entertainment complex in Las Vegas, Nevada.
2. INCOME TAXES
Enterprises accounts for income taxes using the liability method as set
forth in the Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES. Under the liability method, deferred taxes are provided based on
the temporary differences between the financial reporting basis and the tax
basis of Enterprises' assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 3, 1997) through March 31, 1998 as Enterprises is a
development stage company and the realization of any deferred tax asset is
uncertain.
3. AGREEMENTS
Enterprises will enter into a Shareholders' Agreement with the Sommer Trust
providing that the Sommer Trust shall have the right to elect the Board of
Directors of Enterprises and otherwise manage the day to day affairs of
Enterprises unless and until a qualified public offering occurs or the Sommer
Trust no longer owns any equity in Enterprises.
4. PRIVATE OFFERINGS
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and,
together with Gaming Holdings, the "Issuers") and Enterprises consummated a
private offering (the "Offering") under Rule 144A of the Securities Act of 1933.
The private offering consisted of 221,500 units (the "Units"), each unit
consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount
Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants
(the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no
par value, of Enterprises.
F-57
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
4. PRIVATE OFFERINGS (CONTINUED)
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. $15.0 million of the offering proceeds were allocated to the Warrants
based on the estimated fair market value of the Warrants.
The Notes are secured by a first priority pledge of all amounts held in a
segregated construction disbursement account (the "Note Construction
Disbursement Account") and by a first priority pledge of all of the issued and
outstanding Series A Preferred Interests in Aladdin Gaming, LLC held by Gaming
Holdings.
The Indenture to the Notes contains certain covenants that (subject to
certain exceptions) restrict the ability of the Issuers and certain of their
subsidiaries to, among other things: (i) make restricted payments, (ii) incur
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay
dividends or make other distributions; (v) enter into mergers or consolidations;
(vi) enter into certain transactions with affiliates or (vii) enter into new
lines of business.
5. EQUITY CONTRIBUTIONS
On February 26, 1998, Sommer Enterprises, LLC contributed a portion of land
and $7.0 million of predevelopment costs in exchange for 100% of the Class A
Common Stock in Enterprises. Enterprises contributed the portion of land, the
$7.0 million of predevelopment costs and the net proceeds $15.0 million
allocable from the sale of the Warrants to Gaming Holdings in exchange for 25%
of the common membership interests in Gaming Holdings.
6. 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. Enterprises has adopted SFAS No. 130,
during the three-month period ended March 31, 1998 and has determined that such
adoption will not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes additional
standards for segment reporting in financial statements and is effective for
fiscal years beginning after December 15, 1997. Enterprises currently operates
as one segment.
F-58
<PAGE>
ANNEX A
CERTAIN HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LONDON CLUBS
London Clubs owns 25% of Holdings and, as described on pages 27 and 28, has
entered into the Bank Completion Guaranty, the Noteholder Completion Guaranty
and the Keep-Well Agreement in connection with the construction of the Aladdin.
Following is certain historical consolidated financial information of London
Clubs. The Registrant does not intend to provide this information in its
periodic filings following this registration statement. The 1996, 1997 and 1998
full year financial information for London Clubs set forth herein has been
extracted from the 1998 London Clubs' financial statements included on pages A-2
to A-35 and from the 1997 London Clubs' financial statements. Potential
investors should note that such information has been calculated and presented in
accordance with United Kingdom generally accepted accounting principles, which
are not consistent with, and materially differ from, United States generally
accepted accounting principles. Such information is expressed in thousands of
United Kingdom pounds sterling (L'000).
INDEX TO HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LONDON CLUBS
INTERNATIONAL, PLC
<TABLE>
<S> <C>
Consolidated Profit and Loss Data for the 52 weeks ended March 24, 1996, the 53 weeks
ended March 30, 1997 and the 52 weeks ended March 29, 1998......................... A-2
Consolidated Balance Sheet Data at March 24, 1996, March 30, 1997 and March 29,
1998............................................................................... A-3
Directors' Report and Accounts for the 52 weeks ended March 29, 1998................. A-4
</TABLE>
A-1
<PAGE>
LONDON CLUBS INTERNATIONAL, PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(IN THOUSANDS OF POUNDS STERLING)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
MARCH 24, 1996 MARCH 30, 1997 MARCH 29, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Turnover......................................................... L167,357 L179,489 L167,947
Operating Costs.................................................. (133,078) (143,092) (140,314)
-------------- -------------- --------------
Operating profit................................................. 34,279 36,397 27,633
Net interest payable............................................. (1,007) (1,154) (513)
-------------- -------------- --------------
Profit on ordinary activities before taxation.................... 33,272 35,243 27,120
Tax on ordinary activities....................................... (11,985) (12,588) (7,251)
-------------- -------------- --------------
Profit on ordinary activities after taxation..................... 21,287 22,655 19,869
Dividends paid and proposed...................................... (10,970) (11,679) (10,173)
-------------- -------------- --------------
Transfer to reserves............................................. L10,317 L10,976 L9,696
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
A-2
<PAGE>
LONDON CLUBS INTERNATIONAL, PLC
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF POUNDS STERLING)
<TABLE>
<CAPTION>
AT MARCH 24, AT MARCH 30, AT MARCH 29,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Fixed assets........................................................... L160,191 L224,312 L248,146
Current assets:
Stocks............................................................... 1,158 1,353 1,228
Debtors.............................................................. 8,523 11,818 15,023
Cash at bank and in hand............................................. 29,886 34,872 14,413
------------ ------------ ------------
Total Current Assets............................................... 39,567 48,043 30,664
Creditors (amounts falling due within one year)........................ (51,369) (62,287) (41,420)
------------ ------------ ------------
Net current liabilities.............................................. (11,802) (14,244) (10,756)
Total assets less current liabilities................................ 148,389 210,068 237,390
------------ ------------ ------------
Creditors (amounts falling due after one year)......................... (32,722) (24,816) (58,881)
Provision for liabilities and charges.................................. (517) (317) (966)
------------ ------------ ------------
L115,150 L184,935 L177,543
------------ ------------ ------------
------------ ------------ ------------
Capital and reserves:
Called up share capital.............................................. 3,539 7,078 7,345
Share premium........................................................ 78,067 74,528 80,103
Other reserves....................................................... 30,337 91,088 75,088
Profit and loss account.............................................. 3,207 12,241 15,007
------------ ------------ ------------
L115,150 L184,935 L177,543
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A-3
<PAGE>
LONDON CLUBS INTERNATIONAL PLC
DIRECTORS' REPORT AND ACCOUNTS
for the
52 weeks ended 29 March 1998
Registered number: 2862479
A-4
<PAGE>
DIRECTORS' REPORT
The directors have pleasure in presenting their report and the audited
financial statements of London Clubs International plc and its subsidiary and
associated undertakings for the 52 weeks ended 29 March 1998. The financial
statements, which were approved by the directors on 19 June 1998, are shown on
pages A-14 to A-35.
ACTIVITIES
The Group's principal activity is the operation of casinos.
The Group operates seven casinos in London, one in Beirut, Lebanon and three
in Egypt.
On 1 May 1997, the Company completed the purchase of the freehold of 50 St
James's Street, London W1, for a total consideration of L13.6 million. The
premises, which are currently being refurbished as a casino, will re-open as '50
St James' on 1 July 1998. The casino currently operated by the Group as The Ritz
Club will be closed upon the expiry of the Group's lease on 30 June 1998.
The Group's concessions to operate casinos on three cruise liners were
discontinued in January 1998.
On 25 February 1998 the Group was awarded a licence to operate a casino in
the Gauteng Province of South Africa.
On 26 February 1998 the Company and the Aladdin Gaming Corporation entered
into an agreement under which the Company invested US$50 million for a 25 per
cent equity interest in the Aladdin hotel and casino complex in Las Vegas which
is currently being redeveloped. The Company has a management contract to operate
the premium player facilities within the complex. The redeveloped casino will
re-open during the year 2000. The Company has issued a number of guarantees to
the providers of loan finance for the project. These include a Completion and
Performance Guarantee and a Keep Well Agreement.
On 28 April 1998, the Rendezvous Casino transferred its business to newly
refurbished larger premises at 14 Old Park Lane, London W1 upon the expiry of
the Group's lease of premises at the Hilton Hotel, London.
On 12 June 1998 the Group sold LCL (France) S.A. et Cie, the company which
owns and operates the Carlton Casino in Cannes, France.
A review of the business of the Company and its subsidiary and associated
undertakings and an indication of likely future developments are contained in
the Chairman's Statement on pages 2 and 3 and the Chief Executive's Review on
pages 4 and 5.
RESULTS AND DIVIDENDS
The Group's profit on ordinary activities after taxation was L19,869,000
(1997: L22,655,000). The directors propose a final dividend of 4.3 pence (1997:
5.625 pence) net per ordinary share amounting to L6,317,000. This, together with
the interim dividend of 2.625 pence (1997: 2.625 pence) net per ordinary share
paid on 30 January 1998, makes a total of 6.925 pence (1997: 8.25 pence) net per
ordinary share for the year. The final dividend, if approved, will be paid on 31
July 1998 to shareholders on the register at the close of business on 26 June
1998.
The retained profit transferred to reserves amounted to L9,696,000 (1997:
L10,976,000).
DIRECTORS
The directors who have served since 31 March 1997 are as follows:
Sir Timothy Kitson
A L Goodenough
A-5
<PAGE>
DIRECTOR'S REPORT (CONTINUED)
P Byrne
G B C Hardy
R R C Hobbs
T Hodgson (retired 6 June 1997)
R A Wood
R A C Ramm (appointed 8 June 1998)
At the forthcoming annual general meeting Mr R R C Hobbs and Sir Timothy
Kitson retire by rotation pursuant to the Articles of Association and, being
eligible, offer themselves for re-election. Having been appointed since the
previous annual general meeting, Mr R A C Ramm will also retire at the annual
general meeting and, being eligible, offer himself for election.
The interests of the directors in the share capital of the Company are set
out in note 6 to the financial statements.
During their period in office, no director has had a material interest,
directly or indirectly, at any time during the year in any contract significant
to the business of the Group.
SUBSTANTIAL INTERESTS
As at 12 June 1998 the Company had received notification of the following
interests exceeding 3 per cent of the Company's share capital:
<TABLE>
<S> <C>
Merrill Lynch & Co., Inc.............. 19.62%
Schroder Investment Management
Limited............................... 18.08%
Jupiter Asset Management.............. 7.68%
Lloyds TSB Group plc.................. 3.70%
</TABLE>
SHARE CAPITAL
Changes to the share capital of the Company are set out in note 17 to the
financial statements.
Approval will be sought at the annual general meeting to renew the authority
granted to the directors to allot unissued ordinary shares in the capital of the
Company and to obtain authority to allot shares for cash otherwise than to
existing shareholders pro-rata to their holdings.
Resolution 7 will renew the directors' authority to allot relevant
securities up to an aggregate nominal amount of L2,423,927 representing 33 per
cent of the current issued share capital (being 48,478,551 ordinary shares).
Resolution 8 is a Special Resolution to renew the directors' authority under
Section 95 of the Companies Act 1985 to allot a limited number of shares for
cash up to an aggregate nominal amount of L367,261 representing 5 per cent of
the current issued ordinary share capital of the Company (being 7,345,235
ordinary shares).
The proposed authorities conform with the guidelines issued by the
institutional investment protection bodies to ensure that existing shareholders'
interests are safeguarded and, if granted, will expire at the earlier of the
conclusion of the annual general meeting in 1999 and the date 15 months from the
date the requisite authorities are granted.
LONG TERM PERFORMANCE PLAN
The Board proposes that a resolution be put to the annual general meeting to
approve the introduction of a share based long term performance plan for
executive directors and senior management of the Group. Full details are set out
in a circular to shareholders which accompanies this annual report.
A-6
<PAGE>
DIRECTOR'S REPORT (CONTINUED)
SUPPLIER PAYMENT TERMS
It is the Group's policy and practice to agree appropriate payment terms and
conditions individually with its suppliers, having regard to the spirit of the
CBI's Prompt Payers Code.
The average number of days outstanding for trade creditors at 29 March 1998
was 34 (1997: 32). This figure takes into account the overseas operations, but
excludes the effect of certain demand payments.
EMPLOYMENT OF DISABLED PERSONS
The Group recognises its obligations towards disabled persons and endeavours
to provide as much employment as the demands of the Group's operations and the
abilities of disabled persons allow.
Applications for employment from disabled persons are studied with care and
every effort is made to find them, and any existing employees who become
disabled, appropriate work and training where it is needed.
EMPLOYEE INVOLVEMENT
The Group is committed wherever possible to employee consultation and
thereby to their involvement in the development of the Group's operations.
In January 1998 the Company introduced a Savings Related Share Option
Scheme. 828 employees participated in the scheme representing approximately 46
per cent of those eligible.
YEAR 2000
The Group has conducted an assessment of the principal software in use
within the business to identify modifications required to ensure "year 2000"
compliance. All business critical systems have been found to be compliant. The
modification or replacement of non compliant systems will be continued during
1998/99.
CHARITABLE DONATIONS
Charitable donations amounting to L33,000 (1997: L48,000) were paid during
the year.
TAXATION STATUS
The Company is not a close company for taxation purposes.
AUDITORS
Price Waterhouse have expressed their willingness to continue as auditors
and a resolution concerning their re-appointment will be proposed at the
forthcoming annual general meeting.
It has been announced that Price Waterhouse plans to merge with Coopers &
Lybrand on 1 July 1998. Assuming that merger takes place, your directors intend
that, should Price Waterhouse be re-appointed at the annual general meeting, the
new firm, PricewaterhouseCoopers, will succeed to their appointment.
BY ORDER OF THE BOARD
R I Talbot,
SECRETARY
19 June 1998
A-7
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE
TERMS OF REFERENCE
The remuneration committee comprises all the non-executive directors of the
Company and is chaired by Mr R R C Hobbs. It is responsible for deciding on all
elements of the remuneration of the executive directors, including base
salaries, performance related bonuses, share based incentive schemes and other
benefits.
COMPENSATION POLICY
The compensation of the executive directors is set by the remuneration
committee of the Board. It is the policy of the committee to provide an overall
remuneration and benefits package to enable it to attract and retain a high
calibre group of senior management who hold the necessary White Certificates'
required under the Gaming Act and who are capable of delivering the strategic
objectives of the Group on behalf of the shareholders.
The Company has complied throughout the year with Section A of the Best
Practice Provisions annexed to the London Stock Exchange Listing Rules. In
framing its compensation policy, the committee has given full consideration to
Section B of the best practice provisions annexed to the Listing Rules of the
London Stock Exchange.
The remuneration of the directors is shown in note 5 to the financial
statements.
SALARIES
These reflect the executives' experience, responsibility and commitment.
Basic salary levels are measured against those paid in comparable gaming
companies.
The executive directors' current salaries were agreed on 1 October 1994 and
are not subject to review until September 1998.
BONUS AND INCENTIVE SCHEMES
The Group is committed to the principle of relating a substantial proportion
of the total remuneration of senior management to the Group's financial
performance and has established various annual incentive bonus schemes covering
both executive directors and senior management.
As notified in the circular accompanying this annual report, there is
submitted for shareholder approval a long term performance plan, which applies
from 1998 onwards to all of the executive directors, as well as to certain other
senior management. This new plan will replace grants under the Company's
executive share option scheme for those participants.
The new plan is designed to align the interests of executive directors and
senior management with those of shareholders, to encourage increased
shareholding to assist with the attraction and retention of individuals who will
be crucial to the Group's success in the coming years and to reward sustained
good performance over a period of time.
In January 1998, the Company's savings related share scheme was introduced
for all UK employees in which the executive directors also participate.
Details of the options granted to executive directors under the executive
share option scheme and savings related option scheme and the options exercised
during the year are shown in note 6 to the financial statements.
A-8
<PAGE>
REPORT OF THE REMUNERATION COMMITTEE (CONTINUED)
PENSIONS
Mr A L Goodenough, Mr G B C Hardy and Mr R A C Ramm have personal pension
arrangements to which the Group makes an annual contribution.
Mr P Byrne is an executive member of the main London Clubs contributory
pension scheme.
None of the non-executive directors participate in the Company pension
arrangements nor do they receive any contribution towards pension provision.
SERVICE CONTRACTS
Mr A L Goodenough, Mr P Byrne and Mr G B C Hardy have service contracts
which may be terminated on two years' notice.
Mr R A C Ramm has a service contract for a fixed initial term until 29
December 2000. The contract may be terminated thereafter on one year's notice.
In establishing the notice periods prescribed within the directors' service
contracts, the committee were mindful of the need to protect shareholders'
interests by ensuring continuity of appropriately experienced and licensed
management. In view of the competitive environment and the need to attract and
retain executives of the highest calibre, the committee continues to consider
the relevant contract periods to be appropriate.
OTHER BENEFITS
Each executive director is provided with a fully expensed car, permanent
health insurance, life assurance and family medical insurance.
R R C Hobbs,
CHAIRMAN OF THE REMUNERATION COMMITTEE
19 June 1998
A-9
<PAGE>
CORPORATE GOVERNANCE
The Board complies with the recommendations of the Code of Best Practice
("the Code") issued in 1992 by the Committee on the Financial Aspects of
Corporate Governance (the Cadbury Committee). The Group complies, and has fully
complied throughout the accounting period, with all the current requirements of
the Code and the annual report includes all the disclosures currently required
by the Code.
GOING CONCERN
The directors have a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for the foreseeable
future. For this reason, they continue to adopt the going concern basis in
preparing the financial statements.
INTERNAL FINANCIAL CONTROLS
The directors are required to ensure that the Group's systems of internal
control are appropriate given the scale and type of risk being managed, the
likelihood of the risk materialising and the cost of implementing the controls
necessary to manage the risk. The existence of appropriate internal controls
provides reasonable assurance that the Group's operations are efficiently and
effectively managed, that internal financial controls are in place and that the
Group complies with its legal and regulatory obligations. However, any such
system can only provide reasonable, and not absolute, assurance against
misstatement or loss.
The Company's internal financial control and monitoring procedures include:
- clear responsibilities on the part of management for the maintenance of
appropriate financial controls and the production of accurate and timely
financial management information;
- the control of key financial risks through authorisation levels,
segregation of duties and written procedures manuals where relevant;
- the preparation of detailed monthly budgets and the comparison by
management of trading results and cash flows against budget on a regular
basis; and
- the review of internal financial controls by the audit committee in
consultation with the external auditors.
The Group operates in a highly regulated environment and an independent
compliance function reporting to the compliance committee has been developed to
ensure adherence with all local and national requirements and the Group's own
gaming procedures. Audits of all gaming operations take place at regular
intervals and their recommendations are presented to the compliance committee.
The Board has reviewed the effectiveness of the Group system of internal
financial controls for the period covered by the financial statements. In
addition, the gaming activities of the Group are also subject to review by the
Gaming Board in the UK and by the relevant government authorities for the
overseas operations.
The Group has a well defined operational/management hierarchy and
organisational structure. Terms of reference exist for all principal committees
within the Group and the roles and responsibilities of senior executives and key
members of staff are clearly defined.
THE BOARD
The Board currently comprises four executive directors and three
non-executive directors. The Board meets regularly throughout the year and has a
formal schedule of matters reserved for its decision and approval including
responsibility for the overall Group strategy, approval of major capital
expenditure,
A-10
<PAGE>
financing arrangements, the establishing and monitoring of internal controls and
compliance with gaming regulations.
The Board has also established separate audit, compliance, remuneration and
nominations committees, the membership and main responsibilities of which are
set out below:
AUDIT COMMITTEE
The members of this committee are Mr R R C Hobbs (Chairman), Sir Timothy
Kitson and Mr R A Wood. The audit committee meets as required but not less than
twice a year. Its responsibilities include a critical view of the annual and
interim financial statements (including the Board's statement on internal
control in the Group's Annual Report) prior to their submission to the Board for
approval.
COMPLIANCE COMMITTEE
The members of this committee are Mr W A Galston OBE (Chairman and non-Board
member), Mr R R C Hobbs, Sir Timothy Kitson, Mr R A Wood and Mr R A C Ramm. The
compliance committee meets as required but not less than four times per year.
The committee's principal responsibility is to satisfy itself, through the
Group's compliance function, that appropriate and effective procedures exist
within the Group to ensure compliance with all gaming laws, regulations and
guidelines.
REMUNERATION COMMITTEE
Details of the remuneration committee, including membership are set out in
its report on pages 20 and 21.
NOMINATIONS COMMITTEE
The members of this committee are Sir Timothy Kitson (Chairman), Mr A L
Goodenough, Mr R R C Hobbs and Mr R A Wood. The committee's role is to identify
and nominate candidates for future Board appointments for consideration by the
whole Board.
A-11
<PAGE>
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company and the Group as at the end of the financial year and
of the profit or loss for the financial year.
The directors have prepared the financial statements on pages A-14 to A-35
on a going concern basis and consider that the Group has used appropriate
accounting policies, consistently applied and supported by reasonable and
prudent judgements and estimates and that all accounting standards which they
consider to be applicable have been followed.
The directors have responsibility for ensuring that the Group keeps
accounting records which disclose with reasonable accuracy the financial
position of the Group and which enable them to ensure that the financial
statements comply with the Companies Act 1985.
The directors have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
REPORT BY THE AUDITORS TO THE DIRECTORS OF LONDON CLUBS INTERNATIONAL PLC ON
CORPORATE GOVERNANCE MATTERS
In addition to our audit of the financial statements we have reviewed your
statement on pages A-10 and A-11 concerning the Group's compliance with the
paragraphs of the Cadbury Code of Best Practice specified for our review by the
London Stock Exchange and the adoption of the going concern basis in preparing
the financial statements. The objective of our review is to draw attention to
non-compliance with Listing Rules 12.43(j) and 12.43(v), if not otherwise
disclosed.
BASIS OF OPINION
We carried out our review having regard to guidance issued by the Auditing
Practices Board. That guidance does not require us to perform the additional
work necessary to, and we do not, express any opinion on the effectiveness of
either the Group's system of internal financial control or corporate governance
procedures nor on the ability of the Group to continue in operational existence.
OPINION
In our opinion, your statements on internal financial control and on going
concern on page A-10, have provided the disclosures required by the Listing
Rules referred to above and are consistent with the information which came to
our attention as a result of our audit work on the financial statements.
In our opinion, based on enquiry of certain directors and officers of the
Company and examination of relevant documents, your statement on pages A-10 and
A-11 appropriately reflects the Group's compliance with the other aspects of the
Code specified for our review by Listing Rule 12.43(j).
Price Waterhouse
CHARTERED ACCOUNTANTS
London
19 June 1998
A-12
<PAGE>
The following represents the statutory audit report of Price Waterhouse,
London, whose audit was performed in accordance with generally accepted auditing
standards in the United Kingdom (UK). The accompanying financial statements have
been prepared in accordance with UK generally accepted accounting principles.
REPORT OF THE AUDITORS TO THE MEMBERS OF LONDON CLUBS INTERNATIONAL PLC
We have audited the financial statements on pages A-14 to A-35 which have
been prepared under the historical cost convention, as modified by the
revaluation of certain fixed assets, and the accounting policies set out on
pages A-19 and A-20.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page A-12, the Company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination on a test basis of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company and of the Group as at 29 March 1998 and of the
profit and cash flows of the Group for the period then ended and have been
properly prepared in accordance with the Companies Act 1985.
PRICE WATERHOUSE
CHARTERED ACCOUNTANTS
AND REGISTERED AUDITORS
London
19 June 1998
A-13
<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------------- ---------------------
NOTES L'000 L'000 L'000 L'000
-----
<S> <C> <C> <C> <C> <C>
Turnover..................................................... 2 167,947 179,489
Operating costs
Gaming taxation............................................ (47,418) (51,708)
Other...................................................... (75,218) (74,134)
--------- ---------
(122,636) (125,842)
---------- ----------
Gross profit................................................. 45,311 53,647
Administrative expenses
Exceptional bid costs...................................... (202) (1,080)
Other...................................................... (17,476) (16,170)
--------- ---------
(17,678) (17,250)
---------- ----------
Operating profit............................................. 3 27,633 36,397
Net interest payable......................................... 7 (513) (1,154)
---------- ----------
Profit on ordinary activities before taxation................ 2 27,120 35,243
Tax on ordinary activities................................... 8 (7,251) (12,588)
---------- ----------
Profit on ordinary activities after taxation................. 19,869 22,655
Dividends paid and proposed.................................. 9 (10,173) (11,679)
---------- ----------
Transfer to reserves......................................... 18 9,696 10,976
---------- ----------
Earnings per share........................................... 10 13.6p 16.0p
---------- ----------
Earnings per share before exceptional bid costs.............. 10 13.8p 16.8p
---------- ----------
</TABLE>
The notes on pages A-19 to A-35 form part of these financial statements.
A-14
<PAGE>
CONSOLIDATED BALANCE SHEET
AS AT 29 MARCH 1998
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
NOTES L'000 L'000 L'000 L'000
-----
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets............................................. 11 217,651 219,646
Investments................................................. 12 30,495 4,666
--------- --------- --------- ---------
248,146 224,312
Current assets
Stocks...................................................... 1,228 1,353
Debtors..................................................... 13 15,023 11,818
Cash at bank and in hand.................................... 14,413 34,872
--------- ---------
30,664 48,043
Creditors (amounts falling due within one year)............... 14 (41,420) (62,287)
--------- --------- --------- ---------
Net current liabilities....................................... (10,756) (14,244)
--------- ---------
Total assets less current liabilities......................... 237,390 210,068
Creditors (amounts falling due after one year)................ 15 (58,881) (24,816)
Provision for liabilities and charges......................... 16 (966) (317)
--------- ---------
177,543 184,935
--------- ---------
--------- ---------
Capital and reserves
Called up share capital..................................... 17 7,345 7,078
Share premium............................................... 18 80,103 74,528
Merger reserve.............................................. 5,352 5,352
Revaluation reserve......................................... 18 69,736 85,736
Profit and loss account..................................... 18 15,007 12,241
--------- ---------
177,543 184,935
--------- ---------
--------- ---------
</TABLE>
Approved on behalf of the Board on 19 June 1998.
Sir Timothy Kitson
G B C Hardy
DIRECTORS
The notes on pages A-19 to A-35 form part of these financial statements.
A-15
<PAGE>
COMPANY BALANCE SHEET
AS AT 29 MARCH 1998
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
NOTES L000 L000 L000 L000
-----
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets.............................................. 11 22,493 2,807
Investments.................................................. 12 27,457 27,457
--------- --------- --------- ---------
49,950 30,264
Current assets
Debtors...................................................... 13 123,985 73,069
Cash at bank and in hand..................................... 1,266 15,368
--------- ---------
125,251 88,437
Creditors (amounts falling due within one year)................ 14 (47,210) (24,447)
--------- --------- --------- ---------
Net current assets............................................. 78,041 63,990
--------- ---------
Total assets less current liabilities.......................... 127,991 94,254
Provision for liabilities and charges.......................... 16 (29,648) --
--------- ---------
98,343 94,254
--------- ---------
--------- ---------
Capital and reserves
Called up share capital...................................... 17 7,345 7,078
Share premium................................................ 18 80,103 74,528
Profit and loss account...................................... 18 10,895 12,648
--------- ---------
98,343 94,254
--------- ---------
--------- ---------
</TABLE>
Approved on behalf of the Board on 19 June 1998
Sir Timothy Kitson
G B C Hardy
DIRECTORS
The notes on pages A-19 to A-35 form part of these financial statements.
A-16
<PAGE>
CONSOLIDATED CASH FLOW STATEMENT
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
NOTES L'000 L'000 L'000 L'000
-----------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES............................. 21 23,286 44,806
Return on investments and servicing of finance.................. 22 (543) (1,165)
Taxation........................................................ (12,979) (11,791)
Capital expenditure and financial investment.................... 22 (22,650) (8,645)
Acquisitions and disposals...................................... 22 (32,228) --
Equity dividends paid........................................... (11,820) (11,148)
--------- ---------
CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND
FINANCING...................................................... (56,934) 12,057
Management of liquid resources.................................. 22 1,220 18
Financing--Issue of shares...................................... 5,842 --
--Increase/(Decrease) in debt........................... 29,747 (6,200)
--------- ---------
35,589 (6,200)
--------- ---------
(DECREASE)/INCREASE IN CASH IN THE PERIOD....................... (20,125) 5,875
--------- ---------
</TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
ENDED 29 ENDED 30
MARCH MARCH
1998 1997
--------- ---------
L'000 L'000
<S> <C> <C>
(DECREASE)/INCREASE IN CASH IN THE PERIOD.................................................... (20,125) 5,875
Cash (inflow)/outflow from movement in debt.................................................. (29,747) 6,200
Cash inflow from decrease in liquid resources................................................ (1,220) (18)
Other non cash changes....................................................................... 3,598 (379)
Translation differences...................................................................... 886 (871)
--------- ---------
MOVEMENT IN NET DEBT IN THE PERIOD........................................................... (46,608) 10,807
NET FUNDS/(DEBT) AT BEGINNING OF PERIOD...................................................... 2,140 (8,667)
--------- ---------
NET (DEBT)/FUNDS AT END OF PERIOD............................................................ (44,468) 2,140
--------- ---------
</TABLE>
The notes on pages A-19 to A-35 form part of these financial statements.
A-17
<PAGE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- ---------------
<S> <C> <C>
L'000 L'000
Profit on ordinary activities after taxation..................................... 19,869 22,655
Unrealised (deficit)/surplus on revaluation of properties........................ (16,000) 60,751
Exchange difference on a re-translation of net assets of subsidiary and
associated undertakings........................................................ (1,454) (1,942)
Exchange gain on foreign currency loans.......................................... 415 --
------- ------
Total recognised gains and losses for the period............................. 2,830 81,464
------- ------
------- ------
</TABLE>
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE 52 WEEKS ENDED 29 MARCH 1998
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- --------------
<S> <C> <C>
L'000 L'000
Profit on ordinary activities after taxation..................................... 19,869 22,655
Dividends........................................................................ (10,173) (11,679)
------- -------
9,696 10,976
Unrealised (deficit)/surplus on revaluation of properties........................ (16,000) 60,751
Goodwill arising on acquisition of associated undertaking........................ (5,891) --
Exchange difference on re-translation of net assets of subsidiary and associated
undertakings................................................................... (1,454) (1,942)
Exchange gain on foreign currency loans.......................................... 415 --
Issue of share capital........................................................... 5,842 --
------- -------
Net (decrease)/addition to shareholders' funds................................... (7,392) 69,785
Opening shareholders' funds...................................................... 184,935 115,150
------- -------
Closing shareholders' funds.................................................. 177,543 184,935
------- -------
------- -------
</TABLE>
The notes on pages A-19 to A-35 form part of these financial statements.
A-18
<PAGE>
Notes to the Financial Statements
1 ACCOUNTING POLICIES
A ACCOUNTING CONVENTION
The financial statements have been prepared under the historical cost
convention as modified by the revaluation of short leasehold properties and in
accordance with applicable accounting standards.
B CONSOLIDATION
The consolidated accounts include the results and net assets of the Company
and its subsidiary and associated undertakings. Undertakings acquired are
consolidated from the effective date of acquisition. Goodwill arising on the
acquisition of subsidiary or associated undertakings is set off directly against
reserves.
C TURNOVER
Turnover represents gaming income and also includes management contract
income, membership subscriptions and catering revenues.
D FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost or valuation.
The short leasehold properties from which the Group conducts its casino
operations are carried at open market value on an existing use and fully
operational basis, including the benefit of casino licences. Formal professional
revaluations of the UK casinos are undertaken on at least a triennial basis and
the resultant valuation is included in the balance sheet unless the surplus or
deficit is immaterial.
The directors review the valuations each year and if, in their opinion,
there is any diminution in value, it is charged either to the revaluation
reserve or the profit and loss account as appropriate. In the directors'
opinion, on the basis of this review, the residual disposal value of the
properties and the benefit of casino licences attaching to those properties is
at least equal to their book value.
All leases have an unexpired term of less than 20 years and the values of
the leaseholds excluding the benefit of the casino licences are depreciated over
the remaining term of the lease. Other assets are depreciated over their
estimated useful lives on the following bases:
Fixtures and fittings--10 per cent to 20 per cent straight line.
Motor vehicles--25 per cent reducing balance.
E CAPITALISATION OF INTEREST ON PROPERTY DEVELOPMENT
Interest expenses associated with the construction of a casino over an
extended period, prior to the commencement of business, are capitalised within
fixed assets. Currently only the interest costs associated with the construction
of the Aladdin hotel and casino complex qualify under this policy. No interest
is capitalised in respect of either ongoing refurbishment or the transfer of
business premises.
F INVESTMENTS
Investments, including investments in subsidiary and associated
undertakings, are valued individually at the lower of cost and directors'
valuation.
A-19
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1 ACCOUNTING POLICIES (CONTINUED)
G TAXATION
The charge for taxation is based on the profit for the period and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes, unless there is reasonable
probability that the deferred tax will not crystallise in the foreseeable
future.
H STOCKS
Stocks, which comprise consumables, are valued at the lower of cost and
estimated net realisable value.
I TRADE DEBTORS
Trade debtors include debtors of the overseas casino operations (where
deferred payment is permitted) net of provisions raised for any amounts
considered unlikely to be recoverable.
In the UK, full provision is charged to the profit and loss account for all
unpaid gaming cheques net of any amounts recovered up to the date of approval of
the accounts.
J EXCHANGE RATES
Transactions in foreign currencies are translated into sterling at the rates
ruling at the date of transaction. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are translated at the year end
exchange rate. The results of overseas operations are translated at average
exchange rates.
Exchange differences arising from the translation of the opening net assets
of overseas subsidiaries and any foreign currency borrowings used to acquire
overseas assets are dealt with as a movement in reserves. All other exchange
differences are taken to the profit and loss account.
K LEASES
The rental charges in respect of operating leases are taken to the profit
and loss account on a straight line basis over the life of the lease.
L PENSION COSTS
The Group operates a pension scheme covering the majority of employees.
Pension costs are assessed in accordance with the advice of independent
actuaries. Variations from the regular pensions cost are spread on a systematic
basis over the estimated average remaining service lives of employees. The
scheme is funded by payments to trustee administered funds completely
independent of the Group's finances.
A-20
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 SEGMENTAL ANALYSIS
Operations by geographical segment:
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- --------------
<S> <C> <C>
L'000 L'000
TURNOVER
Europe....................................................................... 144,972 157,471
Middle East.................................................................. 22,975 22,018
------- -------
167,947 179,489
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Europe....................................................................... 25,077 34,712
Middle East.................................................................. 2,556 1,685
------ ------
Operating profit............................................................. 27,633 36,397
Interest receivable.......................................................... 4,181 1,663
Interest payable............................................................. (4,694) (2,817)
------ ------
Profit on ordinary activities before taxation................................ 27,120 35,243
------ ------
------ ------
</TABLE>
For the purposes of the segmental analysis all head office costs have been
allocated to Europe.
With the exception of the investment in the associated undertaking, Aladdin
Gaming Holdings LLC (which is based in the United States), substantially all
of the net assets of the Group are located in Europe. Substantially all of
the Group's turnover, operating profit and net assets relate to the
operation of casinos.
A-21
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3 OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Employee costs (see note 4).................................................. 43,965 44,594
Operating lease rentals on properties........................................ 8,626 8,395
Operating lease rentals on equipment......................................... 704 620
Depreciation................................................................. 3,796 3,418
Auditors' remuneration
-- Audit services............................................................ 197 198
Exceptional bid costs........................................................ 202 1,080
Other........................................................................ 35,406 33,079
------ ------
92,896 91,384
------ ------
------ ------
Shown as:
Operating costs.............................................................. 75,218 74,134
Administrative expenses...................................................... 17,678 17,250
------ ------
92,896 91,384
------ ------
------ ------
</TABLE>
Audit fees for the Company were L15,000 (1997: L15,000). Non-audit fees for
the Group and Company were L269,000 (1997: L489,000) and L238,000 (1997:
L300,000) respectively. The non-audit fees for the current year primarily relate
to tax advice and compliance services and work in respect of review of the
interim report. The fees for the prior year additionally include amounts in
respect of the bid for Capital Corporation plc.
The exceptional bid costs represent professional and other costs incurred in
respect of the bid for Capital Corporation plc which lapsed on 7 April 1997
following referral to the Monopolies and Mergers Commission (MMC) and
professional fees and other costs in respect of subsequent submissions presented
to the MMC.
Other costs include catering costs, the net movement in provisions for
gaming cheques, marketing expenditure, irrecoverable VAT, other establishment
costs and professional fees.
4 EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Employee costs (including directors):
Wages and salaries........................................................... 38,336 38,963
Social security costs........................................................ 4,303 4,403
Other pension costs.......................................................... 1,326 1,228
------ ------
43,965 44,594
------ ------
Average number of employees by geographic location:
Europe....................................................................... 1,939 1,865
Middle East.................................................................. 370 380
------ ------
2,309 2,245
------ ------
------ ------
</TABLE>
A-22
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
----------------- ---------------
<S> <C> <C>
L'000 L'000
Payments to non-executive directors.............................................. 110 128
Salaries, allowances and taxable benefits........................................ 703 824
Bonuses--payment on account under long term
bonus scheme........................................................ -- 405
--payment on discontinuance of long term bonus scheme..................... -- 1,076
Pension contributions............................................................ 83 100
--- -----
896 2,533
--- -----
--- -----
</TABLE>
The remuneration figures for the 53 weeks ended 30 March 1997 include the
final payments of accrued bonus entitlement under the executive directors' long
term bonus scheme which was discontinued as at 30 March 1997.
The value of all the elements of remuneration received by each director in
respect of the 52 weeks to 29 March 1998 was as follows:
<TABLE>
<CAPTION>
FEES AND BENEFITS TOTAL
SALARY IN KIND PENSION 1998
----------- ------------- ------------- -----
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
EXECUTIVE
A L Goodenough......................................................... 240 21 43 304
(CHIEF EXECUTIVE)
P Byrne................................................................ 170 12 8 190
(GROUP OPERATIONS DIRECTOR)
G B C Hardy............................................................ 170 15 31 216
(FINANCE DIRECTOR)
T Hodgson.............................................................. 43 32 1 76
(COMPLIANCE AND SECURITY DIRECTOR) (I)
NON-EXECUTIVE
Sir Timothy Kitson..................................................... 60 -- -- 60
(CHAIRMAN)
Sir Gordon Booth (ii).................................................. -- -- -- --
R R C Hobbs............................................................ 25 -- -- 25
R A Wood............................................................... 25 -- -- 25
<CAPTION>
TOTAL
1997
-----
<S> <C>
L'000
EXECUTIVE
A L Goodenough......................................................... 851
(CHIEF EXECUTIVE)
P Byrne................................................................ 507
(GROUP OPERATIONS DIRECTOR)
G B C Hardy............................................................ 536
(FINANCE DIRECTOR)
T Hodgson.............................................................. 511
(COMPLIANCE AND SECURITY DIRECTOR) (I)
NON-EXECUTIVE
Sir Timothy Kitson..................................................... 61
(CHAIRMAN)
Sir Gordon Booth (ii).................................................. 17
R R C Hobbs............................................................ 25
R A Wood............................................................... 25
</TABLE>
- ------------------------
(i) retired 6 June 1997
(ii) retired 5 December 1996
RETIREMENT BENEFITS
Mr A L Goodenough and Mr G B C Hardy have personal pension arrangements to
which the Company makes annual contributions.
A-23
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION (CONTINUED)
Mr P Byrne is an executive member of the London Clubs contributory pension
scheme. The increase in value of Mr Byrne's retirement benefits during the 52
weeks to 29 March 1998 is given below:
<TABLE>
<CAPTION>
INCREASE IN ACCRUED
PENSION DURING ACCRUED PENSION INCREASE IN
1997/98 AT 29 MARCH 1998 TRANSFER VALUE
----------------------- --------------------- -------------------
<S> <C> <C> <C>
L'000 L'000 L'000
P Byrne..................................................... 2 15 18
</TABLE>
The increase in Transfer Value has been provided by an independent actuary
appointed by the Trustee of the London Clubs Pension Scheme. The Transfer Value
represents a liability to the Company but not a sum paid or due to the
individual.
6. DIRECTORS' INTERESTS
The interests of the directors and their immediate families in the share
capital of the Company at the end of the year and at the beginning of the year
were as follows:
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
---------------------------------------- -----------------------
EXECUTIVE EXECUTIVE
ORDINARY SHARE SAVINGS ORDINARY SHARE
SHARES OPTIONS RELATED OPTIONS SHARES OPTIONS
--------- ------------ --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
P Byrne................... 280,000 -- 3,995 280,000 512,400
A L Goodenough............ 202,228 -- 3,995 202,228 622,400
G B C Hardy............... 901,048 512,400 3,995 901,048 512,400
R R C Hobbs............... 98,800 -- -- 98,800 --
Sir Timothy Kitson........ 50,800 -- -- 40,800 --
NON-BENEFICIAL.......... 2,000 -- -- -- --
R A Wood.................. 10,000 -- -- 10,000 --
</TABLE>
The interests represent ordinary shares of 5 pence each and options over
ordinary shares.
There were no savings related options in existence at 30 March 1997.
All the executive options were granted on 6 June 1994, under the London
Clubs International plc executive share option scheme, and adjusted for the one
for one bonus issue in July 1996. The executive options are exercisable at a
price of 109.25 pence between June 1997 and June 2004.
Certain directors exercised executive options during the year at a market
price of 385 pence per share. The resulting gains were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- -----
<S> <C> <C>
L'000 L'000
P Byrne....................................................................... 1,413 --
A L Goodenough................................................................ 1,716 --
T Hodgson..................................................................... 1,413 --
--
---------
4,542 --
--
--
---------
---------
</TABLE>
The savings related options were granted on 10 February 1998 and are
exercisable at a price of 244 pence per share between 1 March 2000 and 31 August
2000.
A-24
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. DIRECTORS' INTERESTS (CONTINUED)
The mid market price of the Company's shares as at 29 March 1998 was 205.5
pence. The range of share prices during the 52 weeks to 29 March 1998 was 417
pence to 205 pence per share.
Other than as stated above, none of the directors nor any member of their
immediate families at 29 March 1998 had any interest in the share capital of the
Company. No changes in details have occurred between 29 March 1998 and 19 June
1998.
The Company' Register of Directors' Interests contains full details of
directors' shareholdings and options to subscribe for ordinary shares.
7. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Interest payable on bank loans................................................... 2,999 2,817
Interest payable on Guaranteed Senior Notes...................................... 1,695 --
Interest receivable and similar income
- --on fixed asset investment...................................................... (397) (303)
- --other.......................................................................... (3,784) (1,360)
------ ------
Net interest payable............................................................. 513 1,154
------ ------
------ ------
</TABLE>
8. TAXATION
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
UK corporation tax at 31 per cent (1997: 33 per cent) on the taxable profit for
the period...................................................................... 9,171 12,341
Deferred taxation................................................................ 649 (200)
Overseas taxation................................................................ 447 618
Prior year adjustments........................................................... (3,016) (171)
------ ------
7,251 12,588
------ ------
------ ------
</TABLE>
There is no taxation charge or credit in respect of the associated
undertaking.
Movements in deferred taxation are explained in note 16.
9. DIVIDENDS
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Dividends on equity shares
Interim 2.625 pence per share (1997: 2.625 pence) paid on 30 January 1998...... 3,856 3,716
Final 4.30 pence per share (1997: 5.625 pence) proposed to be paid on 31 July
1998......................................................................... 6,317 7,963
------ ------
10,173 11,679
------ ------
------ ------
</TABLE>
A-25
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. EARNINGS PER SHARE
Earnings per ordinary share for each year have been calculated on profit on
ordinary activities after taxation divided by the weighted average number of
ordinary shares in issue during the year.
Fully diluted earnings per share, taking into account all options over the
Company's shares, is not materially different to basic earnings per share.
The earnings and weighted average number of shares used in the calculation
of earnings per share were as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
-------------- --------------
<S> <C> <C>
L'000 L'000
Earnings per ordinary share (pence).............................................. 13.6 16.0
Earnings ('000).................................................................. 19,869 22,655
Weighted average number of shares ('000)......................................... 145,845 141,557
------- -------
------- -------
</TABLE>
Earnings per share before exceptional bid costs have been calculated as 13.8
pence per share (1997: 16.8 pence per share). This figure is based upon the
profit after taxation but before exceptional bid costs, of L20,071,000 (1997:
L23,735,000) and on 145,845,000 (1997: 141,557,000) ordinary shares. The
exceptional bid costs, amounting to L202,000 (1997: L1,080,000), represent fees
and other expenses incurred in respect of the bid for Capital Corporation plc.
No tax credit is assumed to arise on the bid costs.
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
FITTINGS
SHORT AND ASSETS IN
FREEHOLD LEASEHOLD MOTOR COURSE OF
GROUP PROPERTY PROPERTIES VEHICLES CONSTRUCTION TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000
COST OR VALUATION
At 30 March 1997........................... -- 217,649 19,704 2,977 240,330
Revaluation................................ -- (16,000) -- -- (16,000)
Additions.................................. 12,150 1,515 2,131 6,972 22,768
Disposals.................................. -- (138) (2,228) -- (2,366)
Adjustment (see note 15)................... -- (4,000) -- -- (4,000)
Transfers.................................. 1,485 -- -- (1,485) --
Exchange movement.......................... -- (701) (347) -- (1,048)
----------- ----------- ----------- ----------- ---------
At 29 March 1998........................... 13,635 198,325 19,260 8,464 239,684
----------- ----------- ----------- ----------- ---------
DEPRECIATION
At 30 March 1997........................... -- 10,029 10,655 -- 20,684
Charge for year............................ -- 1,432 2,364 -- 3,796
Disposals.................................. -- (138) (2,159) -- (2,297)
Exchange movement.......................... -- (36) (114) -- (150)
----------- ----------- ----------- ----------- ---------
At 29 March 1998........................... -- 11,287 10,746 -- 22,033
----------- ----------- ----------- ----------- ---------
NET BOOK VALUE
At 29 March 1998........................... 13,635 187,038 8,514 8,464 217,651
----------- ----------- ----------- ----------- ---------
At 30 March 1997........................... -- 207,620 9,049 2,977 219,646
----------- ----------- ----------- ----------- ---------
</TABLE>
A-26
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. TANGIBLE FIXED ASSETS (CONTINUED)
The short leasehold properties from which the Group conducts its casino
operations are carried at open market value on an existing use and fully
operational basis, including the benefit of casino licences.
The directors included the Group's UK short leasehold properties as at 30
March 1997 at the amount determined by G L Hearn (Chartered Surveyors). However,
consequent to the proposed changes in the rates of gaming duty outlined in the
Chancellor's Budget Statement, the directors have reassessed the carrying value
and reduced the overall valuation as at 29 March 1998 by L20.0 million. This
includes an adjustment of L4.0 million to the original cost of the London Park
Tower leasehold property due to the fact that the deferred consideration thereon
is no longer assumed to be payable. The next independent valuation of the
properties will be in March 2000.
The value of short leasehold properties on an historical cost basis
comprises assets with a cost of L128.6 million (1997: L131.9 million) and
accumulated depreciation of L11.3 million (1997: L10.0 million). The net book
value of the short leasehold properties, on an historical cost basis, is L117.3
million (1997: L121.9 million). Assets in the course of construction relate to
the cost of the development of 14 Old Park Lane and 50 St James's Street. When
construction is complete, these costs will be transferred to the appropriate
asset categories. No depreciation is charged during the period of construction.
No provision has been made for the potential liability to taxation on
capital gains which could arise if the short leasehold properties held as fixed
assets were sold at the amounts at which they have been revalued and included in
these accounts as the directors have no current intentions of selling these
assets with gaming licences attached.
<TABLE>
<CAPTION>
FIXTURES,
SHORT FITTINGS AND ASSETS IN
FREEHOLD LEASEHOLD MOTOR COURSE OF
COMPANY PROPERTY PROPERTIES VEHICLES CONSTRUCTION TOTAL
----------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000
COST
At 30 March 1997............................ -- -- 31 2,776 2,807
Additions................................... 12,150 597 581 6,415 19,743
Transfers................................... 1,485 -- -- (1,485) --
----------- --- --- ----------- ---------
At 29 March 1998............................ 13,635 597 612 7,706 22,550
----------- --- --- ----------- ---------
DEPRECIATION
At 30 March 1997............................ -- -- -- -- --
Charge for year............................. -- 15 42 -- 57
----------- --- --- ----------- ---------
At 29 March 1998............................ -- 15 42 -- 57
----------- --- --- ----------- ---------
NET BOOK VALUE
At 29 March 1998............................ 13,635 582 570 7,706 22,493
----------- --- --- ----------- ---------
At 30 March 1997............................ -- -- 31 2,776 2,807
----------- --- --- ----------- ---------
</TABLE>
A-27
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS
GROUP
<TABLE>
<CAPTION>
INTEREST IN
ASSOCIATED FLOATING RATE OTHER
UNDERTAKING NOTES INVESTMENT TOTAL
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
At 30 March 1997................................................ -- 3,676 990 4,666
Additions....................................................... 31,065 -- 1,163 32,228
Goodwill written off............................................ (5,891) -- -- (5,891)
Exchange movement............................................... (415) (93) -- (508)
----------- ----- ----- ---------
At 29 March 1998................................................ 24,759 3,583 2,153 30,495
----------- ----- ----- ---------
</TABLE>
(a) On 26 February 1998, London Clubs Nevada Inc (a 100 per cent subsidiary
undertaking of the Group) acquired 25 per cent of the issued share capital of
Aladdin Gaming Holdings LLC ("Aladdin"). Aladdin is incorporated in the United
States and owns a site for a hotel and casino complex in Las Vegas. The complex
is presently being redeveloped and is scheduled to open in 2000. Aladdin has
been classified as an associated undertaking in the financial statements in view
of the proportion of shares held by the Group and its representation on the
Board of that company.
The Group's investment in the share capital of Aladdin represents L31.1
million in respect of the cost of the shares less goodwill of L5.9 million which
has been set against reserves and foreign exchange adjustments of L0.4 million.
The Group's share of the net assets of Aladdin at 26 February 1998 comprised
fixed assets (comprising land and construction in progress) with a fair value of
L29.2 million, cash of L46.9 million, sundry debtors of L0.3 million and long
term debt with a value of L51.2 million.
The Company received a commitment fee amounting to L1.8 million from Aladdin
in relation to assistance with the loan finance and recharged a further L1.8
million of legal and professional fees incurred by the Company on behalf of
Aladdin.
During the period from 26 February 1998 to 30 March 1998, the Group's share
of interest capitalised in respect of borrowings to finance the construction of
the Aladdin hotel and casino complex amounted to L0.3 million.
There was no profit or loss in the period in relation to the operating
results of Aladdin. The last audited accounts were as at 31 December 1997 which
indicated that the business had no distributable reserves.
(b) The Group has an investment in Abela Tourism and Development Company SAL
("ATDC"). ATDC is incorporated in Lebanon and has a management concession for
the Casino du Liban complex in Beirut. The Group also holds floating rate notes
issued by Casino du Liban which have a nominal value of US$6.0 million.
(c) The Group has an investment in Tortello Investments (No. 15) Pty Limited
("Tortello"). Tortello is incorporated in South Africa and holds the gaming
licence for the Emerald Safari Resort in Gauteng Province. The Group has a
management contract for the operation of the casino which is currently under
development.
A-28
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. INVESTMENTS (CONTINUED)
COMPANY
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Shares in Group undertakings...................................................... 27,457 27,457
------ ------
</TABLE>
Principal subsidiary undertakings of the Company are noted below:
<TABLE>
<CAPTION>
COUNTRY OF
INCORPORATION PERCENTAGE
OR COUNTRY OF PRINCIPAL OF VOTING
REGISTRATION OPERATION ACTIVITY SHARES HELD
------------- ---------- -------------------------- -----------
<S> <C> <C> <C> <C>
London Club Holdings Limited*............... England England Holding company 100%
London Clubs Management Limited............. England England Management company 100%
Ritz Club (London) Limited.................. England England Gaming casino 100%
Les Ambassadeurs Club Limited............... England England Gaming casino 100%
Rendezvous Club (London) Limited............ England England Gaming casino 100%
Zealcastle Limited.......................... England England Gaming casino 100%
Palm Beach Club Limited..................... England England Gaming casino 100%
The Sportsman Club Limited.................. England England Gaming casino 100%
Golden Nugget Club Limited.................. England England Gaming casino 100%
London Clubs (Overseas) Limited............. England England Holding company 100%
Inter Casino Management (Egypt) Limited..... Isle of Man Egypt Gaming casino 100%
Six Hamilton Place Limited.................. England England Banqueting operation 100%
London Clubs Nevada Inc..................... USA USA Holding company 100%
</TABLE>
- ------------------------
(All companies owned indirectly except *)
13. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY GROUP COMPANY
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
29 MARCH 1998 30 MARCH 1997
---------------------- ----------------------
L'000 L'000 L'000 L'000
Trade debtors........................................................... 3,216 239 2,137 3
Amounts due from group companies........................................ -- 117,471 -- 68,663
Amounts due from associated company..................................... 1,856 1,856 -- --
Other debtors........................................................... 5,189 1,483 5,211 2,333
Prepayments and accrued income.......................................... 3,183 1,357 2,479 79
ACT recoverable......................................................... 1,579 1,579 1,991 1,991
--------- ----------- --------- -----------
15,023 123,985 11,818 73,069
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
The ACT recoverable is receivable after more than one year.
A-29
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14 CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
GROUP COMPANY GROUP COMPANY
--------- ----------- --------- -----------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Short term element of bank loan......................................... -- -- 5,916 --
Loan notes.............................................................. -- -- 2,000 --
Trade creditors......................................................... 3,537 767 1,715 255
Amounts due to group companies.......................................... -- 36,484 -- 12,320
Corporation tax......................................................... 7,152 -- 15,622 --
ACT payable............................................................. 2,543 2,543 2,920 2,920
Gaming taxation payable................................................. 7,396 -- 10,528 --
Other tax including social security..................................... 1,131 -- 194 --
Interest payable........................................................ 804 600 16 --
Other creditors and accruals............................................ 12,540 499 15,413 989
Proposed dividend....................................................... 6,317 6,317 7,963 7,963
--------- ----------- --------- -----------
41,420 47,210 62,287 24,447
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
15 CREDITORS (AMOUNTS FALLING DUE AFTER ONE YEAR)
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
GROUP COMPANY GROUP COMPANY
--------- ----------- --------- -------------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Bank loan
- --Repayable between one and two years................................... -- -- 6,031 --
- --Repayable between two and five years.................................. 29,233 -- 14,785 --
Guaranteed Senior Notes
- --Repayable after five years............................................ 29,648 29,648 -- --
Deferred consideration.................................................. -- -- 4,000 --
--
--------- ----------- ---------
58,881 29,648 24,816 --
--
--
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
The bank loan is secured by a fixed charge over the freehold at 50 St
James's Street together with a floating charge over all assets of the Company
and all its present and future UK subsidiaries.
On 11 April 1997, the Company completed a supplemental agreement, whereby
all outstanding facilities were replaced by a Revolving Credit Facility. This
facility is available until 11 April 2002. Interest is payable at LIBOR plus
0.65 per cent with a small variable adjustment. Advances are available in
foreign currencies which may be used to finance overseas investments. Until 29
September 1998, a certain proportion of the loan is subject to an interest rate
cap based on a LIBOR rate of 9 per cent.
Under an agreement dated 30 June 1997 the Guaranteed Senior Notes were
issued to fund the Group's investment in Aladdin Gaming Holdings LLC. The
nominal value of the notes is US$50 million on which interest is payable at 7.74
per cent.
Deferred consideration is payable based upon the cumulative results of
Zealcastle Limited for the three years ending 1 October 1998 consequent to the
purchase agreement for that company dated
A-30
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15 CREDITORS (AMOUNTS FALLING DUE AFTER ONE YEAR) (CONTINUED)
2 October 1995. Full provision was made as at 30 March 1997 for the maximum
amount payable. However, based upon the results of the London Park Tower casino
and taking into account the likely impact of the proposed change in the rates
and bandings for gaming duty (as outlined in the Chancellor's Budget Statement),
the targets are unlikely to be met. The provision has been written back and
offset against the cost of the London Park Tower leasehold property (which was
the main asset acquired as part of the Zealcastle acquisition).
16 PROVISIONS FOR LIABILITIES AND CHARGES
The amount of deferred taxation which has been provided in the financial
statements is as follows:
<TABLE>
<CAPTION>
GROUP COMPANY
----------- -------------
<S> <C> <C>
L'000 L'000
Deferred tax liability at 30 March 1997........................................................ 317 --
Charge for the period.......................................................................... 649 --
--
---
Deferred tax liability at 29 March 1998........................................................ 966 --
--
--
---
---
</TABLE>
Comprising:
GROUP
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
PROVIDED UNPROVIDED PROVIDED UNPROVIDED
----------- ----------------- ----------- -----------------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Accelerated capital allowances............................... 966 (120) 607 (23)
Short term timing differences................................ -- -- (290) --
--
--- --- ---
966 (120) 317 (23)
--
--- --- ---
</TABLE>
COMPANY
There are no unprovided deferred tax liabilities.
17 SHARE CAPITAL
The following information relates to the share capital of the Company during
the period.
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
NUMBER L'000 NUMBER L'000
------------- --------- ------------- ---------
Authorised
Ordinary shares of 5 pence each................................. 233,565,100 11,678 233,565,100 11,678
Issued, allotted and fully paid
Ordinary shares of 5 pence each................................. 146,904,702 7,345 141,557,502 7,078
</TABLE>
At 29 March 1998 there were outstanding options to subscribe for 1,622,400
ordinary shares (1997: 6,989,600 ordinary shares) under the London Clubs
International plc executive share option scheme, which are exercisable between
June 1997 and March 2006. In addition, there were outstanding options to
A-31
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17 SHARE CAPITAL (CONTINUED)
subscribe for 2,484,699 ordinary shares (1997: Nil) under the savings related
option scheme, which are exercisable between 1 March 2000 and 31 August 2000.
During the year 5,347,200 ordinary shares were allotted at L1.0925 each upon
the exercise of options under the executive share option scheme.
18 RESERVES
<TABLE>
<CAPTION>
GROUP AND
COMPANY
-----------
<S> <C>
L'000
SHARE PREMIUM ACCOUNT
At 30 March 1997...................................................................................... 74,528
Exercise of share options............................................................................. 5,575
-----------
Balance at 29 March 1998.............................................................................. 80,103
-----------
-----------
<CAPTION>
GROUP
-----------
L'000
<S> <C>
REVALUATION RESERVE
At 30 March 1997...................................................................................... 85,736
Revaluation during the period......................................................................... (16,000)
-----------
Balance at 29 March 1998.............................................................................. 69,736
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
--------- -----------
<S> <C> <C>
L'000 L'000
PROFIT AND LOSS ACCOUNT
At 30 March 1997............................................................................. 12,241 12,648
Retained profit/(loss) for the period........................................................ 9,696 (1,753)
Goodwill arising on acquisition of associated undertaking.................................... (5,891) --
Exchange difference on re-translation of net assets of subsidiary and associated
undertakings............................................................................... (1,454) --
Exchange gain on foreign currency loans...................................................... 415 --
--------- -----------
Balance at 29 March 1998..................................................................... 15,007 10,895
--------- -----------
--------- -----------
</TABLE>
As permitted by Section 230 of the Companies Act 1985, the Company's profit
and loss account is not separately presented. The amount of the Company's
retained loss for the period is L1,753,000 (1997: L6,995,000 profit).
19 CAPITAL COMMITMENTS
At 29 March 1998 the Group had capital commitments contracted for but not
provided of L4,468,610 (1997: L396,260).
A-32
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20 OPERATING LEASE COMMITMENTS
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
GROUP COMPANY GROUP COMPANY
--------- ------------- --------- -------------
<CAPTION>
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Operating lease commitments on land and buildings payable within one year
for leases expiring:
- --within one year.......................................................... 344 -- 1,381 --
- --between one and five years............................................... 3,093 -- 4,337 --
- --after five years......................................................... 3,906 723 3,453 723
--------- --- --------- ---
7,343 723 9,171 723
--------- --- --------- ---
--------- --- --------- ---
Operating lease commitments on plant and equipment payable within one year
for leases expiring:
- --within one year.......................................................... 181 -- 131 --
- --between one and five years............................................... 369 -- 302 --
--------- --- --------- ---
550 -- 433 --
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
21 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED
29 MARCH 1998 30 MARCH 1997
--------------- ---------------
<S> <C> <C>
L'000 L'000
Operating profit................................................................. 27,633 36,397
Depreciation charges............................................................. 3,796 3,418
(Profit)/loss on sale of fixed assets............................................ (49) 75
Exchange movement................................................................ 94 305
Decrease/(increase) in stock..................................................... 125 (195)
Increase in debtors.............................................................. (5,067) (784)
(Decrease)/increase in creditors................................................. (3,246) 5,590
------ ------
Net cash inflow from operating activities........................................ 23,286 44,806
------ ------
</TABLE>
A-33
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22 ANALYSIS OF CASH FLOWS FOR HEADINGS SUMMARISED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
29 MARCH 1998 30 MARCH 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
--------- --------- --------- ---------
Returns on investments and servicing of finance
Interest received......................................................... 2,961 1,360
Interest paid............................................................. (3,504) (2,525)
--------- --------- --------- ---------
Net cash outflow for returns on investments and servicing of finance...... (543) (1,165)
--------- --------- --------- ---------
Capital expenditure and financial investments
Purchase of tangible fixed assets......................................... (22,768) (4,379)
Purchase of loan notes.................................................... -- (4,276)
Proceeds of tangible fixed asset sales.................................... 118 10
--------- --------- --------- ---------
Net cash outflow for capital expenditure and financial investment......... (22,650) (8,645)
--------- --------- --------- ---------
Acquisitions and disposals
Investment in associated undertaking...................................... (31,065) --
Purchase of fixed asset investment........................................ (1,163) --
--------- --------- --------- ---------
Net cash outflow for acquisitions and disposals........................... (32,228) --
--------- --------- --------- ---------
Net cash management of liquid resources Inflow from purchase and sale of
securities.............................................................. 1,220 18
--------- --------- --------- ---------
Net cash inflow from management of liquid resources....................... 1,220 18
--------- --------- --------- ---------
Financing
Issue of ordinary share capital........................................... 5,842 --
Debt due within a year
- --repayment of loan notes................................................. (2,000) (6,200)
- --loan finance raised..................................................... 31,747 --
--------- --------- --------- ---------
Net cash inflow/(outflow) from financing.................................. 35,589 (6,200)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
23 ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
EXCHANGE
AT OTHER NON MOVEMENT AT
30 MARCH CASH AND CHANGES IN 29 MARCH
1997 CASH FLOW CHANGES MARKET VALUE 1998
----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000
Cash in hand and at bank............................ 34,872 (20,125) -- (334) 14,413
Debt due after one year............................. (24,816) (31,747) (2,318) -- (58,881)
Debt due within one year............................ (7,916) 2,000 5,916 -- --
(29,747)
Current asset investment............................ -- (1,220) -- 1,220 --
----------- ----------- ----------- ----- -----------
Total............................................... 2,140 (51,092) 3,598 886 (44,468)
----------- ----------- ----------- ----- -----------
----------- ----------- ----------- ----- -----------
</TABLE>
The cash flows in respect of the management of liquid resources represent
gains arising on the purchase and sale of units in an institutional cash fund.
Cash in hand and at bank includes L901,000 (1997: L999,000) held on deposit
pursuant to overseas gaming reserve requirements.
A-34
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
24 PENSIONS
The principal pension scheme operated by the Group is a defined benefits
scheme, providing benefits based on final pensionable salary. The assets of this
scheme are held in a separate trustee administered fund.
The latest formal actuarial valuation of the fund was at 31 March 1996 using
the projected unit method. The assumptions which have the most significant
effect on the results of the valuation are the relative rates of return on the
investments of the fund compared with increases in pay and pensions. It was
assumed for this purpose that, on average, the annual return on investments
would exceed increases in pay by 4 per cent until 31 March 1997 and by 2 per
cent thereafter and would exceed increases in pensions by 4 per cent.
At the date of the latest formal actuarial valuation, the market value of
the assets of the fund was L31.3 million. The valuation showed that the assets
represented 111 per cent of the benefits that have accrued to members. Taking
this surplus into account, the actuary has recommended a future contribution
rate for the Group as follows: from 1 April 1996 to 31 March 1999 10.0 per cent
of pensionable pay; from 1 April 1999 to 31 March 2005 11.9 per cent of
pensionable pay and from 1 April 2005 15.0 per cent of pensionable pay. Death in
service benefits, professional fees and other expenses are paid by the pension
scheme.
The pension charge for the year was L1,199,000 (1997: L1,122,000) which was
paid to the fund.
In addition the Company makes contributions in respect of individual
personal pension schemes. The annual contribution for the year was L126,000
(1997: L106,000).
25 GUARANTEES AND FINANCIAL COMMITMENTS
As part of the financing arrangements in connection with the development of
the Aladdin Hotel and Casino, the Company and the Sommer Family Trust have
jointly and severally given a Completion and Performance Guarantee which applies
during the construction period. In addition, through a Keep Well Agreement, the
Company and Aladdin Holdings LLC will have a joint and several contingent
obligation to provide further equity and/or to make accelerated payments of up
to US$150.0 million should certain financial covenants be breached.
Although the obligations under the Completion and Performance Guarantee and
Keep Well Agreement are joint and several, it is agreed under the terms of a
Contribution Agreement that each partys liability will be pro-rata to its
initial shareholding in Aladdin Gaming Holdings LLC which is 75 per cent for the
Sommer Family Trust (through Aladdin Holdings LLC and other entities controlled
by the Trust) and 25 per cent for the Company. The Company has certain remedies
should the Sommer Family Trust or Aladdin Holdings LLC default in its
obligations, including rights over the Sommer Family Trust's equity interest in
Aladdin Gaming Holdings LLC.
The construction risk has been mitigated through a fixed price construction
contract guaranteed as to timing and price by the architect and general
contractor. Aladdin Gaming LLC, a wholly owned subsidiary of Aladdin Gaming
Holdings LLC, has access to secured senior credit facilities of up to US$410.0
million.
26 SUBSEQUENT EVENT
On 12 June 1998 the Group announced the sale of LCL (France) S.A. et Cie,
which owns and operates the Carlton Casino in Cannes, to Groupe Partouche.
A-35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY THE WARRANTS OR THE WARRANT SHARES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN AFFAIRS OF
THE ALADDIN PARTIES SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 15
Use of Proceeds................................. 34
Capitalization.................................. 36
Dividends and Distributions..................... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 39
Business........................................ 42
Regulation and Licensing........................ 70
Management...................................... 75
Controlling Stockholders........................ 82
Certain Transactions............................ 86
Security Ownership of Certain Beneficial
Owners........................................ 88
Description of Capital Stock.................... 92
Description of the Warrants..................... 94
Description of Noteholder Completion Guaranty
and Disbursement Agreement.................... 97
Description of Certain Indebtedness and Other
Obligations................................... 103
Certain Material Agreements..................... 113
Certain United States Federal Income Tax
Considerations................................ 138
Plan of Distribution............................ 140
Legal Matters................................... 140
Experts......................................... 141
Index to Historical Financial Information of the
Aladdin Parties and the Company............... F-1
Annex A
Certain Historical Consolidated Financial
Information of London Clubs................. A-1
</TABLE>
[LOGO]
2,215,000 WARRANTS TO
PURCHASE SHARES OF COMMON STOCK OF
ALADDIN GAMING ENTERPRISES, INC.
---------------------
PROSPECTUS
----------------------------
July 23, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.
The following expenses (other than the SEC filing fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 4,425
Accounting Fees and Expenses...................................... $ 12,000
Printing and Engraving Expenses................................... $ 48,000
Legal Fees and Expenses (other than blue sky)..................... $ 175,000
Blue Sky Fees and Expenses........................................ $ 10,000
Transfer Agent and Registrar Fees................................. $ 1,500
Miscellaneous Expenses............................................ $ 5,000
---------
Total............................................................. $ 255,925
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following summary of material provisions of the Articles of
Incorporation and Bylaws of Aladdin Gaming Enterprises, Inc. (the "Issuer") and
Nevada law does not purport to be complete and is subject to and qualified in
its entirety by reference to Nevada law and the text of the Issuer's Articles of
Incorporation and Bylaws, which have been filed as exhibits to this Registration
Statement.
The Issuer's Articles of Incorporation provide that no officer or director
will be personally liable to the Issuer or any stockholder for damages for
breach of fiduciary duty as a director or officer, except for (i) acts or
omissions which involve intentional misconduct, fraud or knowing violation of
the law, or (ii) the payment of distributions in violation of Nevada Revised
Statutes ("NRS") Section78.300.
Additionally, the Issuer's Bylaws limit the liability of its directors and
officers (and, by action of the board of directors, its employees, and other
persons) to the fullest extent permitted by Nevada law. If the Nevada law is
subsequently amended to permit further limitation of personal liability of
directors and officers, the liability of the Issuer's directors and officers
will be eliminated or limited to the fullest extent permitted by Nevada law, as
amended. Nevada law permits corporations to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (except in an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. This
same permissible indemnification is not allowed as to any action or suit by or
in the right of the corporation if the person has been adjudged by a court
(after exhaustion of all appeals) to be liable to the corporation or for amounts
paid in settlement to the corporation, unless and only to the extent that a
court determines upon application that in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses, as the court deems proper. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
the defense of any claim, issue or matter therein, Nevada law requires that he
must be indemnified by the corporation against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with that defense.
II-1
<PAGE>
The Issuer's Bylaws further provide that the Issuer may purchase and
maintain insurance or make other financial arrangements for such indemnification
and that such indemnification shall continue as to any indemnitee who has ceased
to be a director or officer and shall inure to the benefit of his heirs,
executors and administrators.
The inclusion of the permissive indemnification provision in the Issuer's
Bylaws may have the effect of reducing the likelihood of derivative litigation
against directors and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefitted the Issuer
and its stockholders.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the registrants pursuant to the foregoing
provisions, the Issuer has been informed that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Pursuant to the registration rights agreement (the "Registration Rights
Agreement") relating to the Warrants (the "Warrants") to acquire Class B Common
Stock of the Issuer and the Class B Common Stock of the Issuer into which the
Warrants are exercisable, the holders of such securities and certain
underwriters, broker dealers and the Initial Purchasers (as defined herein) have
agreed to indemnify the directors, officers and controlling persons of the
registrant against certain liabilities, costs and expenses that may be incurred
in connection with the registration of such securities, to the extent that such
liabilities, costs and expenses that may be incurred in connection with the
registration of such securities arise from an omission or untrue statement
contained in information provided to the registrant by a holder of such
securities, underwriter, broker dealer or Initial Purchaser.
The Purchase Agreement, dated as of February 18, 1998 among Aladdin Gaming
Holdings LLC, Aladdin Capital Corp. and the Issuer (collectively, the "Unit
Issuers") and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Credit
Suisse First Boston Corporation, CIBC Oppenheiner Corp. and Scotia Capital
Markets (USA) Inc. (the "Initial Purchasers"), contains provisions by which the
Initial Purchasers agree to indemnify the Unit Issuers (including their
respective officers, directors, employees, agents and controlling persons)
against certain liabilities.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises").
*3.2 Amendment No. 1 to Articles of Incorporation of Enterprises.
*3.3 Articles of Organization of Aladdin Gaming Holdings, LLC ("Holdings").
*3.4 Articles of Incorporation of Aladdin Capital Corp. ("Capital").
*3.5 Articles of Organization of Aladdin Gaming, LLC (the "Company").
*3.6 Bylaws of Enterprises.
*3.7 Operating Agreement of Holdings.
*3.8 Bylaws of Capital.
*3.9 Operating Agreement of the Company.
*4.1 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company,
as Warrant Agent (the "Warrant Agent").
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
*4.2 Warrant Registration Rights Agreement dated February 26, 1998, among Enterprises and the Initial
Purchasers (as defined).
*4.3 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises,
London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined).
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of securities being registered.
+5.2 Opinion of Schreck Morris regarding legality of the securities being registered.
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain tax matters.
*10.1 Indenture, dated February 26, 1998, among Holdings, Capital and State Street Bank and Trust Company, as
trustee (the "Trustee").
*10.2 Note Registration Rights Agreement, dated February 26, 1998, among Holdings, Capital and the Initial
Purchasers.
*10.3 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.
*10.4 Disbursement Agreement, dated February 26, 1998, among Holdings, the Company, the Bank of Nova Scotia,
as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary,
U.S. Bank National Association as Servicing Agent and the Trustee.
*10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Holdings and the
Trustee.
*10.6 The Holdings Collateral Account Agreement, dated February 26, 1998, between Holdings and the Trustee.
*10.7 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee.
*10.8 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs,
Holdings, Aladdin Holdings, LLC, the Company, Sommer Enterprises, LLC and the Trust Under Article Sixth
u/w/o Sigmund Sommer.
*10.9 Closing Schedules to Amended and Restated London Clubs Purchase Agreement.
*10.10 Contribution Agreement, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund
Sommer, Aladdin Holdings, LLC, Sommer Enterprises, LLC, London Clubs and LCNI.
*10.11 Salle Privee Agreement, dated February 26, 1998, among the Company, LCNI and London Clubs.
10.12 [RESERVED]
*10.13 Credit Agreement, dated February 26, 1998, among the Company, a syndicate of lenders (the "Bank
Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as
Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent.
*10.14 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.
*10.15 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin
Bazaar Holdings, LLC.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
*10.16 Design/Build Contract, dated December 4, 1997, between the Company and Fluor Daniel, Inc.
*10.17 Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between the Company and Fluor Daniel,
Inc.
*10.18 Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between the Company and Fluor Daniel,
Inc.
*10.19 Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation.
*10.20 Site Work, Development and Construction Agreement, dated February 26, 1998, among the Company, Aladdin
Bazaar, LLC and Aladdin Holdings, LLC.
*10.21 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among the Company,
Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC.
*10.22 Common Parking Area Use Agreement, dated February 26, 1998 between the Company and Aladdin Bazaar, LLC.
*10.23 Music Project Lease, dated February 26, 1998 between the Company and Aladdin Music Holdings, LLC.
*10.24 Mall Project Lease, dated February 26, 1998, between the Company and Aladdin Bazaar, LLC.
*10.25 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26,
1998, made by the Company to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova
Scotia.
*10.26 Development Agreement, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
10.27 [RESERVED]
*10.28 Energy Lease, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
*10.29 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and the Company.
*10.30 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar
Centers Inc. and Aladdin Bazaar Holdings, LLC.
*10.31 First Amendment to the Limited Liability Company Operating Agreement of Aladdin Bazaar, LLC, dated
October 16, 1997.
*10.32 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between the
Company and Planet Hollywood International, Inc.
*10.33 Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997,
between the Company and Planet Hollywood International, Inc.
*10.34 GAI Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and GAI,
LLC.
*10.35 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Richard J. Goeglein.
*10.36 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
James H. McKennon.
*10.37 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Cornelius T. Klerk.
*10.38 Galati Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings, and
Lee A. Galati.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
*10.39 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and
Jose A. Rueda.
*10.40 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and the Company as amended as of January
1998.
*10.41 Employment and Consulting Agreement, dated July 1, 1997, between the Company and Richard J. Goeglein as
amended as of January 1998.
*10.42 Employment Agreement, dated July 28, 1997, between the Company and James H. McKennon.
*10.43 Employment Agrement, dated July 28, 1997, between the Company and Cornelius T. Klerk.
*10.44 Employment Agreement, dated August 19, 1997, between the Company and Lee A. Galati.
*10.45 Employment Agreement, dated July 1, 1997, between the Company and Jose A. Rueda.
*10.46 FF&E Commitment Letter, dated January 23, 1998, between the Company and General Electric Capital
Corporation.
*10.47 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as
Administrative Agent.
*10.48 Purchase Agreement, dated February 18, 1998, among Enterprises, Holdings, Capital, Aladdin Holdings,
LLC, the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital
Markets (USA) Inc. (the "Initial Purchasers").
*10.49 Contributed Land Appraisal prepared by HVS International.
*10.50 Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Price Waterhouse.
+23.3 Consent of Schreck Morris (included in exhibit 5.2).
*23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in exhibits 5.1 and 8.1).
*23.5 Awareness Letter from Price Waterhouse.
</TABLE>
- ------------------------
+ Filed herewith.
* Previously filed.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii)
to reflect in the Prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 per
cent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement, and (iii) to include any material information with respect to the
plan for distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X at
the start of any delayed offering or throughout a continuous offering.
(b) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-6
<PAGE>
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Las Vegas,
State of Nevada on July 23, 1998.
<TABLE>
<S> <C> <C>
ALADDIN GAMING ENTERPRISES, INC.
By: /s/ CORNELIUS T. KLERK
-----------------------------------------
Cornelius T. Klerk
TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ President/Director July 23, 1998
Jack Sommer
*
- ------------------------------ Secretary/Director July 23, 1998
Ronald Dictrow
/s/ CORNELIUS T. KLERK
- ------------------------------ Treasurer July 23, 1998
Cornelius T. Klerk
* By Power of Attorney
<TABLE>
<S> <C> <C> <C>
*By: /s/ CORNELIUS T. KLERK
-------------------------
Cornelius T. Klerk
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- --------- -----
<C> <S> <C>
*3.1 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises").
*3.2 Amendment No. 1 to Articles of Incorporation of Enterprises.
*3.3 Articles of Organization of Aladdin Gaming Holdings, LLC ("Holdings").
*3.4 Articles of Incorporation of Aladdin Capital Corp. ("Capital").
*3.5 Articles of Organization of Aladdin Gaming, LLC (the "Company").
*3.6 Bylaws of Enterprises.
*3.7 Operating Agreement of Holdings.
*3.8 Bylaws of Capital.
*3.9 Operating Agreement of the Company.
*4.1 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust
Company, as Warrant Agent (the "Warrant Agent").
*4.2 Warrant Registration Rights Agreement dated February 26, 1998, among Enterprises and the Initial
Purchasers (as defined).
*4.3 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC,
Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined).
*5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of securities being
registered.
+5.2 Opinion of Schreck Morris regarding legality of the securities being registered.
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding certain tax matters.
*10.1 Indenture, dated February 26, 1998, among Holdings, Capital and State Street Bank and Trust
Company, as trustee (the "Trustee").
*10.2 Note Registration Rights Agreement, dated February 26, 1998, among Holdings, Capital and the
Initial Purchasers.
*10.3 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.
*10.4 Disbursement Agreement, dated February 26, 1998, among Holdings, the Company, the Bank of Nova
Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and
Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee.
*10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Holdings and
the Trustee.
*10.6 The Holdings Collateral Account Agreement, dated February 26, 1998, between Holdings and the
Trustee.
*10.7 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the
Trustee.
*10.8 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI,
London Clubs, Holdings, Aladdin Holdings, LLC, the Company, Sommer Enterprises, LLC and the
Trust Under Article Sixth u/w/o Sigmund Sommer.
*10.9 Closing Schedules to Amended and Restated London Clubs Purchase Agreement.
*10.10 Contribution Agreement, dated February 26, 1998, among the Trust Under Article Sixth u/w/o
Sigmund Sommer, Aladdin Holdings, LLC, Sommer Enterprises, LLC, London Clubs and LCNI.
*10.11 Salle Privee Agreement, dated February 26, 1998, among the Company, LCNI and London Clubs.
10.12 [RESERVED]
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*10.13 Credit Agreement, dated February 26, 1998, among the Company, a syndicate of lenders (the "Bank
Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as
Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent.
*10.14 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.
*10.15 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and
Aladdin Bazaar Holdings, LLC.
*10.16 Design/Build Contract, dated December 4, 1997, between the Company and Fluor Daniel, Inc.
*10.17 Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between the Company and Fluor
Daniel, Inc.
*10.18 Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between the Company and Fluor
Daniel, Inc.
*10.19 Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation.
*10.20 Site Work, Development and Construction Agreement, dated February 26, 1998, among the Company,
Aladdin Bazaar, LLC and Aladdin Holdings, LLC.
*10.21 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among the
Company, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC.
*10.22 Common Parking Area Use Agreement, dated February 26, 1998 between the Company and Aladdin
Bazaar, LLC.
*10.23 Music Project Lease, dated February 26, 1998 between the Company and Aladdin Music Holdings,
LLC.
*10.24 Mall Project Lease, dated February 26, 1998, between the Company and Aladdin Bazaar, LLC.
*10.25 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated
February 26, 1998, made by the Company to Stewart Title of Nevada, as trustee for the benefit of
the Bank of Nova Scotia.
*10.26 Development Agreement, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
10.27 [RESERVED]
*10.28 Energy Lease, dated December 3, 1997, between the Company and Northwind Aladdin, LLC.
*10.29 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and the Company.
*10.30 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH
Bazaar Centers Inc. and Aladdin Bazaar Holdings, LLC.
*10.31 First Amendment to the Limited Liability Company Operating Agreement of Aladdin Bazaar, LLC,
dated October 16, 1997.
*10.32 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between
the Company and Planet Hollywood International, Inc.
*10.33 Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15,
1997, between the Company and Planet Hollywood International, Inc.
*10.34 GAI Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and GAI, LLC.
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*10.35 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among the Company,
Holdings and Richard J. Goeglein.
*10.36 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among the Company,
Holdings and James H. McKennon.
*10.37 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and Cornelius T. Klerk.
*10.38 Galati Contribution and Amendment Agreement, dated February 26, 1998, among the Company,
Holdings, and Lee A. Galati.
*10.39 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings
and Jose A. Rueda.
*10.40 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and the Company as amended as of
January 1998.
*10.41 Employment and Consulting Agreement, dated July 1, 1997, between the Company and Richard J.
Goeglein as amended as of January 1998.
*10.42 Employment Agreement, dated July 28, 1997, between the Company and James H. McKennon.
*10.43 Employment Agrement, dated July 28, 1997, between the Company and Cornelius T. Klerk.
*10.44 Employment Agreement, dated August 19, 1997, between the Company and Lee A. Galati.
*10.45 Employment Agreement, dated July 1, 1997, between the Company and Jose A. Rueda.
*10.46 FF&E Commitment Letter, dated January 23, 1998, between the Company and General Electric Capital
Corporation.
*10.47 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National
Bank, as Administrative Agent.
*10.48 Purchase Agreement, dated February 18, 1998, among Enterprises, Holdings, Capital, Aladdin
Holdings, LLC, the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC
Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers").
*10.49 Contributed Land Appraisal prepared by HVS International.
*10.50 Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Price Waterhouse.
+23.3 Consent of Schreck Morris (included in exhibit 5.2).
*23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in exhibits 5.1 and 8.1).
*23.5 Awareness Letter from Price Waterhouse.
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+ Filed herewith.
* Previously filed.
<PAGE>
SCHRECK MORRIS
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
July 23, 1998
Aladdin Gaming Enterprises, Inc.
831 Pilot Road
Las Vegas, Nevada 89119
Ladies and Gentlemen:
We have acted as special Nevada counsel to Aladdin Gaming Enterprises,
Inc., a Nevada corporation (the "Company") in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of (i)
an aggregate of 2,215,000 shares of the Company's Class B non-voting common
stock, no par value per share (the "Warrant Shares") issuable upon the
exercise of 2,215,000 warrants (the "Warrants") originally issued and sold on
February 26, 1998 pursuant to an offering by Aladdin Gaming Holdings, LLC, a
Nevada limited-liability company, Aladdin Capital Corp., a Nevada
corporation, and the Company, and (ii) the Warrants to purchase the Warrant
Shares, pursuant to the Company's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission (the "Commission") on April 9,
1998 (File No. 333-49715), and Amendment No. 1 filed on June 11, 1998, and
Amendment No. 2 thereto filed on July 22, 1998, and Amendment No. 3 thereto
with which this opinion is being filed (such Registration Statement, as so
amended, being hereinafter referred to as the "Registration Statement").
For the purpose of rendering this opinion, we have examined originals,
or copies certified or otherwise identified to our satisfaction as being true
copies of such records, documents, instruments and certificates as, in our
judgment, are necessary or appropriate to enable us to render the opinions
set forth below, including but not limited to the following:
(i) the Registration Statement;
(ii) that certain Warrant Agreement dated as of February 26, 1998 by and
between the Company and State Street Bank and Trust Company, as warrant agent
(the "Warrant Agreement");
(iii) the form of the Warrants included as an exhibit in the Warrant
Agreement;
<PAGE>
Aladdin Gaming Enterprises, Inc.
July 22, 1998
Page 2
(iv) the Company's Articles of Incorporation and Bylaws, as amended to
date; and
(v) Certain resolutions of the Board of Directors of the Company
authorizing the Company's execution, delivery and performance of its
obligations under the Warrant Agreement.
The documents described in clauses (ii) and (iii) above are referred to
as the "Operative Documents."
We have made such legal and factual examinations and inquiries as we
have deemed necessary or appropriate for purposes of this opinion. We have
been furnished with, and with your consent have relied upon, certificates and
assurances of officers and other representatives of the Company and of public
officials as we have deemed necessary for the purpose of rendering the
opinions set forth herein. As to questions of fact material to our opinions,
we have also relied upon the statements of fact and the representations and
warranties as to factual matters contained in the documents we have examined,
however, except as otherwise expressly indicated, we have not been requested
to conduct, nor have we undertaken, any independent investigation to verify
the content or veracity thereof or to determine the accuracy of any
statement, and no inference as to our knowledge of any matters should be
drawn from the fact of our representation of the Company.
Without limiting the generality of the foregoing, in our examination of
documents, we have assumed without independent verification, that (i) each
natural person executing any such document hassufficient legal capacity to do
so, (ii) all documents submitted to us as originals are authentic, the
signatures on all documents that we examined are genuine, and all documents
submitted to us as certified, conformed, photostatic or facsimile copies
conform to the original document, (iii) all corporate records made
available to us by the Company and all public records we have reviewed are
accurate and complete, and (iv) the obligations of each party set forth in
the documents we have examined are its legal, valid and binding obligations,
enforceable in accordance with their respective terms.
Based upon the foregoing, and subject to the qualifications, exceptions
and assumptions set forth herein, and having regard to legal considerations
and other information that we deem relevant, we are of the opinion that:
1. The Warrant Shares have been duly authorized by the Company and,
when and to the extent the Warrant Shares are issued and sold in the manner
set forth in the Warrant Agreement and the Registration Statement upon
exercise of the Warrants, the Warrant Shares will be validly issued, fully
paid and non-assessable.
2. The Warrant Agreement and the Warrants issued pursuant thereto have
been duly authorized, executed and delivered by the Company.
3. The authorization, execution and delivery by the Company of the
Operative Documents and the performance by the Company of its obligations
thereunder, do not and will not violate or constitute a breach of or default
under (i) the Articles of Incorporation or Bylaws of the Company or (ii) any
law, rule or regulation of the State of Nevada based upon a review of those
statutes, rules and regulations which, in our experience, are normally
applicable to transactions of the type contemplated by the Operative
Documents (other than securities or anti-fraud laws).
4. Based solely upon discussions with officers of the Company
responsible for such matters and our review of material documents identified
to us by, and certificates of, such officers, there are no (i) judicial or
regulatory orders or decrees of any governmental authority of the State of
Nevada which are binding upon the Company or to which the Company is subject,
or (ii) consents, approvals, licenses, authorizations, or validations of, or
filings, recordings or registrations with, any governmental authority of the
State of Nevada, in any such case, with which or under which, the
authorization, execution and delivery by the Company of the Operative
Documents or the performance by the Company of its obligations thereunder
conflicts or constitutes a default or which is violated thereby. Based on our
due diligence investigation, we do not know of any other such violations,
conflicts or defaults.
We are qualified to practice law in the State of Nevada. The opinions
set forth herein are expressly limited to the laws of the State of Nevada and
we do not purport to be experts on, or to express any opinion herein
concerning, or to assume any responsibility as to the applicability to or the
effect on any of the matters covered herein of, the laws of any other
jurisdiction. We express no
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Aladdin Gaming Enterprises, Inc.
July 22, 1998
Page 3
opinion concerning, and we assume no responsibility as to laws or judicial
decisions related to, or any orders, consents or other authorizations or
approvals as may be required by, any federal law, including any federal
securities law, or any state securities or Blue Sky laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm therein and in the
related Prospectus as the same appears under the caption "Legal Matters". In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Yours very truly,
/s/ Schreck Morris
SCHRECK MORRIS
