-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQSPeBESIEDgpbSNL1aoJZ79ecDe/rr4RGZNlMdXmp+wLsgF46DvHyv/NnmKQNKr G1xQijg4INq/PXA1y9ICRg== 0001047469-99-012948.txt : 19990402 0001047469-99-012948.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012948 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALADDIN GAMING ENTERPRISES INC CENTRAL INDEX KEY: 0001059128 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 880379695 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-49715 FILM NUMBER: 99582738 BUSINESS ADDRESS: STREET 1: 831 PILOT ROAD CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7027367114 MAIL ADDRESS: STREET 1: 831 PILOT ROAD CITY: LAS VEGAS STATE: NV ZIP: 89119 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) /X/ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 / / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 333-49715 ALADDIN GAMING ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Nevada 88-0379695 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 831 Pilot Road, Las Vegas, Nevada 89119 (Address of principal executive offices) (Zip code) (702) 736-7114 (Registrant's telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / Not applicable. Indicate the number of shares outstanding of each of the registrants' classes of common stock as of March 16, 1999: Class A Common Stock, no par value, 2,000,000 shares authorized, 1,107,500 issued and Class B Common Stock, non-voting, no par value, 8,000,000 shares authorized, 2,215,000 issued. DOCUMENTS INCORPORATED BY REFERENCE Not applicable. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL. Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Gaming Enterprises"), was established on December 3, 1997. Gaming Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming Holdings") which was established on December 1, 1997. Gaming Holdings was initially owned by Gaming Enterprises (25%), Sommer Enterprises, LLC, a Nevada limited liability company (72%) ("Sommer Enterprises"), and GAI, LLC, a Nevada limited liability company (3%). On February 26, 1998, London Clubs International, plc ("London Clubs"), through its subsidiary London Clubs Nevada, Inc. ("LCNI"), contributed $50 million for a 25% interest in Gaming Holdings' common membership interests ("Holdings Common Membership Interests"). Sommer Enterprises, contributed a portion of land for Holdings Common Membership Interests. Gaming Enterprises, which is owned 100% by Sommer Enterprises, contributed a portion of land, $7 million of predevelopment costs and $15 million in cash for Holdings Common Membership Interests. After the additional contributions, Sommer Enterprises, LLC owns 47% of Gaming Holdings, LCNI owns 25% of Gaming Holdings, Gaming Enterprises owns 25% of Gaming Holdings and GAI, LLC owns 3% of Gaming Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that they shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation." Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds a majority interest in Gaming Holdings. The members of AHL are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95% interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW") which holds a 5% interest in AHL. Gaming Enterprises has no other business or activity other than its investment in Gaming Holdings, which is a development stage company and Gaming Enterprises' sole material asset is 25% of the Holdings Common Membership Interests. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of the 13 1/2% Senior Discount Notes ("Notes"). Capital will not have any material operations or assets and will not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music'). Gaming Holdings and its subsidiaries are collectively referred to as "Company." Much of the following information relates to Gaming Holdings and its subsidiaries and is included due to the relative significance of Gaming Enterprises' investment in Gaming Holdings. NARRATIVE DESCRIPTION OF BUSINESS ALADDIN. The operations of the Company have been primarily limited to the design, development, financing and construction of a new Aladdin Hotel and Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately 35-acre world-class resort, casino and entertainment complex ("Complex") located on the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of Las Vegas Boulevard ("Strip"). The Aladdin has been designed to include a luxury themed hotel of approximately 2,600 rooms ("Hotel"), an approximately 116,000 square foot casino ("Casino"), an approximately 1,400-seat production showroom and six restaurants. The Hotel's 2,600 rooms will be comprised of 1,976 standard rooms, 400 "king parlors," 136 "tower end-cap suites," 58 "center king suites" and 30 suites primarily for use by premium players of Aladdin and 2 The London Club (as defined below). In addition, the Hotel is expected to provide recreational facilities for the guests, including a health spa and outdoor swimming pool complex. The Aladdin is expected to include six restaurants offering a wide range of dining selections with combined seating capacity for approximately 1,600 customers. Food service facilities at the Aladdin will include a buffet, food plaza and a 24-hour casual dining facility. The mezzanine level, which will offer a panoramic view of the main casino floor, will feature a themed restaurant, a steakhouse, and a casual dining/coffee bar. The Casino's main gaming area will contain approximately 2,800 slot machines, 87 table games, keno and a race and sports book facility. Included on a separate level of the Casino will be a 15,000 square foot luxurious gaming section ("The London Club") that is expected to contain approximately 20 to 30 high denomination table games and approximately 100 high denomination slot machines. See "Strategic Alliances--London Clubs." The Aladdin is also expected to include on the mezzanine level of the main building over 90,000 square feet of convention, conference, trade show and reception facilities, including a 37,000 square feet main ballroom, 12,000 square feet of pre-function space and 41,000 square feet of breakout space in 15 separate rooms. THE COMPLEX. The Complex, which has been designed to promote casino traffic and to provide customers with a wide variety of entertainment alternatives, will comprise: (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a second hotel and casino with a music and entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be separately owned in part by an affiliate of the Company and Aladdin Music is currently seeking a joint venture partner for the Aladdin Music Project. See "Narrative Description of Business--Aladdin Music Project." The theming of the Aladdin and the Desert Passage will create an environment that will be based upon the Legends of the 1001 Arabian Nights, including the tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad and other legendary stories woven around ancient wealth and wonders. The Aladdin theme will be carefully crafted through the interior and exterior architecture of the Complex. The Aladdin's exterior will be designed to include a highly articulated streetscape, and exterior facade that invokes the Legends of the 1001 Arabian Nights. The sophisticated interior of the Aladdin will utilize rich colors, textures and design, enhancing the fantasy of a mystical, romantic time and place. A significant feature of the Desert Passage will be the themed area to be known as the "Lost City." The Lost City is expected to contain a re-creation of an ancient mystical mountain city and will house a variety of specialty shops and restaurants underneath a 85-foot high ceiling. DESERT PASSAGE. Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the Sommer Trust, and TrizecHahn Bazaar Centers, Inc. ("THB"), a subsidiary of TrizecHahn Centers, Inc. ("TrizecHahn"), have entered into a joint venture agreement and formed Aladdin Bazaar, LLC ("Aladdin Bazaar") to develop, construct, own and operate the Desert Passage. The Desert Passage, which will contain approximately 496,000 square feet of retail space, is expected to include an array of high fashion specialty stores, exotic boutiques, theme restaurants, cafes, and other entertainment offerings. The Desert Passage will be directly connected to the Casino and the Aladdin Music Project upon its completion. ALADDIN MUSIC PROJECT. The Company, through its subsidiary Aladdin Music, is pursuing prospective joint venture partners for the development, construction and opening of the Aladdin Music Project, a music entertainment themed hotel casino. The Aladdin Music Project is expected to include a hotel with approximately 1,000 rooms, a 50,000 square foot casino, three restaurants, including a music-themed restaurant, a 1,500-person nightclub, a health spa and an outdoor swimming pool. As part of the development of the Complex, the Company expects to indirectly contribute to Aladdin Music $21.3 million 3 in cash and land in exchange for equity in Aladdin Music and to lease to Aladdin Music the existing Theater for a nominal amount. It is anticipated that Aladdin Music will carry out an approximately $8 million renovation of the Theater; provided, however, that because Gaming has an obligation to have the Theater renovated and operational by the opening of the Aladdin, to the extent a joint venture partner and financing have not been secured in time to meet this obligation, Gaming will be required to renovate the Theater in order to meet this obligation. The Company has not yet secured a joint venture partner, and has expended certain funds on the Aladdin Music Project notwithstanding. While the Company is actively pursuing prospective joint venture partners and acceptable financing for the Aladdin Music Project, there can be no assurance that the Company will secure an acceptable joint venture partner and secure financing on terms and conditions acceptable to the Company. Without securing an acceptable joint venture partner and financing, there is no assurance that the Company will proceed with the development of the Aladdin Music Project. STRATEGIC ALLIANCES The Company has formed strategic alliances with certain third parties that the Company believes to be uniquely qualified for the development and operation of the Complex. LONDON CLUBS. London Clubs, a prestigious multi-national casino operator, owns through LCNI 25% of the outstanding Holdings Common Membership Interests, and the Sommer Trust and its affiliates agreed that they shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." London Clubs has extensive experience in the international marketing of casinos to premium players and maintains a strong presence in the United Kingdom (where it controls the largest share of the London casino market) and the Middle East. In addition to its equity ownership of Gaming Holdings, London Clubs, through its subsidiary LCNI, will direct the operations of, and act as marketing consultant to, The London Club, the luxurious 15,000 square foot gaming area to be located on the mezzanine level of the Casino which will be designed to cater to the needs of the international premium-play guest. The Company believes that The London Club will be the first of its kind in the United States managed by a European operator and based on the European concept of luxurious, full service gaming areas for premium players. The London Club's primary business and marketing focus will be to access London Clubs' worldwide member base of upscale casino clientele. The London Club Hotel guests will be escorted through a private entrance to a dedicated registration lobby and then taken via a private elevator to the suites located on the top two floors. Once there, the 24-hour butler and concierge will cater to the care and comfort of The London Club guest. In the elegantly appointed The London Club, the customer may dine in the 100-seat exclusive restaurant, which will offer fine cuisine from around the world. London Clubs has extensive experience in the international marketing of casinos to premium players. London Clubs operates seven casinos in London, one near Johannesburg, South Africa, two in Egypt and one in Lebanon. Each of London Clubs' casinos offer their own individual style, but with comparable internationally recognized standards of service. In recent years, London Clubs has embarked upon a period of expansion, acquiring the Park Tower Casino in London's Knightsbridge in October, 1995, reopening and managing the casino operations of the famous Casino du Liban in Lebanon in December, 1996 and the opening of the Emerald Safari Casino Resort in South Africa in December 1998. London Clubs provides the Aladdin with an extensive international network of premium casino players, having established substantial goodwill and customer loyalty from high-end customers in the United Kingdom, Europe, Asia and the Middle East. In addition, London Clubs is an experienced service provider to high-end gaming customers and brings a wealth of knowledge to the Aladdin in building and maintaining relationships with and customer loyalty from such clientele. London Clubs also provides the 4 Company with superb promotional opportunities, not only by word of mouth through its network of contacts, but also through international sporting sponsorships, including horse racing and motor racing and its international print publications, which are distributed to members worldwide utilizing London Clubs' substantial database of premium clientele. TRIZECHAHN. The Mall Project will be owned, developed and operated by Aladdin Bazaar, a joint venture between Bazaar Holdings and TBH, a wholly-owned subsidiary of TrizecHahn. TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, a publicly traded real estate company. TrizecHahn was the developer of the Fashion Show Shopping Mall on the Strip and other major shopping malls including Horton Plaza in San Diego, Bridgewater Commons in New Jersey, Valley Fair in San Jose and Park Meadows in Denver. The Company believes that TrizecHahn's proven ability in designing well laid-out retail centers, attracting high quality tenants and successfully promoting and operating its retail projects will benefit the Aladdin by attracting a consistent stream of visitors to the Complex and its various attractions. UNICOM. The Complex, once fully constructed, will require substantial amounts of electricity, hot and cold water and heating and cooling. For this purpose, the Company has entered into certain agreements with Northwind Aladdin, LLC ("Northwind") for the supply of electricity and hot and cold water to certain parts of the Complex. Subject to conditions specified in the Energy Services Agreement, Northwind has agreed to provide the Complex with electricity, hot and cold water as specified, from the completion date of the Aladdin. Pursuant to the Development Agreement, in order to supply the Aladdin's energy requirements, Northwind has agreed to construct and operate, at its own cost, a central energy plant ("Plant") on an approximately 0.64-acre portion of the Complex. The Plant construction commenced during the first quarter of the year 1999 and Northwind has advised the Company that Northwind currently believes that the Plant will be completed by March 1, 2000. However, there can be no assurance that the Plant will be completed by such date. If Northwind does not perform its obligations under the Development Agreement, or the Energy Service Agreement, or for any reason the Energy Plant is not constructed, the Company would have to make alternative arrangements for the provision of energy to the Complex. While the Company believes that such alternative arrangements could be made, there can be no assurance that alternative arrangements could, in fact, be made, or if made, on terms favorable to the Company, which could adversely affect the Company. STRATEGY The Company's business and marketing strategies are linked together by the Complex's premier location, its design, mixed-use theme development and strategic partnering. CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin, with its unique, well-executed design, together with the Desert Passage and the Aladdin Music Project (including the renovated Theater), will ensure its place as a "must-see" destination. The Aladdin theme will be supported by a sophisticated interior design enhancing the fantasy of a mystical and romantic time and place. The Company believes that the Aladdin's main Casino traffic will be driven not only by Hotel guests, but also by the customers directly attracted from the Strip, and that visitor traffic to the Aladdin will also be enhanced by the attractiveness of the Desert Passage. With the addition of the Aladdin Music Project, which will address a somewhat younger clientele, the Complex will have a combined room count of approximately 3,600 rooms and appeal to what the Company perceives to be a broad customer demographic. MARKETING POSITIONING. The Company intends to focus on three different market segments to attract customers to the Aladdin: - UPSCALE CLIENTELE. The Hotel will be designed to appeal to the upscale clientele, providing the amenities and level of service such high-end guests expect. In particular, 24% of the Hotel's guest 5 rooms and suites will have an area exceeding 620 square feet. Each of the rooms and suites will have a large four or five fixture bathroom with a separate shower, bathtub, up to two washbasins and an enclosed watercloset. A special feature of each of the rooms and suites will be the added width given to the interior design allowing for a more residential feel. The Hotel will provide extensive recreational facilities for its guests, including a health spa and an outdoor swimming pool. 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 event sponsorships. A targeted relationship marketing program is expected to ensure clientele retention and repeat visitation. - INTERNATIONAL PREMIUM PLAYER CLIENTELE. The Company believes that The London Club will be the first of its kind in the United States managed by a European operator and based on the European concept of full-service gaming areas for premium players. The focus on The London Club's business will be the wealthy clientele that form the core of London Clubs' business in London and elsewhere. The Hotel will include 30 suites primarily for use by premium players of Aladdin and The London Club. The Company will maintain The London Club's premium player atmosphere through more sophisticated dining options, higher table limits and more formal levels of service and dress. - UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms and restaurants and the 1,400-seat production showroom, combined with the heavily-themed Casino, Theater and Desert Passage, are expected to appeal broadly to the upper-middle market guest. In addition, the Aladdin Music Project is expected to appeal to the upper-middle market by attracting younger, affluent customers to the Complex through its music and entertainment-based theme. The Theater, which will be a major feature of the Complex, will be central to the Company's promotional strategies for this market segment, with publicity expected to be gained through the booking of popular performers. Cooperative advertising and promotion through various media, such as television, radio and print, will be used to promote the Complex to the upper-middle market. CONSTRUCTION BUDGET AND SCHEDULE Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the Aladdin. The Design/Builder has entered into a guaranteed maximum price design/build contract ("Design/Build Contract") (subject to scope changes) with the Company to design and construct the Aladdin. The Design/Build Contract provides the Design/Builder with incentives for completing the Aladdin prior to the Contract Completion Date (as defined below) and within budget and for payment of liquidated damages to the Company for certain delays. The Design/Build Contract is guaranteed by Fluor Corporation, the parent of the Design/ Builder, subject to certain limitations described in Exhibit 10.15 to this Form 10-K. The Design/Builder committed itself to a 26-month work schedule to complete the Aladdin, subject to certain scope changes. An equitable adjustment in the Contract Completion Date and guaranteed maximum price may be made for changes that either increase or decrease the Design/Builder's time for performance and/or cost of construction outside what was contemplated in the Design/Build Contract. The development of the Aladdin commenced during the first quarter of 1998. The original Aladdin hotel and casino closed for business on November 25, 1997 and the implosion of the original facility occurred on April 27, 1998. The Company anticipates the cost of developing, financing, constructing and opening the Aladdin to be approximately $827 million (excluding the Company's $21.3 million planned indirect cash contribution and land contribution to Aladdin Music, as part of the development funds for the Aladdin Music Project). The Company currently believes that completion of the Aladdin will occur during the second quarter of the year 2000 with certain acceleration which has been included in the revised Project budget. The Company believes that the construction budget is reasonable and can be achieved, assuming that the Company is successful in the Arbitration (as defined below) and depending on the actual cost for acceleration of the Project. During the course of construction, a number of issues and items have arisen in connection with various change orders and delay claims submitted in connection with the Project and the scope of the 6 Design/Build Contract. As discussed in the Company's Form 10-Q for the period ended September 30, 1998 ("3rd Quarter Form 10-Q"), the Company and the Design/Builder entered into a Letter of Intent, dated November 11, 1998 ("LOI"), which was intended, among other things, to consolidate and resolve existing scope change orders and delay claims within a comprehensive definitive amendment to the Design/ Build Contract. The amendment to the Design/Build Contract contemplated by the LOI was not acceptable to the Company in its absolute discretion, and has not been consummated. Therefore, the parties are no longer negotiating the amendment pursuant to the LOI. However, the parties are continuing to discuss possible means to address the various matters contemplated by the LOI and discussed in the 3rd Quarter Form 10-Q, including disagreements over change orders and delay claims. Concurrent with these continuing negotiations, the Company has submitted the following disputed Design/Builder equitable scope change requests to arbitration ("Arbitration") pursuant to the provisions of the Design/Build Contract: (i) revised caisson and foundation progress prints (the Company has agreed to pay a portion of the cost of the foundation revision, but has not agreed to the associated delay claim); (ii) delay claim regarding the steel fabrication and delivery; and (iii) increase in design height of ballroom ceiling, (collectively, "Claims"). The Company believes that these scope change orders relate to design and work which is base contract work contemplated in the Design/Build Contract and therefore allocated to the Design/Builder, or alternatively, that the work in question was required as a result of the Design/ Builder's failure to provide timely and appropriate design services, which design services the Design/ Builder was solely responsible for under the Design/Build Contract, and therefore, the Claims are not an appropriate basis for a change order modifying the Design/Build Contract and the contract time for completion date ("Contract Completion Date"). The Design/Builder has responded to the Company's claim in Arbitration, alleging, among other things, that the Claims relate to unforeseen conditions, and/or are due to the actions of the Company, therefore, the Company is responsible for all costs and delays associated with the Claims. While the Company intends to aggressively and vigorously pursue the Claims, and believes that it will ultimately prevail in the Arbitration, the Claims are only in the preliminary stages of the arbitration process, and therefore, no assurances can be given with respect to the ultimate outcome. The Design/Builder has presented change orders in the amount of approximately $4.7 million and the Company disputes this amount. However, if the Company is not successful on all the Claims, it could be required to pay the amount claimed by the Design/Builder. Further, if the Company does not prevail on the delay Claims, the Contract Completion Date would be extended, and to the extent Design/Builder completes the Project prior to the revised Contract Completion Date, the Design/Builder would be entitled to an early completion bonus of $100,000 per day (up to a maximum of 90 days). Any such payments by the Company would increase the Project's budget. Notwithstanding the Arbitration, work on the Project continues. Given the significant risks and unforeseen contingencies inherent in the construction process, especially a large scale construction project such as the Aladdin, it is possible that construction costs could be significantly higher than budget and that delays could occur. Such risks and contingencies include, for example, potential shortages of materials and labor, work stoppages, labor disputes, weather interference, unforeseen engineering, environmental or geological problems and unanticipated cost increases, any of which could be beyond the Company's control, and any of which could give rise to delays or cost increases. In addition, difficulties in obtaining any of the requisite licenses, permits, allocations or authorizations from regulatory authorities could also increase the total cost, delay, or prevent the construction or opening of the Aladdin or their other components of the Complex or otherwise affect their respective design and features. It is also possible that the existing budget and construction schedule for the Complex could be changed for competitive or other reasons. If construction costs do exceed the amounts set forth in the construction budget, it is expected the potential sources to pay such excess include: (a) the $31.8 million contingency fund of which $7.5 million has been utilized as of December 31, 1998; (b) London Clubs, the Sommer Trust and Bazaar Holdings pursuant to their obligations under the Bank Completion Guaranty; and (c) the Design/Builder, pursuant to its liability under the Design/Build Contract, which liability is guaranteed by Fluor Corporation (subject to certain limitations discussed above). 7 While management believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex will be completed within the time period or budget currently contemplated. In addition, if the additional identified potential funding sources are insufficient or unavailable to fully cover any excess, the Company could be materially and adversely affected. So, while management believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex, including the Aladdin, will be completed within the time period or budget currently contemplated. Failure to complete the Aladdin on budget or on schedule may have a material adverse effect on the Company and its financial operations. The Aladdin, together with the Theater and Desert Passage, will be developed as the first phase of a planned two-phase redevelopment of the Complex. In the second phase, Aladdin Music will develop the Aladdin Music Project. It is currently anticipated that the Aladdin Music Project will open within approximately 24 months after financing and a joint venture partner are secured. The completion and full operation of the Aladdin is not contingent upon the subsequent financing or completion of the Mall Project or the Aladdin Music Project, and there can be no assurance that either the Mall Project or the Aladdin Music Project will be completed. If the Mall Project is not completed, the Company will be required to expend additional amounts, which amounts have not been quantified by the Company, with respect to the completion of shared structural space and the cost of parking. COMPETITION The hotel and casino industry is highly competitive. Hotels located on or near the Strip ("Strip Hotels") compete with other Strip Hotels and with other major hotels in downtown Las Vegas. Aladdin will compete with a large number of hotel casinos in the Las Vegas area, with many of the competitors being subsidiaries or divisions of large public companies that may have greater financial or other resources than the Company. Competitors of the Aladdin will include themed resorts on the Strip such as Bellagio, Mandalay Bay Resort, Mirage, Treasure Island Hotel and Casino, Bally's Casino Resort, Monte Carlo Resort and Casino, and the Luxor Hotel and Casino. In addition, the construction of several new major resort projects, such as the Paris Casino Resort and the Venetian Hotel Casino will also compete with the Aladdin. By the end of 1999, it is estimated that approximately 20,000 additional hotel rooms will be opened on the Strip. The hotel casino operations of the Company will also compete, to some extent, with other hotel casino facilities in Nevada, Atlantic City, worldwide and with the state lotteries. In addition, certain states have recently legalized, and others may or are likely to legalize, casino gaming in specific areas. The passage of the Indian Gaming Regulatory Act in 1988 has led to increases in American Indian gaming operations. The Company expects many competitors to enter such new jurisdictions that authorize gaming. Some of these competitors may have greater financial and other resources than the Company. The Company believes that the legalization of large-scale land-based casino gaming in or near certain major metropolitan areas, particularly in California, from which the Company expects to attract customers could have a material adverse effect on the Las Vegas market. Such proliferation of gaming activities could significantly and adversely affect the business of the Company. The Desert Passage will compete with retail malls in or near Las Vegas, including the Fashion Show Mall, the Forum Shops at Caesars Palace, the themed mall attraction being constructed at the Venetian Hotel Casino and the Mandalay Bay Resort, and retailers in theme-oriented resorts, all of which may attract consumers away from the Desert Passage and the Complex. EMPLOYEES As of March 15, 1999, the Company had 24 employees. The Company anticipates that immediately prior to completion of the Aladdin, it will employ approximately 3,300 employees in connection with the Aladdin. The Company will be required to undertake a major recruiting and training program prior to the 8 opening of the Aladdin at a time when other major new facilities have completed recruiting employees. The Company believes it will be able to attract and retain a sufficient number of qualified individuals to operate the Aladdin, however, there can be no assurance that it will be able to do so. Furthermore, the Company does not know whether or to what extent such employees will be covered by collective bargaining agreements, as that determination will be ultimately made by such employees. SERVICE MARKS On February 26, 1998, AHL transferred to the Company four federally registered service marks involving the word "Aladdin" and used in connection with the provision of casino and casino entertainment services and hotel and restaurant services (collectively, "Marks"). Two of the Marks were registered on July 13, 1993, a third on July 29, 1993, and the fourth on August 24, 1993. During the third quarter of 1999, the Company will file a statement of continuing use with respect to each of the Marks with the United States Patent and Trademark Office ("PTO") in order to maintain the effectiveness of the registration with respect to such Mark. Although the Company will not be using the Marks during the period of the Aladdin's construction, the Company does not expect that this will adversely affect its registration of the Marks, provided that the reason for the non-use of the Marks is explained to the PTO at the time the statement of continuing use is filed. Each of the registrations for the Marks has a duration of ten years and, unless renewed, will expire on the tenth anniversary of such Mark's date of registration. The Company has recorded its ownership of the Marks with the PTO. A lien on the Marks was granted to the Bank Lenders on February 26, 1998. REGULATION AND LICENSING The ownership and operation of casino gaming facilities in the state of Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, "Nevada Act"); and (ii) various local regulations. The operation of the Casino by the Company will be subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the Clark County Liquor and Gaming Licensing Board ("CCLGLB"). The Nevada Commission, the Nevada Board, and the CCLGLB are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Any change in such laws, regulations and procedures could have a material adverse effect on the proposed gaming operations of the Aladdin and the financial condition and results of operations of Aladdin Gaming, LLC, which is defined for this section only as "Company." As operator and manager of the Aladdin, the Company will conduct nonrestricted gaming operations at the Casino and so will be required to be licensed by the Nevada Gaming Authorities. A nonrestricted gaming license permits the holder to operate sixteen or more slot machines, or any number of slot machines with at least one table game. The gaming license will require the periodic payment of fees and will not be transferable. No person will be able to become a member of, or receive any percentage of the profits of, the Company without first obtaining Gaming Approvals. In connection with the registration and licensing of Gaming Holdings as a holding company and a member, each direct and indirect owner of Gaming Holdings, including, but not limited to, Aladdin Gaming Enterprises, Inc. ("Enterprises"), 9 London Clubs, LCNI, London Clubs Holdings, Ltd. (a wholly-owned subsidiary of London Clubs and the holding company for LCNI), AHL, the Sommer Trust, Sommer Enterprises, LLC ("Sommer Enterprises") GAI and their respective owners (collectively, "Aladdin Owners") will be required to obtain from the Nevada Gaming Authorities the applicable Gaming Approvals. Capital will also be subject to being called forward for a finding of suitability as a co-issuer of the Notes in the discretion of the Nevada Gaming Authorities. Gaming Holdings is a "publicly traded corporation" as that term is defined in the Nevada Act. If the Company issues an initial public offering of equity ("IPO Equity") it will also become a "publicly traded corporation" as that term is defined in the Nevada Act. In order for a company that is a publicly traded corporation to receive a gaming license, the Nevada Commission must exempt the company from a regulatory provision in the Nevada Act which makes publicly traded corporations ineligible to apply for or hold a gaming license. However, the Nevada Commission has exempted companies from this provision in the past and has granted gaming licenses to publicly traded corporation. If the Company becomes an IPO Entity, the Company intends to apply for an exemption from this eligibility requirement ("Exemption") in connection with its application for a gaming license. In connection with licensing and receipt of the Exemption, Gaming Holdings, London Clubs, Enterprises and the Company will each also be required to be registered by the Nevada Commission as a publicly traded corporation ("Registered Company"). The following regulatory requirements will be applicable to the Company, Gaming Holdings and the Aladdin Owners upon their receipt of all necessary Gaming Approvals from the Nevada Gaming Authorities. The Company, Gaming Holdings and the Aladdin Owners have not yet obtained from the Nevada Gaming Authorities the Gaming Approvals required in order for the Company to conduct gaming operations at the Aladdin and there can be no assurances given that such Gaming Approvals will be obtained, or that they will be obtained on a timely basis. There can also be no assurances that the Company's officers, managers and key employees will obtain Gaming Approvals from the Nevada Gaming Authorities. As a Registered Company and an entity licensed by the Nevada Gaming Authorities ("Company Licensee"), the Company will be required to periodically submit detailed financial information and operating reports to the Nevada Commission and furnish any other information that the Nevada Commission may require. No person may become a member of, or receive any percentage of profits from, a Company Licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, Gaming Holdings and the Aladdin Owners to determine whether such individual is suitable or should be licensed as a business associate of a Company Licensee. Officers, managers and certain key employees of the Company and Gaming Holdings must file applications with the Nevada Gaming Authorities and will be required to be licensed by the Nevada Gaming Authorities in connection with the Company's application. The Nevada Gaming Authorities may deny an application for licensing or a finding of suitability for any cause they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant is employed or for whom the applicant serves, must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities, and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a Company position. If the Nevada Gaming Authorities were to find an officer, manager or key employee of the Company or Gaming Holdings unsuitable for licensing or to continue having a relationship with the Company or Gaming Holdings, the Company or Gaming Holdings, as the case may be, would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Gaming Holdings, as the case may be, to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. 10 The Company will be required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company will be required to be reported to or approved by the Nevada Commission. If the Company is licensed by the Nevada Gaming Authorities, any (i) guarantees of the Notes issued by the Company or its members, (ii) hypothecation of assets of the Company as security for the Notes, and pledges of the equity securities of the Company as security for the Notes will require the approval of the Nevada Commission in order to remain effective. An approval by the Nevada Commission of a pledge of equity securities does not constitute approval to foreclose on such pledge. Separate approval is required to foreclose on a pledge of equity securities of a Company Licensee and such approval requires the licensing of the indenture trustee unless such requirement is waived upon the application of the indenture trustee. Additionally, any (i) restrictions on the transfer of, and (ii) agreements not to encumber the equity securities of the Company in respect of the Notes may require the approval of the Nevada Commission in order to remain effective. If it were determined that the Nevada Act was violated by the Company or Gaming Holdings, the Gaming Approvals they hold could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, Gaming Holdings and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Aladdin and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Aladdin) could be forfeited to the state of Nevada. Limitation, conditioning or suspension of any Gaming Approval or license or the appointment of a supervisor could (and revocation of any Gaming Approval would) materially adversely affect the gaming operations of the Aladdin and the financial position and results of operations of the Company and the Issuers. Any beneficial holder of a Registered Company's voting or non-voting securities (including warrants exercisable in to such securities) regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Registered Company's securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires beneficial ownership of more than 5% of a Registered Company's voting securities (including warrants exercisable into voting securities) to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Registered Company's voting securities (including warrants exercisable into voting securities) may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered Company, and change in the Registered Company's corporate charter, bylaws, management, policies or operations of the Registered Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders or interest holders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for information purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with 11 such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability of a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder or beneficial owner found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock or other equity securities of a Registered Company beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Registered Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, the Registered Company: (i) pays that person any dividend, distribution or interest upon voting securities of the Registered Company; (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pays remuneration in any form to that person for services rendered or otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Company (such as the Notes) to file an application, be investigated and be found suitable to own the debt security of a Registered Company. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Company can be sanctioned, including the loss of approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company will be required to maintain a current members' ledger in Nevada that may be examined by the Nevada Gaming Authorities at any time. The Nevada Commission has the power to require that their respective members' certificates bear a legend indicating that such securities are subject to the Nevada Act. It is unknown at this time whether the Nevada Commission will impose this requirement on the Company. After becoming a Registered Company, London Clubs, Enterprises, the Company and Gaming Holdings may not make a public offering of any securities (including, but not limited to, the Common Stock of Enterprises upon the exercise of the Warrants) without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. The regulations of the Nevada Board and the Nevada Commission also provide that any entity which is not an "affiliated company," as such term is defined in the Nevada Act, or which is not otherwise subject to the provisions of the Nevada Act or such regulations, such as the Company and Gaming Holdings, which plans to make a public offering of securities intending to use such securities, or the proceeds from the sale thereof for the construction or operation of gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes, may apply to the Nevada Commission for prior approval of such offering ("Qualified Public Offering"). The Nevada Commission may find an applicant unsuitable based solely on the fact that it did not submit such an application, unless upon a written request for a ruling, the Nevada Board Chairman has ruled that it is not necessary to submit an application. The exchange offer for the Notes qualified as a public offering. Holdings filed a written request ("Ruling Request") with the Nevada 12 Board Chairman for a ruling that it is not necessary to submit the Exchange Offer for prior approval. On August 21, 1998, the Nevada Board Chairman ruled it was not necessary to submit the exchange offer for the Notes for the Nevada Commission's prior approval. If Gaming Holdings or the Company become an IPO Entity prior to receiving its Gaming Approvals, they intend to file a second Ruling Request with the Nevada Board Chairman for a ruling that it is not necessary to submit the Qualified Public Offering for the Nevada Commission's prior approval. No assurance can be given that such a Ruling Request will be granted or that it will be considered on a timely basis. If the Nevada Board Chairman rules that approval of the Qualified Public Offering is required, the Company or Gaming Holdings, as applicable, will file an application for such approval. If the Ruling Request is not granted, the Qualified Public Offering could be significantly delayed while the Company or Holdings seeks approval of the Nevada Board and the Nevada Commission for the Qualified Public Offering. No assurance can be given that approval of the Qualified Public Offering, if required, will be granted. Changes in control of a Registered Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Company must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Company. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada Legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Companies that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Registered Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Company's Board of Directors in response to a tender offer made directly to the Registered Company's stockholders or interest holders for the purposes of acquiring of the Registered Company. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the state of Nevada and to Clark County, Nevada. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax will also be paid by the Company where certain entertainment is provided in a cabaret, nightclub, cocktail lounge or casino showroom in connection with admissions and the serving or selling of food, refreshments or merchandise. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission. Thereafter, Licensees are also required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of 13 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 effect on the financial position and results of operations of the Company and the Issuers. ITEM 2. PROPERTIES. Gaming Enterprises does not own or lease any property. The Company owns approximately 35 acres of land on the Strip on the site of the original Aladdin hotel and casino in Las Vegas, Nevada. Such property includes the site on which the Aladdin, Mall Project and the Plant are being constructed and the site on which the Aladdin Music Project will be constructed. The Company is obligated to transfer approximately 12.4 acres of land to Aladdin Bazaar at a future date and may contribute approximately 4.8 acres of land to Aladdin Music as part of the development of the Aladdin Music Project. The Company currently leases two facilities of approximately 51,000 square feet for its corporate offices and warehouse requirements. ITEM 3. LEGAL PROCEEDINGS. Neither Gaming Enterprises nor the Company is currently party to any material pending litigation. However, Mr. Jack Sommer, the chairman of the Gaming Holdings Board and the Aladdin Gaming Board and a trustee of the Sommer Trust, and the other trustees of the Sommer Trust, are co-defendants in a legal action relating to the then existing Aladdin hotel and casino commenced by members of the Aronow family ("Aronow Plaintiffs") in May, 1995 in the Supreme Court of the State of New York, County of New York. In their complaint, the Aronow Plaintiffs allege that Mr. Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire and develop the Aladdin hotel and casino and that Mr. Sommer breached such alleged agreement when the Sommer Trust acquired an interest in the Aladdin hotel and casino in December, 1994. The Aronow Plaintiffs are seeking (among other remedies) to impress a constructive trust upon the Sommer Trust's interest in the Aladdin hotel and casino, an accounting, compensatory damages of not less than $200 million and punitive damages of not less than $500 million. Mr. Sommer and the trustees of the Sommer Trust have informed the Company that they intend to vigorously defend such action. However, in the event that the action is successful, the Sommer Trust might be required to pay substantial damages and/or the Aronow Plaintiffs might be entitled to part of the Sommer Trust's interest in the Aladdin hotel and casino. An adverse decision could have a material and adverse effect on the Company. Mr. Sommer and the other trustees of the Sommer Trust were also co-defendants in a legal action commenced by Edward Kanbar, Romano Tio and Adino Winston ("Kanbar Plaintiffs" and together with the Aronow Plaintiffs, "Plaintiffs") in January, 1997, in the Supreme Court of the State of New York, County of New York. In their complaint, the Kanbar Plaintiffs alleged that they were partners in an alleged partnership with Joseph Aronow, which partnership was formed to seek and develop business opportunities with Mr. Sommer. The Kanbar Plaintiffs were seeking (among other remedies) to impress a constructive trust upon the Sommer Trust's interest in the Aladdin hotel and casino, compensatory damages of not less than $20 million and punitive damages of not less than $50 million. On January 15, 1998, the court granted the trustees of the Sommer Trust's motion to dismiss this action in its entirety. However, on or about November 9, 1998, the Kanbar Plaintiffs appealed the dismissal. Argument on the appeal is expected to occur during March, 1999. 14 In 1988, the Sommer Trust and two related entities commenced an action in the Southern District of New York against certain entities owned and controlled by Bronfman family interests ("Bronfman Defendants") alleging, among other things, that the Bronfman Defendants committed violations of Rule 10b-5 under the Securities Exchange Act of 1934, as amended, as well as multiple breaches of fiduciary duties as general partner of a partnership in which the Sommer Trust owns limited partnership interests. Relief requested includes an accounting, imposition of a constructive trust and damages in excess of $100 million. The Bronfman Defendants have asserted counterclaims against plaintiffs and certain Sommer family members individually alleging causes of action for breach of contract, fraud and various related torts. The Bronfman Defendants claim damages in excess of $100 million. The trustees of the Sommer Trust have informed the Company that they are vigorously defending the counterclaim. However, in the event the Bronfman Defendants are successful, the Sommer Trust might be required to pay substantial damages. An adverse decision could have a material and adverse effect on the Sommer Trust. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Neither the capital stock of Gaming Enterprises nor the membership interests of Aladdin Gaming Holdings, LLC has been registered under the Securities Act of 1933 nor under Section 12 of the Securities Exchange Act of 1934. There is no established trading market for either the capital stock of Gaming Enterprises or the common membership interests of Aladdin Gaming Holdings, LLC. Gaming Enterprises is not aware of any bid quotations for the capital stock of Gaming Enterprises or the common membership interests of Aladdin Gaming Holdings, LLC. See Item 12 regarding the numbers of shareholders for Gaming Enterprises. Since inception Gaming Enterprises has not paid any dividends on its equity and due to the Company's current long-term debt arrangements restrict, subject to certain exceptions, the payment of dividends on the Company's equity. See Exhibit 10.12 to this Form 10-K for additional information on the covenants, conditions and restrictions on the Company under the Credit Agreement. ITEM 6. SELECTED FINANCIAL DATA. The historical selected financial data set forth below should be read in conjunction with "Item 7-- Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes thereto included elsewhere in this Form 10-K. The statement of operations data for the years ended December 31, 1998 and 1997, and the balance sheet data at December 31, 1998 and 1997 are derived from, and are elsewhere in this Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future.
YEAR ENDED DECEMBER 31, ---------------- 1998 1997(1) ------ ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Gross revenues.................................................................. None None Promotional Allowances.......................................................... None None Net revenues.................................................................... None None Operating expenses.............................................................. $ 3 None Operating income (loss)......................................................... $ (3) None Interest income (expense), net.................................................. None None Net loss........................................................................ $10,620 None
15
YEAR ENDED DECEMBER 31, ---------------- 1998 1997(1) ------ ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Per Share Data: Loss before extraordinary item.................................................. $ 3.69 N/A Extraordinary item None N/A Basic and diluted loss per share................................................ $ 3.69 N/A Other Data: Capital expenditures............................................................ None None Cash dividends per common membership interest................................... None None
DECEMBER 31, -------------------- 1998 1997 --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Total assets............................................................................ $ 17,050 $ 1 Long-term debt (including current maturities)........................................... None None Stockholders' equity.................................................................... $ 17,047 $ 1
- ------------------------ (1) This is for the period from inception (December 1, 1997) through December 31, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the various other reports which have been previously filed with the United States Securities and Exchange Commission ("SEC"), which may be inspected, without charge, at the Public Reference Section of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the SEC internet site address: http://www.sec.gov. DEVELOPMENT ACTIVITIES Gaming Enterprises is an indirect subsidiary of AHL and was incorporated in December, 1997, for the sole purpose of issuing warrants and warrant shares as part of the Notes Offering. The sole material asset of Gaming Enterprises 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. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding Common Membership Interests and 100% of the outstanding Series A Preferred Interests in Gaming. The operations of the Company have been limited to obtaining financing for, securing the land for, arranging for the construction of, finalizing the design of, constructing and developing, and applying for the appropriate gaming licenses for the Aladdin. RESULTS OF OPERATIONS The Company is in the development stage and has no significant operations to date. The Company has capitalized all qualifying construction costs. Accordingly, the Company does not have any historical operating income. The capitalized costs consist primarily of land contributed by certain members of Gaming Holdings, design fees, financing and commitment fees, construction costs and interest on qualifying assets. Capitalized costs include approximately $2.3 million related to Aladdin Music for necessary predevelopment costs and expenses of the Aladdin Music Project. The Company's operating expenses primarily have consisted of interest, amortization costs and expenses related to the Notes and pre-opening costs. 16 The Company anticipates that its results of operations from inception to the grand opening of the Aladdin will be adversely affected by the expensing of pre-opening costs and interest not qualifying for capitalization and should not be indicative of future operations. Accordingly, historical results will not be indicative of future operating results. Future operating results of the Company are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the Company's control. While the Company believes that the Aladdin will be able to attract a sufficient number of patrons and achieve the level of activity necessary to permit the Company to meet its debt payment obligations, including the Notes and other indebtedness, and its other obligations there can be no assurance with respect thereto. The Company recorded a net loss of approximately $42.5 million for the twelve months ended December 31, 1998. The Company had no operations for the period of inception December 1, 1997 to December 31, 1997. The loss was due to pre-opening costs, interest expense, amortization costs and expense related to the Notes. The pre-opening costs include approximately $0.5 million related to Aladdin Music. MATERIAL CHANGES IN FINANCIAL CONDITION Through December 31, 1998, approximately $210 million had been expended primarily on the development of the Aladdin, of which approximately $74.5 million had been expended on repayment of debt associated with the land contributed to the Company, approximately $74.7 million in construction, furniture, fixtures and equipment, and capitalized interest, approximately $39.5 million in debt issuance and member equity costs, and approximately $21.3 million in pre-opening costs, net interest expense, and other current assets. LIQUIDITY AND CAPITAL RESOURCES On August 26, 1998, Gaming Holdings and Capital completed an exchange offer for 100% of the $221.5 million aggregate principal amount of their 13 1/2% Senior Discount Notes due 2010 ("Notes"), pursuant to a registration statement dated July 23, 1998. The Notes were exchanged for notes with substantially the same terms issued in a private placement on February 26, 1998. For further details on the Notes, please refer to "Note 3--Private Offering" of the Notes to Consolidated Financial Statements. Gaming has a $410 million Credit Agreement ("Bank Credit Facility" or "Credit Agreement") with various financial institutions and the Bank of Nova Scotia as the administrative agent for the lenders (collectively, "Lenders"). The Credit Agreement consists of three separate term loans. Term A Loan comprises a term loan of $136 million and matures seven years after the initial borrowing date. Term B Loan comprises a term loan of $114 million and matures eight and one-half years after the initial borrowing date. Term C Loan comprises a term loan of $160 million and matures ten years after the borrowing date. As of December 31, 1998, approximately $90.4 million of the Term B Loan proceeds plus accrued interest and approximately $138.5 million of the Term C Loan proceeds plus accrued interest is available to develop and construct the Aladdin. The Term A Loan has not been funded. For further details on the Bank Credit Facility including information regarding the covenants, restrictions and limitations on the Company pursuant to the Bank Credit Facility, see Exhibit 10.12 to this Form 10-K. The Company has operating lease financing of up to $60 million and a term loan facility of $20 million to obtain gaming equipment and other specified equipment (collectively, "FF&E Financing"). For further details on the operating lease financing and term loan facility, including information regarding the covenants, restrictions and limitations on the Company pursuant to the FF&E Financing, see Exhibit 10.40 to this Form 10-K. Upon the later of (a) the transfer of the real property under the Mall Project by the Company to Aladdin Bazaar or (b) the commencement of Aladdin's operations, Aladdin Bazaar, LLC will execute a promissory note of approximately $16.7 million to Gaming. Principal and interest on the note is payable by Aladdin Bazaar to Gaming in the amount of $2 million per year. The required payments are subordinated 17 to various restrictions under the Aladdin Bazaar operating agreement. Due to the restrictions upon the payments, there can be no assurances that Gaming will receive any payments under this note. London Clubs, the Sommer Trust, and Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the Sommer Trust, have entered into a completion guaranty ("Bank Completion Guaranty") for the benefit of the lenders under the Bank Credit Facility, under which they have agreed to guarantee, among other things, the completion of the Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar limitations. The holders of the Notes are not party to the Bank Completion Guaranty, however, London Clubs, the Sommer Trust and Bazaar Holdings have entered into a limited completion guaranty for the benefit of the Noteholders ("Noteholder Completion Guaranty") under which they guarantee completion of the Aladdin, subject to certain important exceptions, limitations and qualifications. The Noteholder Completion Guaranty contains certain intercreditor provisions which significantly limit the rights of the Trustee under the Noteholder Completion Guaranty. In connection with the development of the Mall Project, Aladdin Bazaar, LLC will reimburse the Company approximately $14.2 million for the construction of certain areas shared by the Aladdin and the Mall Project and the facade to the Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to spend no more than $36 million for the Carpark. Therefore, any cost overruns associated with these items will be borne by the Company. In addition, the Company is obligated to pay to Aladdin Bazaar, LLC: (i) a $3.2 million fee per year for a term of 99 years, which is adjusted annually pursuant to a consumer price index-based formula, for usage of the Carpark; and (ii) the Company's proportionate share of the operating costs associated with the Carpark and other common areas. Under the Credit Agreement, $25 million of the contingency funds is made available to the Company as a function of the Project's percentage of construction complete. However, the Company committed to changes in the plans and specifications early in the Project while the percentage of completion was low. In addition, the Company revised certain items of the Project budget and adjusted the budget accordingly, including an increase to pre-opening costs. Thus, because financial commitments were made when the contingency funds were not yet available to pay for such changes, in November, 1998 an out-of-balance of approximately $6.5 million ("November 1998 Out-of-Balance") was created. The Sommer Trust and London Clubs posted letters of credit in the amounts of $1,030,500 and $5,543,500, respectively, to fund the November 1998 Out-of-Balance. Pursuant to the Bank Completion Guaranty, the parties agreed to fund certain Project cost increases and to a contribution agreement ("Contribution Agreement"), dated as of February 26, 1998, whereby, among other things, the parties agreed to share all the obligations under the Bank Completion Guaranty, 75% to the Sommer Trust and 25% to London Clubs. On November 30, 1998, the Sommer Trust and London Clubs agreed that because the Sommer Trust did not fund its proportionate share of the November 1998 Out-of-Balance, (a) the Sommer Trust and its affiliates shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings, and (b) the Board of Managers for Gaming Holdings and Gaming was expanded from the then-current five Board members to six and the number of Board Members which London Clubs shall designate was increased from two to three. Notwithstanding the change to increase London Clubs' voting power and the increase in the number of Board members, the supermajority provisions contained in the Gaming Holdings' Operating Agreement which require the approval of the holders of at least 80% of the Gaming Holdings Common Membership Interests remain unaffected by this agreement. See Exhibit 3.5 of this Form 10-K for additional description of voting mechanics, including supermajority provisions, for Gaming Holdings. During 1998, while the Company's indirect subsidiary, Aladdin Music, was pursuing a joint venture agreement with Planet Hollywood International, Inc. ("Planet Hollywood") and thereafter pursuing subsequent prospective partners, Aladdin Music incurred indebtedness of approximately $2.8 million in connection with the pre-development costs and expenses of the Aladdin Music Project ("Music Indebtedness"). While the Music Indebtedness was contemplated by the Credit Agreement, the incurrence of the 18 Music Indebtedness was not pre-approved by the Bank Lenders as required by the Credit Agreement and thus the incurrence of the Music Indebtedness constituted an event of default under the Credit Agreement. On January 29, 1999, the Credit Agreement was amended to: (i) reduce the net worth requirement to reflect the accounting treatment requiring certain costs to be expensed rather than capitalized; (ii) waive the event of default which arose due to the incurrence of debt by the Company's indirect subsidiary, Aladdin Music, for the Aladdin Music Project, assuming satisfaction of certain conditions; (iii) amend certain definitions, including the definition of "Available Funds," "Realized Savings" and "Indebtedness;" (iv) permit using letters of credit to fund the November, 1998 Out-of-Balance; (v) provide that the Company will fund costs for the Carpark which are in excess of $36 million; (vi) permit Aladdin Music to incur an additional aggregate indebtedness of $3.5 million for reasonable and necessary predevelopment costs and expenses for the Aladdin Music Project and to enter into agreements for the payment of certain commissions; (vii) permit certain indebtedness in connection with a 1,400-seat production theater; and (viii) other technical amendments (collectively, "First Amendment to the Credit Agreement"). The effectiveness of certain provisions of the First Amendment to the Credit Agreement was expressly conditioned upon corresponding amendments to the FF&E Financing documents. Further, the First Amendment to the Credit Agreement provided that if the FF&E Financing documents were not correspondingly amended by March 10, 1999, an event of default would exist under the Credit Agreement. The above summary of the amendments should be read in conjunction with, and is qualified in its entirety by, the First Amendment to Credit Agreement which is an exhibit to this Form 10-K and incorporated herein by this reference. After various discussions with the lenders under the FF&E Financing, the Company determined that it would not be in its best interests to effect corresponding amendments to the FF&E Financing documents. Thereafter, Gaming submitted to the Lenders for their approval a proposed second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") to cure these events of default. The Second Amendment to the Credit Agreement provides: (i) the Music Indebtedness has been paid by or on behalf of Aladdin Music and this event of default is waived by the Lenders; (ii) a capital contribution in the amount of approximately $18.5 million (see discussion below) has been made to bring the Main Project Budget "In Balance," as defined in the Credit Agreement; (iii) the letters of credit which were posted in connection with the November 1998 Out-of-Balance will be drawn and the proceeds deposited in Gaming's account; (iv) amending certain definitions of the Credit Agreement, including, "Available Funds," "Indebtedness," and "Realized Savings;" (v) requiring any costs in excess of $36 million for completing the Carpark to be funded by the Sommer Trust and London Clubs; (vi) requiring that Gaming maintain a minimum "Net Worth" at the close of each calendar month of not less than $100 million plus 85% of the positive Net Income (as defined); and (vii) other technical amendments to the Credit Agreement. The Company has been advised by its counsel that the Second Amendment to the Credit Agreement will not require the approval or consent of either the FF&E Financing lenders or the Noteholders. There can be no assurances that: (i) the Lenders will approve the Second Amendment to the Credit Agreement or, if approved, it will not be subject to conditions or limitations; or (ii) the ultimate amendment to the Credit Agreement will not differ materially from the proposed Second Amendment to the Credit Agreement. The Sommer Trust, London Clubs and Aladdin Bazaar Holdings, LLC have proposed to enter into the First Amendment to the Guaranty of Performance and Completion, dated as of March 10, 1999 ("First Amendment to the Bank Completion Guaranty"). The First Amendment to the Bank Completion Guaranty would require that the Sommer Trust, London Clubs and Aladdin Bazaar Holdings, LLC guarantee the performance by Gaming of Gaming's minimum Net Worth Covenant required by the Second Amendment to the Credit Agreement. On March 30, 1999, the Sommer Trust and London Clubs agreed that if either party is required to contribute more than its proportionate share of any amounts necessary for Gaming to maintain the revised Net Worth as required in the Second Amendment to the Credit Agreement, then the party who contributes more than its proportionate share will be deemed to 19 have made a recourse loan to the party who contributes less than its proportionate share in the amount not funded by such party. The recourse loan will bear interest at 20% per annum and will be payable by a transfer at par value of the corresponding amount of the Holdings Common Membership Interests held directly by the party who did not contribute its proportionate share. Until the recourse loan is paid, the party who contributed more than its proportionate share will have a security interest and continuing lien in said Holdings Common Membership Interests. Because certain provisions of the First Amendment to the Credit Agreement are not effective, the Lenders are no longer required to forbear exercising their rights, remedies and options with respect to the events of default under the Credit Agreement, which, if exercised, would result in delays in funding under the Credit Agreement or termination of the Credit Agreement, either of which would have a material and adverse effect on the Company. On February 17, 1999, GMAC Commercial Mortgage ("GMAC"), one of the participants in the FF&E Financing, issued a "Notice of Default" based on the Company's proposal to amend the minimum net worth amount under the FF&E Financing documents and further provided that GMAC was terminating its obligation to fund under the FF&E Financing. On February 26, 1999, the Company responded that, pursuant to the Intercreditor Agreement, dated June 30, 1998, no participant in the FF&E Financing, including GMAC, could declare a Default or Event of Default (other than a payment default) prior to the initial funding under the FF&E Financing and that in fact no default or event of default existed. To date, there have been no further developments on this matter and there can be no assurances as to its ultimate outcome. In March 1999, the Company completed a review of the project budget and determined that it was appropriate to increase the Main Project Budget by approximately $18.5 million, which amount reflected an increase in construction costs of approximately $9.5 million and an increase in pre-opening costs of approximately $9 million (collectively, "March 1999 Out-of-Balance"). In addition to this amount, it may be necessary to increase the Main Project Budget by the amount of the Music Indebtedness as a means to cure that event of default. The revised net worth requirement pursuant to the Second Amendment to the Credit Agreement would require additional contributions to the Company on a monthly basis if the Company's net worth falls below $100 million. The Company estimates that additional contributions of approximately $33 million will be required to maintain a net worth of $100 million prior to the opening of the Aladdin. The Company has informed the Sommer Trust and London Clubs of the March 1999 Out-of-Balance and requested that, pursuant to the Bank Completion Guaranty, the Sommer Trust and London Clubs fund the March 1999 Out-of-Balance. As of March 30, 1999, neither party has funded the March 1999 Out-of-Balance; however, London Clubs has advised the Company that it will fund the full March 1999 Out-of-Balance amount. The March 1999 funding under the Credit Agreement was to be made, assuming payment of the March 1999 Out-of-Balance, on or about March 18, 1999. As of March 30, 1999, such funding had not occurred, and the Company believes the funding will not occur without the payment by London Clubs of the March 1999 Out-of-Balance. Even if the March 1999 Out-of-Balance is paid, due to the existing events of default under the Credit Agreement, there can be no assurances that any funding will be made under the Credit Agreement or that the Credit Agreement will not be terminated. The lack of funding under the Credit Agreement would have a material and adverse effect on the Company and any further delay in funding could have a material and adverse effect on the Company. The monthly payment to the Design/Builder was due from the Company on or about March 18, 1999. As the Company did not receive its March 1999 funding under the Credit Agreement, as of March 30, 1999, the Company had not paid the Design/Builder. Under the Design/Builder Contract, ten days after payment is due, the Design/Builder can issue a written notice of non-payment and if payment is not made within ten days after such notice, Design/Builder can stop work on the Project. If the Design/Builder does 20 stop work on the Project, it will cause delays and expenses to the Project which would have a material and adverse effect on the Company. After expiration of the applicable time periods, a default under the Design/Build Contract is an event of default under the Credit Agreement. Arthur Andersen LLP, the Company's independent public accountant, has issued an opinion in connection with its audit of the Company's financial statements which includes an explanatory fourth paragraph that calls attention to the existence of substantial doubt about the Company's ability to continue as a going concern. See Exhibit 99.01. The Credit Agreement and the FF&E Financing documents require that the Company's annual financial statements be audited without an Impermissible Qualification (as defined in the Credit Agreement) from the independent public accountants, which includes any qualification or exception to the accountant's opinion of a "going concern," or similar nature. If such qualified opinion is not cured within thirty days, it would constitute an event of default under the Credit Agreement and the FF&E Financing documents. Due to Gaming Enterprises' significant investment in the Company, Arthur Andersen LLP, Gaming Enterprises' independent public accountant, has issued a similar opinion. See "Item 8--Financial Statements and Supplementary Data--Report of Independent Public Accountants." The Company plans to: (i) cure the events of default referred to above; (ii) continue to comply with current and future Bank Credit Facility debt covenants; and (iii) obtain adequate funding through project completion. To accomplish these plans, management: (a) is currently seeking an additional contribution of $18.5 million from London Clubs (which the Company has been advised will be funded by London Clubs); (b) together with London Clubs and the Sommer Trust, has submitted a proposed Second Amendment to the Credit Agreement, which seeks to cure all current events of default; and (c) has informed both London Clubs and the Sommer Trust of its estimate of future equity contributions of approximately $33 million required under the net worth test proposed under the Second Amendment to the Credit Agreement. Subject to, and dependent upon, the ultimate resolution of the various matters discussed above, the Company believes that the funds provided by the Notes, Credit Agreement, FF&E Financing, London Clubs' equity contribution and owner contributions pursuant to the Bank Completion Guaranty (collectively, "Funding Transactions") will be sufficient to develop, complete and commence operation of the Aladdin, assuming no future delays or additional construction cost overruns, which (i) are not covered by the $31.8 million contingency funds, of which amount $6.8 million is provided for under the Design/Build Contract and $25 million is provided for under the Credit Agreement; or (ii) Fluor Corporation and/or its subsidiary Fluor Daniel are not responsible for pursuant to the Fluor Guaranty and the Design/Build Contract, respectively. As of December 31, 1998, the Company has utilized approximately $7.5 million of the contingency. However, there can be no assurance that such funds will be sufficient for the development, construction and commencement of the Aladdin. If for any reason funding under the Credit Agreement ceases, the Company will not have sufficient liquidity and capital resources to meet all its current and long term commitments and obligations, and to complete construction and commence operation of the Aladdin. Following the commencement of operations of the Aladdin, the Company expects to fund its operating, debt service and capital needs, as currently contemplated, with $15 million of working capital from the funding transactions and operating cash flows. Although no additional financing is contemplated, the Company will seek, if necessary and to the extent permitted under the Notes Indenture and the terms of the Bank Credit Facility and the FF&E Financing, additional financing through additional bank borrowings or debt or equity financings. There can be no assurance that additional financing, if needed, will be available to the Company, or that, if available, the financing will be on terms favorable to the Company. There can also be no assurance that estimates by the Company of its reasonably anticipated liquidity needs are accurate or that new business developments or other unforeseen events will not occur, resulting in the need to raise additional funds. 21 MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices such as interest rates, foreign currency exchange rates and commodity prices. The Company's primary exposure to market risk is interest rate risk associated with its long-term debt. The Company manages interest rate risk by utilizing derivative financial instruments. The Company evaluates its exposure to interest rate risk by monitoring changes in interest rates in the market. The table below provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For interest rate sensitive debt obligations, the table presents: (i) the amount of debt outstanding as of December 31, 1998 and the expected debt to be outstanding for the next five years; (ii) expected interest expense and related weighted average interest rates for the next five years end thereafter; (iii) total expected interest expense from January 1, 1999 through the repayment of the indebtedness; and (iv) the current fair market value of the indebtedness as of December 31, 1998. The amount of expected indebtedness to be outstanding for the next five years is based on the assumption that the Aladdin will be operational during the second quarter of the year 2000 and the debt will be repaid in accordance with the principal amortization as detailed in "Note 2--Long Term Debt and Current Maturities of Long-Term Debt" of the Notes is the Consolidated Financial Statements, which are an exhibit to this Form 10-K. The repayment calculations do not include any additional reductions in debt due to the mandatory prepayments based on excess cash flow. In addition, the calculations assume that all events of default are cured and the current maturities of long-term debt are reclassified as long-term debt. See discussion above regarding events of default. The interest expense due on the Term Loans is a function of the London Interbank Offered Rate ("LIBOR") plus additional basis points depending on whether the funds from the Term Loans have been utilized to develop and build the Aladdin or the Aladdin to operational. The LIBOR on the Term Loans was 5.2613% as of December 31, 1998. The LIBOR is adjusted every three months and on March 1, 1999, LIBOR was set at 5.02%. The interest expense computations related to the interest rate sensitive debt obligations assume: (a) that LIBOR remains constant at 5.2613% for all periods; (b) that the Aladdin is operational during the second quarter of the year 2000; (c) that the funds expended on the project are in accordance with the Company's future cash flow projections; and (d) the additional basis points paid on the Term A Loan is the maximum amount required under the Credit Agreement (for further details on the interest rates for the Term Loans, see "Note 2--Long Term Debt and Current Maturities of Long-Term Debt" of the Notes to the Consolidated Financial Statements, which are an exhibit to this Form 10-K). For interest rate swaps, the table presents notional amounts as of the end of each period, the net expected interest (receivable)/payable amounts during the periods and the interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. The variable rates are based on the LIBOR in effect under the agreements as of December 31, 1998 and for these calculations, the same LIBOR was used for all periods. The LIBOR in effect under the swap agreements as of December 31, 1998 was 5.3125% and LIBOR is adjusted quarterly. For interest rate ceiling and floor caps, the table presents notional amounts as of the end of each period, the net expected interest (receivable)/payable amounts during the periods and the interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. For these calculations, the Company assumed that LIBOR would remain at 5.3125% for all periods. This resulted in a net payment of interest as LIBOR was less than the floor rate. The Company does not hold or issue interest rate swap agreements for trading purposes. 22
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1999 2000 2001 2002 2003 ------------- ------------- ------------- ------------- ------------- ------------- Long Term Debt: (In thousands) Term B Loan Outstanding $............... 114,000 114,000 113,200 112,000 110,800 110,195 Variable Rate $......................... 9,461 10,103 9,974 9,868 9,762 Average Interest Rate................... 8.2082% 8.7613% 8.7613% 8.7613% 8.7613% Term C Loan Outstanding $............... 160,000 160,000 159,641 157,334 155,734 154,134 Variable Rate $......................... 13,591 14,949 14,807 14,658 14,508 Average Interest Rate................... 8.4012% 9.2613% 9.2613% 9.2613% 9.2613% Term A Loan Outstanding $............... 0 17,000 126,400 106,667 81,334 50,667 Variable Rate $......................... 62 8,732 9,440 7,678 5,372 Average Interest Rate................... 8.2613% 8.0673% 8.0113% 8.0113% 8.0113% Interest Rate Swaps: (In Thousands) Notional Amount $....................... 114,000 114,000 N/A N/A N/A N/A Variable to Fixed $..................... 650 163 N/A N/A N/A Average Pay Rate........................ 5.8830% 5.8830% 5.8830% N/A N/A N/A Average Receive Rate.................... 5.3125% 5.3125% 5.3125% N/A N/A N/A (Contract Matures March 31, 2000) Notional Amount $....................... 160,000 160,000 160,000 160,000 160,000 N/A Variable to Fixed $..................... 1,876 1,876 1,876 1,876 469 Average Pay Rate........................ 6.4850% 6.4850% 6.4850% 6.4850% 6.4850% 6.4850% Average Receive Rate.................... 5.3125% 5.3125% 5.3125% 5.3125% 5.3125% 5.3125% (Contract Matures March 31, 2003) Notional Amount $....................... N/A 27,450 N/A N/A N/A N/A Variable to Fixed $..................... 39 155 N/A N/A N/A Average Pay Rate........................ N/A 5.8830% 5.8830% N/A N/A N/A Average Receive Rate.................... N/A 5.3125% 5.3125% N/A N/A N/A (Contract Matures March 31, 2000) Interest Rate Ceiling and Floor Caps: Notional Amount $....................... N/A N/A 250,000 250,000 250,000 250,000 Variable to Fixed $..................... 563 844 844 844 Ceiling Rate............................ N/A N/A 7.0000% 7.0000% 7.0000% 7.0000% Floor Rate.............................. N/A N/A 5.6500% 5.6500% 5.6500% 5.6500% Assumed LIBOR Rate...................... N/A N/A 5.3125% 5.3125% 5.3125% 5.3125% (Contracts Mature September 30, 2006) FAIR VALUE AT DECEMBER 31, THEREAFTER TOTAL 1999 ----------- --------- ------------- Long Term Debt: (In thousands) Term B Loan Outstanding $............... 114,000 Variable Rate $......................... 21,210 70,378 Average Interest Rate................... 8.7613% Term C Loan Outstanding $............... 160,000 Variable Rate $......................... 49,965 122,476 Average Interest Rate................... 9.2613% Term A Loan Outstanding $............... N/A Variable Rate $......................... 27,152 58,437 Average Interest Rate................... 8.0113% Interest Rate Swaps: (In Thousands) Notional Amount $....................... N/A Variable to Fixed $..................... N/A 813 Average Pay Rate........................ N/A Average Receive Rate.................... N/A (Contract Matures March 31, 2000) Notional Amount $....................... N/A Variable to Fixed $..................... N/A 7,973 Average Pay Rate........................ N/A Average Receive Rate.................... N/A (Contract Matures March 31, 2003) Notional Amount $....................... N/A Variable to Fixed $..................... N/A 194 Average Pay Rate........................ N/A Average Receive Rate.................... N/A (Contract Matures March 31, 2000) Interest Rate Ceiling and Floor Caps: Notional Amount $....................... N/A Variable to Fixed $..................... 2,320 5,414 Ceiling Rate............................ 7.0000% Floor Rate.............................. 5.6500% Assumed LIBOR Rate...................... 5.3125% (Contracts Mature September 30, 2006)
23 In addition to the above interest rate swaps and interest rate ceiling and floor caps, the Company has entered into a swap option. The notional amount of the swap option is $154,800,000. The option would extend the interest rate swap on the $160,000,000 notional amount from March 31, 2003 to March 31, 2007. This option is solely at the discretion of the Company, but must be exercised by March 24, 2003. The fair market value of all of the Company's interest rate swaps, interest rate ceiling and floor caps and swap option was a net liability of approximately $13.9 million as of December 31, 1998. YEAR 2000 The Company and its subsidiaries are development stage companies that are developing, constructing, and upon completion, will operate a hotel casino. The selection of software applications, hardware and other technology currently in use principally occurred within the last twelve months. The only computer systems in place at the current time are several financial applications, word processing and an internal e-mail system that are year 2000 compliant. Accordingly, it is not expected that the Company will incur significant amounts, if any, to modify its systems for year 2000 compliance. The Company has requested representations regarding the year 2000 compliance from Fluor Corporation and/or its subsidiary Fluor Daniel, the design/builder for the Aladdin ("Design/Builder"), and through Design/Builder will seek similar representations of the other contractors and subcontractors for the construction of the Aladdin (collectively, "Contractors") to assess the impact of year 2000 noncompliance on the construction of the Aladdin. Construction delays will have a significant impact on the financial results of the Company. There can be no assurance that the systems of the Contractors or other companies on which the Company may rely, such as vendors, will be properly converted before the year 2000 and that failure to convert by another company will not have an adverse effect on the Company's operations. START-UP ACTIVITIES In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 98-5 REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"). The provisions of SOP 98-5 are effective for fiscal years beginning after December 15, 1998 and require that the costs associated with start-up activities (including pre-opening costs of casinos) be expensed as incurred. SOP 98-5 permits early adoption in fiscal years for which annual financial statements have not yet been issued. Effective January 1, 1998 the Company adopted the provisions of SOP 98-5. CERTAIN FORWARD LOOKING STATEMENTS Certain information included in this Form 10-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, without limitation, those relating to the Design/Build Contract, the Credit Agreement and other agreements, plans for future operations, current construction and development activities (including competition dates and budgets), other business developments activities, capital spending, financing sources, the effect of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the current development and construction activities and costs and timing thereof, the sources and extent of financing for the Project, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or international economic conditions (including sensitivity to fluctuations in foreign currencies), changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions) and application for licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations). 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There is incorporated by reference the information appearing under the caption "Market Risk" in Item 7 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Public Accountants To the Board of Directors of Aladdin Gaming Enterprises, Inc.: We have audited the accompanying balance sheets of Aladdin Gaming Enterprises, Inc. (a Nevada corporation in the development stage) as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for the year ended December 31, 1998 and for the period from inception (December 3, 1997) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming Enterprises, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the year ended December 31, 1998 and for the period from inception (December 3, 1997) to December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company's principal asset consists of its investment, stated at cost, in an unconsolidated affiliate, which affiliate is currently in default of certain debt covenants and will require additional funds to complete the construction of the new Aladdin Hotel and Casino and to maintain compliance with current and future covenants. As discussed in Note 2 to the financial statements, this raises substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts that might result should the Company be unable to continue as a going concern. ARTHUR ANDERSEN LLP Las Vegas, Nevada March 30, 1999 25 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS EXCEPT FOR SHARE DATA) ASSETS
DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- Cash and cash equivalents.................................................. $ 1 $ 1 Investment in unconsolidated affiliate..................................... 17,049 - -------- -------- $ 17,050 $ 1 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Payable to related party................................................... $ 3 $ - Common Stock............................................................... Class A, no par value, 2,000,000 and 2,500 shares authorized, 1,107,500 and 1 shares issued and outstanding as of December 31, 1998 and December 31, 1997, respectively........................................ Class B, no par value and non-voting, 8,000,000 and 0 shares authorized, 2,215,000 and 0 shares issued and outstanding and 2,215,000 and 0 shares reserved pursuant to the warrant agreement as of December 31, 1998 and December 31, 1997, respectively............................... 13,247 - Additional paid-in capital................................................. 14,420 1 Deficit accumulated during the development stage........................... (10,620) - -------- -------- $ 17,050 $ 1 -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. 26 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, FOR THE YEAR 1997) ENDED THROUGH DECEMBER 31, 1998 DECEMBER 31, 1998 ----------------- ----------------- Other expenses.................................................................. $ 3 $ 3 Equity in loss of unconsolidated affiliate...................................... 10,617 10,617 Income tax expense (benefit).................................................... - - ----------------- ----------------- Net loss accumulated during the development stage........................... $ 10,620 $ 10,620 ----------------- ----------------- ----------------- ----------------- Basic and dilutive loss per share............................................... $ 3.69 $ 3.97 Shares used in per share calculation............................................ 2,876,466 2,671,527
The accompanying notes are an integral part of these financial statements. 27 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
COMMON ADDITIONAL STOCK CLASS PAID-IN ACCUMULATED A AND B CAPITAL DEFICIT TOTAL ----------- ----------- ------------ --------- BALANCE, DECEMBER 3, 1997....................................... $ - $ - $ - $ - Issuance of common stock, 1 share issued........................ - 1 - 1 ----------- ----------- ------------ --------- BALANCE, DECEMBER 31, 1997...................................... $ - $ 1 $ - $ 1 Net loss accumulated during the development stage............... - - (10,620) (10,620) Issuance of Class A common stock, 1,107,499 shares issued, and Class B common stock, 2,215,000 shares issued.................. 13,247 - - 13,247 Issuance of Warrants to purchase Class B common stock, 2,215,000 warrants issued................................................ - 15,000 - 15,000 Equity costs from unconsolidated affiliate...................... - (581) (581) ----------- ----------- ------------ --------- BALANCE, DECEMBER 31, 1998...................................... $ 13,247 $ 14,420 $ (10,620) $ 17,047 ----------- ----------- ------------ --------- ----------- ----------- ------------ ---------
The accompanying notes are an integral part of these financial statements. 28 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997 ) THROUGH DECEMBER 31, 1998 (IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION FOR THE YEAR (DECEMBER 3, 1997) ENDED THROUGH DECEMBER 31, 1998 DECEMBER 31, 1998 ----------------- ------------------ Cash flows from operating activities: Net loss................................................................. $ (10,620) $ (10,620) Loss of unconsolidated affiliate......................................... 10,617 10,617 Increase in related party payable........................................ 3 3 -------- -------- Net cash used in operating activities...................................... - - -------- -------- Cash flows used in investing activities: Investment in unconsolidated affiliate................................... (15,000) (15,000) -------- -------- Cash flows from financing activities: Proceeds from the issuance of stock...................................... - 1 Proceeds from the issuance of warrants................................... 15,000 15,000 -------- -------- Net cash provided by financing activities.................................. 15,000 15,001 -------- -------- Net increase in cash and cash equivalents.................................. - 1 Cash and cash equivalents at beginning of period........................... 1 - -------- -------- Cash and cash equivalents at end of period................................. $ 1 $ 1 -------- -------- -------- -------- Supplemental disclosures of non-cash investing and financing activities: Stockholders' equity contribution--book value Land................................................................... $ 6,247 $ 6,247 Construction in progress............................................... 7,000 7,000 Equity costs from unconsolidated affiliate............................. (581) (581)
The accompanying notes are an integral part of these financial statements. 29 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND EQUITY METHOD ACCOUNTING Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Gaming Enterprises"), was established on December 3, 1997. Gaming Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming Holdings") which was established on December 1, 1997. Gaming Holdings was initially owned by Gaming Enterprises (25%), Sommer Enterprises, LLC, a Nevada limited liability company (72%) ("Sommer Enterprises"), and GAI, LLC, a Nevada limited liability company (3%). On February 26, 1998, London Clubs International, plc ("London Clubs"), through its subsidiary London Clubs Nevada, Inc. ("LCNI"), contributed $50 million for a 25% interest in Gaming Holdings' common membership interests ("Holdings Common Membership Interests"). Sommer Enterprises, contributed a portion of land for Holdings Common Membership Interests. Gaming Enterprises, which is owned 100% by Sommer Enterprises, contributed a portion of land, $7 million of predevelopment costs and $15 million in cash for Holdings Common Membership Interests. After the additional contributions, Sommer Enterprises, LLC owns 47% of Gaming Holdings, LCNI owns 25% of Gaming Holdings, Gaming Enterprises owns 25% of Gaming Holdings and GAI, LLC owns 3% of Gaming Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that they shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holding Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds a majority interest in Gaming Holdings. The members of AHL are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95% interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW") which holds a 5% interest in AHL. Gaming Enterprises has no other business or activity other than its investment in Gaming Holdings, which is a development stage company. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of the 13 1/2% Senior Discount Notes ("Notes"). Capital will not have any material operations or assets and will not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music'). Gaming Holdings and its subsidiaries are collectively referred to as "Company." The operations of the Company have been primarily limited to the design, development, financing and construction of a new Aladdin Hotel and Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately 35-acre world-class resort, casino and entertainment complex ("Complex") located on the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of Las Vegas Boulevard. The Aladdin has been designed to include a luxury themed hotel of approximately 2,600 rooms, an approximately 116,000 square foot casino, an approximately 1,400-seat production showroom and six restaurants. The Complex will comprise: (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a second hotel and casino with a music and entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking facility ("Carpark" 30 and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be separately owned in part by an affiliate of the Company and Aladdin Music is currently seeking a joint venture partner for the Aladdin Music Project. Gaming Enterprises' interest in Gaming Holdings has been accounted for under the equity method. Under the equity method, the original investment is recorded at cost, and is adjusted by Gaming Enterprises' share of earnings, losses and distributions received from and made to the investee. CASH AND CASH EQUIVALENTS Gaming Enterprises considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INCOME TAXES Gaming Enterprises accounts for income taxes using the liability method as set forth in the SFAS 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 Gaming Enterprises' assets and liabilities. There was no income tax expense or benefit recorded for the period from inception (December 3, 1997) through December 31, 1998 as Gaming Enterprises is a development stage company and the realization of any deferred tax asset is uncertain. LOSS PER BASIC AND DILUTED SHARE Loss per basic and diluted share is based on the weighted average number of shares outstanding. Basic and diluted shares outstanding were 2,876,466 and 2,671,527 for the year ended December 31, 1998 and from inception (December 3, 1997) through December 31, 1998, respectively. Diluted shares include stock options and warrants when dilutive. Due to the loss accumulated during the development stage, Gaming Enterprises' warrants would be anti-dilutive and therefore have not been utilized in the computation of dilutive shares. 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. Gaming Enterprises has determined that comprehensive income and net income as reported in the accompanying financial statements are the same. In June, 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. Gaming Enterprises currently operates as one segment. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 31 2. GOING CONCERN ASSUMPTION Gaming Enterprises' principal asset consists of its investment in Gaming Holdings. Gaming Holdings is currently in default of certain debt covenants and will require additional funds to complete the construction of the new Aladdin Hotel and Casino and maintain compliance with current and future covenants. Gaming Holdings plans to: (i) cure the events of default referred to above; (ii) continue to comply with current and future bank credit facility debt covenants; and (iii) obtain adequate funding through project completion. To accomplish these plans, Gaming Holding's management: (a) is currently seeking an additional contribution of $18.5 million from London Clubs (which Gaming Holdings has been advised will be funded by London Clubs); (b) together with London Clubs and the Sommer Trust, has submitted a proposed second amendment to its credit facility, which seeks to cure all current events of default; and (c) has informed both London Clubs and the Sommer Trust of its estimate of future equity contributions of approximately $33 million required under the net worth test proposed under its second amendment to the credit agreement. If for any reason, funding under its credit agreement ceases, Gaming Holdings will not have sufficient liquidity and capital resources to meet all its current and long term commitments and obligations, and to complete construction and commence operation of the new Aladdin Hotel and Casino. 3. PRIVATE OFFERING On February 26, 1998, Gaming Holdings, Gaming Capital Corp. ("Capital" together with Gaming Holdings, the "Issuers") and Gaming Enterprises consummated a private offering ("Offering") under Rule 144A of the Securities Act of 1933. The private offering consisted of 221,500 units ("Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 ("Notes") of Gaming Holdings and Capital and (ii) 10 Warrants ("Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Gaming Enterprises. The Notes and the Warrants became separately transferable on July 23, 1998 and the Warrants became exercisable on July 23, 198 and will expire on March 1, 2010. The total amount paid for the warrants was $15 million and is reflected as additional paid-in capital in the accompanying financial statements. 32 4. INVESTMENT IN UNCONSOLIDATED AFFILIATE As discussed in Note 1, Gaming Enterprises holds a 25% interest in Gaming Holdings. Summarized condensed financial information of Gaming Holdings as of and for the year ended December 31, 1998, is as follows:
1998 (IN THOUSANDS) -------------- Aladdin Gaming Holdings, LLC Statement of Operations Data: Net Revenue................................................................................... None Net Loss...................................................................................... $ 42,468 Gaming Enterprises' share of net loss......................................................... $ 10,617 Balance Sheet Data: Assets: Current Assets.............................................................................. $ 9,111 Property and equipment, net................................................................. 128,432 Other assets................................................................................ 265,218 -------------- Total assets.............................................................................. $ 402,761 -------------- -------------- Liabilities and Members' Equity Liabilities................................................................................. $ 416,621 Members' equity Gaming Enterprises........................................................................ 17,049 Other members............................................................................. (30,909) -------------- Total liabilities and members' equity..................................................... $ 402,761 -------------- --------------
The changes in Gaming Enterprises' investment in unconsolidated affiliate is as follows:
1998 (IN THOUSANDS) -------------- Investment on February 26, 1998................................................................... $ 28,247 Losses............................................................................................ (10,617) Members' share of equity costs.................................................................... (581) -------------- Balance as of December 31, 1998........................................................... $ 17,049 -------------- --------------
5. EQUITY CONTRIBUTIONS On February 26, 1998, Sommer Enterprises, LLC contributed land and $7 million of predevelopment costs in exchange for 100% of the Class A Common Stock in Gaming Enterprises. Gaming Enterprises contributed the land, the $7 million of predevelopment costs and the net proceeds, $15 million allocable from the sale of the Warrants to Gaming Holdings in exchange for 25% of the common membership interests in Gaming Holdings. 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth the executive officers and the directors of Gaming Enterprises, Gaming Holdings, Gaming and Capital. A "director" of the Gaming Holdings or Gaming as such term is used in this Form 10-K, shall refer to a person who sits on the Board of Managers of Gaming Holdings ("Gaming Holdings Board") or Gaming ("Gaming Board").
NAME AGE POSITION - ------------------------------------- ----------- -------------------------------------------------------------------- Jack Sommer.......................... 52 Chairman of the Gaming Holdings Board and the Gaming Board; Director of Gaming Enterprises and Capital; President of Gaming Enterprises. Richard J. Goeglein.................. 64 Chief Executive Officer and President of Gaming Holdings, Gaming and Capital; Director of Gaming Holdings, Gaming and Capital. Ronald Dictrow....................... 55 Executive Vice President and Director of Gaming Holdings, Gaming and Capital; Director and Secretary of Gaming Enterprises; Secretary of Gaming Holdings and Capital. Alan Goodenough...................... 55 Director of Gaming Holdings, Gaming and Capital. G. Barry C. Hardy.................... 51 Director of Gaming Holdings, Gaming and Capital. William Timmins...................... 51 Director of Gaming Holdings and Gaming. James H. McKennon.................... 45 Senior Vice President of Gaming Holdings, Gaming and Capital; President/Chief Operating Officer of the Aladdin Hotel and Casino. Cornelius T. Klerk................... 45 Senior Vice President/Chief Financial Officer/Treasurer of Gaming Holdings, Gaming and Capital; Treasurer of Gaming Enterprises. Lee A. Galati........................ 57 Senior Vice President/Human Resources of Gaming Holdings, Gaming and Capital. Jose A. Rueda........................ 62 Senior Vice President/Gaming of Gaming Holdings, Gaming and Capital. David Attaway........................ 44 Senior Vice President of Gaming Holdings, Gaming and Capital; President and Chief Operating Officer of the Aladdin Music Project. Patricia Becker...................... 47 Senior Vice President/General Counsel of Gaming Holdings, Gaming and Capital and Secretary of Gaming.
Jack Sommer is the Chairman of the Gaming Holdings Board and the Gaming Board, a director of Gaming Enterprises and President of Gaming Enterprises. 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 34 Avenue, Manhattan, an 820,000 square foot office building in Manhattan formerly owned and currently partially occupied by the Bankers Trust Company; 135 West 50th Street, Manhattan, an 800,000 square foot office building also known as the AMA Building; and 600 Third Avenue, Manhattan, a 500,000 square foot office building. Sommer Properties has also developed over 35,000 single family homes, primarily in New Jersey. Richard J. Goeglein is Chief Executive Officer and a director of Gaming Holdings, Gaming and Capital. Mr. Goeglein has spent over 35 years in the hotel/casino and food service industry. He was an Executive Vice President and a member of the Board of Directors of Holiday Inns and Holiday Corp. from 1978 through 1987 and led the management team that consummated the 1980 acquisition of Harrah's Hotels and Casinos ("Harrah's") for Holiday Inns. Mr. Goeglein subsequently served as President and Chief Executive Officer of Harrah's from 1980 to the Fall of 1984 and as President and Chief Operating Officer of Holiday Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns and Embassy Suites) from October 1984 through 1987. From 1988 to 1992, Mr. Goeglein participated in several corporate turnarounds in the technology and consumer services fields. In 1992, Mr. Goeglein formed Gaming Associates, Inc. ("Gaming Associates") to take management control of Dunes Hotel and Casino in Las Vegas and to prepare a plan of closure for and carry out the closure of the property. Gaming Associates provided consulting services to the lodging and gaming industries. Mr. Goeglein recently served as a member of the Gaming Oversight Committee of Marriott Corporation ("Marriott") and through Gaming Associates, provided consulting services to Marriott's gaming operations situated outside of the United States through December 1997. Mr. Goeglein served as a director of Hollywood Park, Inc. until October 1998. Ronald Dictrow is Executive Vice President and a director of Gaming Holdings, Gaming and Capital and director and Secretary of Gaming Enterprises and Secretary of Gaming Holdings and Capital. Mr. Dictrow spent the first 12 years of his professional career as a CPA with the New York accounting firm David Berdon & Company and has a master's degree in accounting and taxation. In 1979, he was hired by Sigmund Sommer as Controller with financial responsibility for all of Mr. Sommer's properties. In 1984, Mr. Dictrow became Treasurer and Chief Financial Officer of the Sommer Trust with the additional responsibility for the operations and management of these properties. Mr. Dictrow is an advisor and consultant to Mrs. Viola Sommer and has been an officer and director of Sovereign Apartments, Inc., a New York City cooperative apartment building since 1979. Mr. Dictrow has had business dealings with the Sommer family for over 20 years. Alan Goodenough is a director of Gaming Holdings, Gaming and Capital. Mr. Goodenough, who is chief executive officer of London Clubs, has over 30 years of experience in the leisure and gaming industry, having worked as a public company director and at other senior levels with several major public leisure and casino companies in the United Kingdom. As chief executive officer of London Clubs, Mr. Goodenough was instrumental in that company's initial public offering on the London Stock Exchange in June 1994. Mr. Goodenough is also presently a fellow of the United Kingdom Hotel and Catering Institute and a member of the Institute of Directors of England and Wales. G. Barry C. Hardy is a director of Gaming Holdings, Gaming and Capital. Mr. Hardy has served as Finance Director of London Clubs since 1989. Before joining London Clubs, Mr. Hardy had extensive business experience in the leisure and gaming industries. Such experience included executive level positions with Pleasurama, plc where he held the offices of Development Director, Group Finance Director and Company Secretary. In addition, Mr. Hardy was actively involved in the development of Pleasurama's leisure and casino interests. In 1988, after the acquisition of Pleasurama by Mecca Leisure Ltd., Mr. Hardy was appointed to Mecca's Board as Managing Director of its casino division. William Timmins is a director of Gaming Holdings and Gaming. Mr. Timmins has served as Director of International Operations of London Clubs since March, 1996. Mr. Timmins has over thirty years of experience in the casino industry and before joining London Clubs, Mr. Timmins was the Managing 35 Director of Soceite Participation Investisments Casino, the third largest gaming company in France, from 1990 until 1995. James H. McKennon is Senior Vice President of Gaming Holdings, Gaming and Capital and President/Chief Operating Officer of the Aladdin Hotel and Casino. Mr. McKennon's career spans over 22 years in the hotel and casino industry in a variety of executive positions. He was President and Chief Operating Officer of Caesars World International Marketing (the casino marketing division of Caesars World) from 1994 to 1996 and served as the President and Chief Operating Officer of Caesars Tahoe from 1991 to 1994. Mr. McKennon first joined Caesars as the Senior Vice President-Hotel Operations for Caesars Palace in Las Vegas, a position he held until his promotion in 1991. From 1976 to 1988 he held a variety of managerial positions at both the property and corporate level for Westin Hotels. Cornelius T. Klerk is the Senior Vice President/Chief Financial Officer of Gaming Holdings, Gaming and Capital and Treasurer of Gaming Enterprises. He has over 20 years of experience in the hotel and casino industry both at the corporate and property level. From 1993 to 1997 Mr. Klerk was Vice President- Finance for Hilton Gaming Division (the gaming division of Hilton Hotels Corporation ("Hilton"). In that position he was responsible for the financial oversight of all gaming properties owned and operated by Hilton. He was employed by Harrah's from 1979 to 1985 and again from 1989 to 1993 in a variety of financial management positions ranging from Casino Controller for Harrah's Atlantic City to Vice President, Finance-Southern Nevada. From 1985 to 1987, Mr. Klerk was Vice President of Gilpin, Peyton and Pierce, a regional advertising agency and from 1987 to 1989, he was Corporate Controller for Forte Hotels International in San Diego, California. Mr. Klerk was previously a CPA with the accounting firm of Price Waterhouse. Lee A. Galati is the Senior Vice President/Human Resources of Gaming Holdings, Gaming and Capital. Mr. Galati has 23 years of human resources experience in a variety of industries in both the public and private sectors. He was most recently the Director of Human Resources for Sky Ute Casino in Durango, Colorado from 1996 to 1997. Mr. Galati served as the Director of Human Resources for La Plata County, Colorado from 1993 to 1995. From 1990 to 1993, Mr. Galati served as an adjunct professor in the School of Business at Fort Lewis College in Durango, Colorado. His experience also includes serving as Director of Operations Support Services and Human Resources for Northern Telecom in San Diego from 1984 to 1990 as well as Director of Human Resources for Beckman Instruments in Fullerton, California from 1980 to 1984. Mr. Galati earned a Masters in Human Resources and Organization Development from the University of San Francisco in 1984. Jose A. Rueda is the Senior Vice President/Gaming of Gaming Holdings, Gaming and Capital. Mr. Rueda's 29 years experience in the gaming industry includes gaming operations as well as the sale and distribution of gaming equipment. He was the Vice President, North East Region of Mikohn Gaming Corporation from 1995 to 1997. Mikohn is a leading supplier of gaming equipment to the casino industry. Prior to joining Mikohn, Mr. Rueda was with Harrah's for 24 years in a variety of management positions that included Director of Slot Operations, Harrah's Atlantic City, from 1986 to 1994; Vice President of Gaming/Slots, Harrah's Corporate from 1984 to 1986; Vice President of Operations, Harrah's at Trump Plaza from 1983 to 1984 and Vice President of Gaming, Harrah's Corporate from 1980 to 1983. Mr. Rueda has extensive experience in property research and development along with creative product positioning. He holds a business management degree from the University of Nevada at Reno. David Attaway is the Senior Vice President of Gaming Holdings, Gaming and Capital and President and Chief Operating Officer of the Aladdin Music Project. Mr. Attaway has 18 years experience in the entertainment, hotel and casino industry in a variety of executive positions. He joined Caesars Tahoe in 1986 and held the following positions during his 12 year tenure: Senior Vice President and General Manager from 1996 to 1998; Senior Vice President of Casino Operations and Marketing, 1996 and Senior Vice President of Marketing, 1992 to 1996. Prior to joining Caesars Tahoe, Mr. Attaway was the Director of Marketing and Finance for Lawlor Event Center in Reno, Nevada from 1983 to 1985. He held 36 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 Gaming Holdings, Gaming and Capital and Secretary of Gaming. Ms. Becker currently is a director of Powerhouse Technologies, Inc. and Fitzgerald's Gaming Corporation and chairs the Compliance Committee for both companies. From 1993 to 1995, Ms. Becker was Chief of Staff for Nevada Governor, Bob Miller. From 1985 to 1993 Ms. Becker was with Harrah's Hotels and Casinos, where she held the position of Senior Vice President and General Counsel. Prior to joining Harrah's, she was a member of Nevada State Gaming Control Board. She holds a Juris Doctorate degree from California Western School of Law. COMMITTEES There are currently no committee of the Board of Directors of Gaming Enterprises. The Gaming Holdings Operating Agreement provides that there will be Executive Management Committees which will be responsible for the day to day management of Gaming Holdings and Gaming. The Executive Management Committee of Gaming includes the following persons: the President and Chief Executive Officer of Gaming; the Chief Financial Officer of Gaming; the President and Chief Operating Officer of the Aladdin; the President and Chief Operating Officer of the Aladdin Music Project; the Senior Vice President of Human Resources of Gaming; the Senior Vice President/Gaming of Gaming; the Senior Vice President/ General Counsel of Gaming and a London Club Board member. The Gaming Holdings Board may also establish committees of the Gaming Holdings Board as it may deem necessary or advisable. Each of London Clubs and Sommer Enterprises is entitled to have one of its nominee Gaming Holdings Board members on each such committee. Presently, no committees of the Gaming Holdings Board have been established. ITEM 11. EXECUTIVE COMPENSATION. Gaming Enterprises has not compensated any of its officers during 1997 or 1998. The following table summarizes the compensation earned during 1998 and 1997 by Gaming Holdings', Gamings' and Capital's Chief Executive Officer and the four highest compensated executive officers of the Gaming Holdings, Gaming or Capital who earned over $100,000 in 1998 or 1997.
LONG-TERM COMPENSATION(1) ANNUAL COMPENSATION(1) --------------- --------------------------------------- RESTRICTED OTHER ANNUAL STOCK ALL OTHER NAME AND PRINCIPAL OCCUPATION SALARY BONUS COMPENSATION AWARDS COMPENSATION(1) - -------------------------------------- -------- ------- ------------ --------------- --------------- Richard J. Goeglein................... 1998 $630,770(2) $ 0 $248,379(3) $ 0 $22,137(4) Chief Executive Officer 1997 $650,000(5) $ 0 --(6) $ 0(7) $16,343(4) James H. McKennon..................... 1998 $330,192 $ 0 --(8) $ 0 $ 696(4) Senior Vice President 1997 $243,750(9) $ 0 --(8) $ 0(10) $ 635(4) Jose A. Rueda......................... 1998 $243,423 $ 0 --(8) $ 0 $ 1,896(4) Senior Vice President 1997 $ 86,538(9) $ 0 --(8) $ 0(11) $ 0 Cornelius T. Klerk.................... 1998 $195,785 $50,000 --(8) $ 0 $ 381(4) Chief Financial Officer 1997 $ 96,154(9) $ 0 --(8) $ 0(12) $ 0 David Attaway......................... 1998 $204,669(13) $ 0 $173,163(14) $ 0 $ 136(4) Senior Vice President 1997 $ 0 $ 0 $ 0 $ 0 $ 0
- ------------------------------ (1) All of the executive officers of the Company (other than Mr. Dictrow) are compensated by Gaming. Mr. Dictrow is principally employed by the Sommer Trust and is compensated by the Sommer Trust. Compensation has been paid on the Company's behalf by AHL for 1997 and until February 26, 1998. (2) Includes $150,000 paid to GAI in 1998 for consulting fees. 37 (3) Represents automobile allowance of $19,536 and moving expenses of $228,843 including federal income tax gross-up paid to Mr. Goeglein. (4) Represents life insurance premiums paid on behalf of the executive. (5) Includes $150,000 paid to GAI in 1997 for consulting fees. (6) GAI purchased vested Holdings Common Membership Interests representing 3% of the outstanding Holdings Common Membership Interests for $1,800. The price paid by GAI for such interests was equal to the fair market value of such interests at the time of purchase. The aggregate amount of all perquisites and other personal benefits received by Mr. Goeglein in 1997 was less than $50,000. (7) Mr. Goeglein purchased unvested Holdings Common Membership Interests representing 2% of the outstanding Holdings Common Membership Interests for a purchase price of $1,200. Such interests had a fair market value of $1,200 on the date of purchase. See "Employment Agreements" for information regarding the vesting of the Holdings Common Membership Interests. (8) The aggregate amount of all perquisites and other personal benefits received by the executive was less than 10% of the total annual salary and bonus paid to the executive. (9) Executive's employment with Gaming began during 1997. (10) Mr. McKennon purchased unvested Holdings Common Membership Interests representing approximately 1.0% of the outstanding Holdings Common Membership Interests for a purchase price of $600. Such interests had a fair market value of $600 on the date of purchase. See "Employment Agreements" for information regarding the vesting of the Holdings Common Membership Interests. (11) Mr. Rueda purchased unvested Holdings Common Membership Interests representing approximately 0.75% of the outstanding Holdings Common Membership Interests for a purchase price of $450. Such interests had a fair market value of $450 on the date of purchase. See "Employment Agreements" for information regarding the vesting of the Holdings Common Membership Interests. (12) Mr. Klerk purchased unvested Holdings Common Membership Interests representing approximately 0.75% of the outstanding Holdings Common Membership Interests for a purchase price of $450. Such interests had a fair market value of $450 on the date of purchase. See "Employment Agreements" for information regarding the vesting of the Holdings Common Membership Interests. (13) Mr. Attaway's employment with the Company began in 1998. (14) Represents moving expenses paid to Mr. Attaway including federal income tax gross-up. EMPLOYMENT AGREEMENTS Richard J. Goeglein, James H. McKennon, Cornelius T. Klerk, Lee A. Galati and Jose A. Rueda ("Officers") each signed an employment agreement (each, "Employment Agreement") with Gaming during 1997. David Attaway and Patricia Becker are currently negotiating employment agreements with Gaming which are expected to be comparable to the employment agreements discussed herein. The terms of the Employment Agreements were amended on February 26, 1998 such that Gaming Holdings became a party and the Officers contributed their Restricted Membership Interests in Gaming to Gaming Holdings in return for Restricted Membership Interests in Gaming Holdings. The initial term of Mr. Goeglein's Employment Agreement is five years and six months, and the remaining Officers' Employment Agreements have an initial duration of four years. Pursuant to each Employment Agreement, the Officers have such authority, responsibilities and duties as are customarily associated with their positions with Gaming. The Employment Agreements provide that, during the term of their employment, the Officers will devote their full time, efforts and attention to the business and affairs of Gaming. The terms of the Employment Agreements provide for an annual base salary for Mr. Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda of $500,000 ($600,000 after the opening of the Aladdin), $325,000 ($350,000 effective April 1998), $200,000, $150,000 and $250,000, respectively, plus any bonus granted by the Board of Directors based on relevant criteria and performance standards. All of the Officers have been receiving and are expected to continue to receive their compensation from Gaming, except that prior to February 26, 1998, such amounts were paid by AHL on Gaming's behalf. Mr. Goeglein's Employment Agreement provides for annual bonuses based upon "on target" performances, ranging from 50% to 75% of his base salary, and is subject to certain tax provisions. The Gaming 38 Board will consider increases to the Officers' base salary no less frequently than annually, commencing at the end of each Officer's first employment year. Any increase in base salary shall be within the sole discretion of the Gaming Board. The Employment Agreements provide that the Officers' salary cannot be reduced. After the initial term of Mr. Goeglein's Employment Agreement, Gaming has agreed to retain Mr. Goeglein as a consultant to Gaming for an additional five years at $100,000 per year. The Officers are entitled to receive other employee benefits from Gaming, such as health, pension and retirement and reimbursement of certain expenses. Pursuant to the terms of the Employment Agreements, as amended, Mr. Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda have purchased for a total purchase price of $1,200, $600, $450, $150 and $450, respectively, unvested Gaming Common Membership Interests which were contributed to Gaming Holdings on February 26, 1998 in return for unvested Holdings Common Membership Interests representing approximately 2.0%, 1.0%, 0.75%, 0.25% and 0.75%, respectively, of the Holdings Common Membership Interests ("Restricted Membership Interests") subject to the receipt of applicable Nevada gaming regulatory approval (collectively, "Gaming Approvals"). Gaming Enterprises' interest in Gaming Holdings will be unaffected by the vesting of the Officers' Restricted Membership Interests. On January 27, 1999, the Company's Board of Directors, except with respect to Mr. Goeglein, amended the vesting schedule of each Officer's Restricted Membership Interests during the terms of the Employment Agreement to vest 25% on the date of the opening of the Aladdin and a further 25% upon the expiration of the initial term of the Employment Agreement. If Gaming continues to employ each Officer after the expiration of the initial term of his Employment Agreement, 25% of the Officer's Restricted Membership Interests will continue to vest on each anniversary of the opening date until such interests are fully vested. After the terms of the Employment Agreements, if Gaming does not continue to employ the Officer other than for Cause, or if the Officer no longer continues his employment for Good Reason, only an additional 25% of the Officer's Restricted Membership Interests vest. Mr. Goeglein's Restricted Membership Interests become fully vested at the earlier of July 1, 2002 and the date on which such interests become publicly traded, conditioned upon Mr. Goeglein's continued relationship with Gaming. If an Officer's employment with Gaming and Gaming Holdings terminates, Gaming and Gaming Holdings have the right to repurchase any unvested portion of the Officer's Restricted Membership Interest for an amount equal to the purchase price originally paid by the Officer for the Common Membership Interests. Under certain circumstances as set forth in the Employment Agreements, including if an initial public offering with respect to the Restricted Membership Interests has not occurred prior to the full vesting of such interests, the Officers have the right to sell their vested Restricted Membership Interests to Gaming Holdings at fair market value (subject to the receipt of applicable Gaming Approvals and to certain restrictions on restricted payments set forth in the Notes Indenture and the Bank Credit Facility). If Gaming Holdings does not satisfy its obligation to purchase the Restricted Membership Interests within seven days, the Officers have the right to require Gaming to purchase such interests at fair market value (subject to certain restrictions on Restricted Payments set forth in the Note Indenture). After Gaming has satisfied its obligation to purchase the Restricted Membership Interests, Gaming Holdings has the right to call such interests from Gaming for nominal consideration. If, prior to the date of an initial public offering with respect to the Restricted Membership Interests, an Officer is terminated for Cause, except with respect to Mr. Goeglein, Gaming and Gaming Holdings have the right to purchase any vested Restricted Membership Interests from the Officers at two times the original price paid by the Officer for such interests (in each case with corresponding rights in Gaming Holdings to purchase the Common Membership Interests which correspond to such Restricted Membership Interests for nominal consideration). The Employment Agreements may be terminated by Gaming with or without Cause (as defined in each Employment Agreement) or by the Officers for Good Reason (as defined in each Employment 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 39 the case of Mr. Goeglein, any such amount remaining in connection with his term plus certain other amounts). Each Officer has agreed not to compete with Gaming during the term of the Employment Agreements (plus one additional year if the Officer was terminated for Cause) and has agreed to refrain from certain other activities in competition with Gaming. Each of the Employment Agreements provides that Gaming shall indemnify and hold the Officers harmless to the fullest extent permitted by Nevada law against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by the Officer in connection with his services as an employee of Gaming during the term of the respective Employment Agreement. Mr. Goeglein's Employment Agreement provides Mr. Goeglein with relocation expense reimbursement, an interest-free mortgage loan of $500,000 from AHL, and certain excise tax gross-up provisions. GAI CONSULTING AGREEMENT Gaming has entered into a consulting agreement (as amended, "Consulting Agreement") with GAI, LLC ("GAI"), a Nevada limited-liability company, 100% beneficially owned by Richard Goeglein, which was subsequently amended on February 26, 1998 to add Gaming Holdings as a party and pursuant to which amendment GAI contributed its Common Membership Interests in Gaming to Gaming Holdings in return for Holdings Common Membership Interests. Pursuant to the Consulting Agreement, GAI will render such consulting services as are reasonably requested by the Gaming Board until June 30, 2002. During the term of the Consulting Agreement, Gaming shall pay GAI a retainer of $12,500 each month as payment for remaining on call to provide services and expertise for such month. In addition, GAI purchased a 3% Common Membership Interest in Gaming which was contributed to Gaming Holdings on February 26, 1998 in return for a 3% Holdings Common Membership Interest ("GAI Membership Interest") for a purchase price of $1,800. The GAI Membership Interest is fully vested and is subject to certain anti-dilution provisions contained in the Consulting Agreement (but subject to dilution upon exercise of the Warrants). In addition: (a) if Richard Goeglein is terminated from his employment with Gaming other than for "Cause" or voluntarily terminates for "Good Reason" (as such terms are defined in Mr. Goeglein's Employment Agreement with Gaming) after the consummation of the Funding Transactions and the Offering; or (b) if an initial public offering in respect of the GAI Membership Interest has not occurred prior to July 1, 2002, GAI has the right to sell any shares purchased under the Consulting Agreement back to Gaming Holdings at their fair market value at the time of such sale (subject to the receipt of applicable Gaming Approvals and to certain restrictions on restricted payments set forth in the Notes Indenture and the Bank Credit Facility). If Gaming Holdings does not satisfy its obligation to purchase the GAI Membership Interest within seven days, GAI has the right to require Gaming to purchase such interests at fair market value. After Gaming has satisfied its obligation to purchase the GAI Membership Interest, Gaming Holdings will have the right to call such interests from Gaming at nominal value. Pursuant to the Consulting Agreement, GAI has certain "piggyback" registration rights with respect to its interests purchased pursuant to the Consulting Agreement. Gaming Holdings has agreed to indemnify GAI, its legal counsel and independent accountants against all expenses, claims, losses, damages and liabilities which may arise out of certain acts or omissions committed in connection with the registration of such membership interests, and, in connection with certain acts or omissions not committed in connection with the registration of such membership interests, to the same extent that other senior management and directors of Gaming and Gaming Holdings are indemnified. BONUS AND INCENTIVE PLANS Gaming and Gaming Holdings currently do not have any bonus or incentive plans. However, Gaming anticipates adopting such a plan at such time as it may deem appropriate (subject to supermajority approval by the Gaming Holdings Members, such approval not to be unreasonably withheld). It is expected that the terms of any such plan would be comparable to those customary in the industry. 40 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following tables set forth certain information with respect to the beneficial ownership of and the capital stock of Gaming Enterprises and the membership interests of Gaming Holdings by: (i) each person who, to the knowledge of Gaming Enterprises or the Company, beneficially owns more than 5% of the outstanding capital stock or membership interests (as the case may be); (ii) the directors of Gaming Enterprises and Gaming Holdings; (iii) all executive officers of Gaming Enterprises and Gaming Holdings named in "Management;" and (iv) all directors and executive officers of Gaming Enterprises and Gaming Holdings, respectively, as a group. Neither the capital stock of Gaming Enterprises nor the membership interests of Gaming Holdings is presently listed or traded on any securities exchange or securities market. ALADDIN GAMING ENTERPRISES, INC.
CLASS A COMMON STOCK -------------------------------------------------- ASSUMING FULL EXERCISE PRIOR TO EXERCISE OF THE OF WARRANTS--CLASS A THE WARRANTS--CLASS A COMMON STOCK(6) COMMON STOCK (6)(7) ------------------------ ------------------------ NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE SHARES OF CLASS SHARES OF CLASS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED - -------------------------------------------------------------- ----------- ----------- ----------- ----------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Sommer Trust(1)(2)...................................... 1,093,103 98.7% 1,093,103 98.7% Jack Sommer(1)(2)............................................. 1,093,103 98.7% 1,093,103 98.7% Ronald Dictrow(3)............................................. 14,398 1.3% 14,398 1.3% Cornelius T. Klerk(4)......................................... 0 0.0% 0 0.0% All Directors and Executive Officers as a group (5)........... 1,107,500 100% 1,107,500 100%
ALADDIN GAMING ENTERPRISES, INC.
CLASS B COMMON STOCK -------------------------------------------------- ASSUMING FULL EXERCISE PRIOR TO EXERCISE OF THE OF WARRANTS--CLASS B THE WARRANTS--CLASS B COMMON STOCK COMMON STOCK (6)(7) ------------------------ ------------------------ NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE SHARES OF CLASS SHARES OF CLASS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED - -------------------------------------------------------------- ----------- ----------- ----------- ----------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Sommer Trust(1)(2)...................................... 2,186,205 98.7% 2,186,205 49.4% Jack Sommer(1)(2)............................................. 2,186,205 98.7% 2,186,205 49.4% Ronald Dictrow(3)............................................. 28,795 1.3% 28,795 * Cornelius T. Klerk(4)......................................... 0 0.0% 0 0.0% All Directors and Executive Officers as a group (5)........... 2,215,000 100% 2,215,000 50%
- ------------------------ * Represents less than one percent of the outstanding shares of Class B Common Stock. (1) The Sommer Trust has an option to acquire 5% of the common membership interest in AHL from GW Vegas (representing all of GW Vegas' common membership interest in AHL). Such option is exercisable at any time prior to December 2001. The address of the Sommer Trust is 280 Park Avenue, New York, New York 10017. (2) Mr. Jack Sommer, who is Chairman and a director of Gaming and Gaming Holdings and a director of Capital and director and the President of Gaming Enterprises, is a trustee and contingent beneficiary 41 of the Sommer Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each deemed to beneficially own the same interest as the Sommer Trust owns in Gaming Enterprises because each of them is a trustee of the Sommer Trust. (3) Mr. Ronald Dictrow is the Secretary and a director of Gaming Enterprises. Mr. Dictrow's address is 280 Park Avenue, New York, New York 10017. (4) Mr. Cornelius Klerk is the Treasurer of Gaming Enterprises. Mr. Klerk's address is 831 Pilot Road, Las Vegas, Nevada 89119. (5) The directors of Gaming Enterprises are Messrs. Sommer and Dictrow. The executive officers of Gaming Enterprises are Messrs. Sommer, Dictrow and Klerk. (6) The Class A Common Stock and Class B Common Stock in Gaming Enterprises held by Sommer Enterprises were pledged on February 26, 1998 to the Bank Lenders under the Credit Agreement. (7) Upon the exercise of the Warrants, holders of the Warrant Shares will own 50% of the outstanding Class B Common Stock and 0% of the outstanding Class A Common Stock of the Issuer. ALADDIN GAMING HOLDINGS, LLC
PERCENTAGE OWNERSHIP OF PERCENTAGE OWNERSHIP OF GAMING HOLDINGS COMMON GAMING HOLDINGS COMMON MEMBERSHIP INTERESTS MEMBERSHIP INTERESTS BENEFICIALLY OWNED PRIOR BENEFICIALLY OWNED TO ASSUMING EXERCISE OF THE FULL EXERCISE OF THE NAME OF BENEFICIAL OWNER WARRANTS(9) WARRANTS(10) - ------------------------------------------------------------- ------------------------- ------------------------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Sommer Trust(1)(2)(3)............................... 71.1% 61.6% Jack Sommer(2)(3)............................................ 71.1% 61.6% London Clubs(3).............................................. 50.0% 50.0% Alan Goodenough(3)........................................... 0.0% 0.0% G. Barry C. Hardy(3)......................................... 0.0% 0.0% William Timmins (3).......................................... 0.0% 0.0% Ronald Dictrow(4)............................................ * * Richard J. Goeglein(5)(7).................................... 3.0% 2.6% James H. McKennon(6)(7)...................................... 0.0% 0.0% Cornelius T. Klerk(6)(7)..................................... 0.0% 0.0% Jose A. Rueda(6)(7).......................................... 0.0% 0.0% Lee A. Galati(6)(7).......................................... 0.0% 0.0% David Attaway(6)............................................. 0.0% 0.0% Patricia Becker(6)........................................... 0.0% 0.0% All Directors and Executive Officers as a group (twelve persons)(8)................................................ 75.0% 65.0%
- ------------------------ * Represents less than one percent of the outstanding Holdings Common Membership Interests. (1) The Sommer Trust has an option to acquire 5% of the common membership interests in AHL from GW Vegas (representing all of GW Vegas' common membership interests in AHL). Such option is exercisable at any time prior to December, 2001. The address of the Sommer Trust is 280 Park Avenue, Floor 38 West, New York, New York 10017. (2) Mr. Jack Sommer, who is Chairman and a director of Gaming Holdings and Gaming and a director of Capital and director and the President of Gaming Enterprises, is a trustee and contingent beneficiary of the Sommer Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each deemed to beneficially 42 own the same interest as the Sommer Trust owns in Gaming Holdings because each of them is a trustee of the Sommer Trust. The address for Mrs. Sommer, Mr. Sommer and Mr. Landsberg is 280 Park Avenue, Floor 38 West, New York, New York 10017. (3) London Clubs owns 25% of the Gaming Holdings Common Membership Interests. On November 30, 1998, London Clubs and the Sommer Trust agreed that the Sommer Trust and its affiliates shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Mr. Alan Goodenough is Chief Executive Officer of London Clubs and a director of Gaming Holdings, Gaming and Capital. As of February 15, 1999, Mr. Goodenough held approximately 202,228 ordinary shares (representing less than one percent of the share capital) of London Clubs and held options to purchase approximately 8,405 ordinary shares. Mr. Barry Hardy is Finance Director of London Clubs and a director of Gaming Holdings, Gaming and Capital. As of February 15, 1999, Mr. Hardy held approximately 901,048 ordinary shares (representing less than one percent of the share capital) of London Clubs and held options to purchase approximately 512,400 ordinary shares (options to purchase 512,400 ordinary shares presently exercisable) of London Clubs. Mr. William Timmins is Director of International Operations of London Clubs and a director of Gaming Holdings and Gaming. As of February 15, 1999, Mr. Timmins held options to purchase approximately 214,870 ordinary shares of London Clubs. The address of London Clubs and Messrs. Goodenough, Hardy and Timmins is 10 Brick Street, London, W1Y, 8HQ, United Kingdom. (4) Mr. Ronald Dictrow is a director of Gaming Enterprises and the Executive Vice President/Secretary and a director of Gaming Holdings, Gaming and Capital. Mr. Dictrow's address is 280 Park Avenue, Floor 38 West, New York, New York 10017. (5) Mr. Richard J. Goeglein, who is Chief Executive Officer, President and a director of Gaming Holdings, Gaming and Capital, beneficially owns 100% of GAI, which holds 3% of the Holdings Common Membership Interests. Mr. Goeglein's address is 831 Pilot Road, Las Vegas, Nevada 89119. (6) The address of Messrs. McKennon, Klerk, Rueda, Galati and Attaway and Ms. Becker is 831 Pilot Road, Las Vegas, Nevada 89119. (7) Messrs. Goeglein, McKennon, Klerk, Rueda and Galati have rights to acquire beneficial ownership of Gaming Holdings Common Membership Interests representing an aggregate of 4.75% of such interests, which rights do not vest within 60 days. See "Item 10. Directors and Executive Officers of the Registrant--Employment Agreements." (8) The directors of Gaming Holdings are Messrs. Sommer, Goodenough, Hardy, Timmins, Dictrow, and Goeglein. The executive officers of Gaming Holdings are Messrs. Goeglein, Dictrow, McKennon, Klerk, Rueda, Galati, Attaway and Ms. Becker. (9) Gaming Holdings owns 100% of the Common Membership Interests and Series A Preferred Interests of Gaming. The Common Membership Interests were, on closing of the Bank Credit Facility, pledged to the Bank Lenders. The Series A Preferred Interests were, on closing of the Notes offering, pledged to the Trustee for the benefit of the Note Holders. (10) Gaming Enterprises owns 25% of the Gaming Holdings Common Membership Interests. Upon full exercise of the Warrants, holders of the Warrant Shares will indirectly own 10% of the outstanding Holdings Common Membership Interests. 43 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. THE LONDON CLUB MANAGEMENT AGREEMENT Gaming, London Clubs and LCNI are parties to a management agreement which relates to The London Club. Under the management agreement, London Clubs has agreed to guaranty the obligations of LCNI. In consideration for the services to be furnished by LCNI under the management agreement, Gaming will pay to LCNI a performance-based incentive fee ("Incentive Marketing and Consulting Fee") calculated as follows: (i) 10% of The London Club EBITDA (defined in the management agreement to mean gross revenue attributable to The London Club, less all costs and expenses directly attributable to The London Club), up to and including $15.0 million of EBITDA; plus (ii) 12.5% of The London Club EBITDA, in excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of The London Club EBITDA, in excess of $17.0 million, up to and including $20.0 million; plus (iv) 50% of The London Club EBITDA, in excess of $20.0 million. The foregoing thresholds will be adjusted in accordance with consumer price index changes every five years. OTHER PAYMENTS TO CONTROLLING STOCKHOLDERS In consideration for certain expenses incurred by the Sommer Trust prior to February 26, 1998, relating to the management and coordination of the development of the Aladdin, Gaming reimbursed $3.0 million to the Sommer Trust on February 26, 1998. In addition, Gaming will reimburse certain ongoing out-of-pocket expenses of the Sommer Trust relating to the development of the Aladdin, not to exceed $0.9 million. In November 1998, the Sommer Trust agreed to defer such reimbursement until the Main Project Budget under the Credit Agreement is In Balance (as defined in the Credit Agreement). As of December 31, 1998, the Sommer Trust had received approximately $3.3 million of the total $3.9 million reimbursement. In consideration for its obligations under the Keep-Well Agreement (as defined below) and related arrangements, under the London Clubs Purchase Agreement, the parties agreed that London Clubs receive (a) an initial fee of 1.0% of Gaming's indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported and enhanced by the Keep-Well Agreement, which fee was paid on February 26, 1998, and (b) an annual fee of 1.5%, payable in arrears, of Gaming's annual average indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported and enhanced by the Keep-Well Agreement for each relevant twelve month period ending on an anniversary of the closing date of the Bank Credit Facility, which amount shall reflect the extent, if any, by which the obligations under the Keep-Well Agreement are reduced or eliminated over time (such fees accrue from the closing date of the Bank Credit Facility, and shall be paid from available proceeds after the opening date of the Aladdin). Additionally, Gaming agreed to reimburse approximately $2.8 million to London Clubs for certain expenses incurred relating to the Aladdin; however, in November 1998, London Clubs agreed to defer the payment of approximately $189,000 of this reimbursement until the Main Project Budget under the Credit Agreement is In Balance (as defined in the Credit Agreement). As of December 31, 1998, London Clubs received approximately $2.4 million of this $2.8 million reimbursement obligation. MUSIC INDEBTEDNESS PAYMENTS BY THE SOMMER TRUST AND MR. SOMMER During 1998, the Sommer Trust, the approximately 72% beneficial owner of the Company, paid approximately $260,000 to certain trade creditors on behalf of Aladdin Music and Mr. Sommer, the Company's Chairman of the Board, individually paid $500,000 to a trade creditor on behalf of Aladdin Music. Further, during the first quarter of 1999, the Sommer Trust paid approximately $747,000 to a trade creditor on behalf of Aladdin Music. To the extent permissible, Aladdin Music has agreed, if and when Aladdin Music secures a joint venture partner and financing for the Aladdin Music Project, to reimburse, without interest, the Sommer Trust and Mr. Sommer such advanced funds. 44 KEEP-WELL AGREEMENT On February 26, 1998, London Clubs, AHL and Bazaar Holdings entered into the Keep-Well Agreement in favor of the Administrative Agent and the Bank Lenders under the Bank Credit Facility. The Keep-Well Agreement is the joint and several agreement of the Sponsors to make certain quarterly Cash Equity Contributions to Gaming from and after the Conversion Date if Gaming fails to comply with certain financial ratios set forth in the Bank Credit Facility. BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY London Clubs, the Sommer Trust and Bazaar Holdings have entered into the Bank Completion Guaranty in favor of the Bank Lenders. Pursuant to the Bank Completion Guaranty, such parties have guaranteed, among other things, the timely completion of the Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar limitations. While holders of the Notes are not party to the Bank Completion Guaranty, London Clubs, the Sommer Trust and Bazaar Holdings have entered into the Noteholder Completion Guaranty for the benefit of the holders of the Notes. ARRANGEMENTS WITH RICHARD GOEGLEIN AND GAI Gaming has entered into the Consulting Agreement with GAI. Pursuant to the Consulting Agreement, GAI will render such consulting services as are reasonably requested by the Board of Gaming until June 30, 2002. During the term of the Consulting Agreement, Gaming shall pay GAI a retainer of $12,500 per month as payment for remaining on call to provide services and expertise for such month. Pursuant to the Consulting Agreement, GAI purchased 3% of the Common Membership Interests in Gaming (which were contributed to Gaming Holdings on February 26, 1998 for a 3% interest in Gaming Holdings) for $1,800. Such membership interest is fully vested, subject to certain anti-dilution provisions, put rights and certain "piggyback" registration rights. See "Item 10. Directors and Executive Officers of the Registrant-GAI Consulting Agreement." In addition, Mr. Goeglein's Employment Agreement provided Mr. Goeglein with relocation expense reimbursement, an interest free mortgage loan of $500,000 from AHL and certain excise tax gross-up provisions. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(l) The following consolidated financial statements of the Company and its subsidiaries have been filed as a part of this report (See "Part II, Item 8: Financial Statements and Supplementary Data"): Independent Auditor's Report; Consolidated Balance Sheets as of December 31, 1998 and 1997; Consolidated Statements of Operations for the Year Ended December 31, 1998 and from inception (December 1, 1997 through December 31, 1998); Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998 and 1997; Consolidated Statements of Cash Flows for the Year Ended December 31, 1998 and from inception (December 1, 1997 through December 31, 1998); and Notes to Consolidated Financial Statements (a)(2) All schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. (a)(3) The following exhibits (1) are filed as part of this form 10-K or incorporated herein by reference. EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 3.1 Articles of Organization of Aladdin Gaming Holdings, LLC ("Gaming Holdings") are incorporated herein by reference from Aladdin Gaming Enterprises, Inc.'s ("Enterprises") (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.3. 3.2 Articles of Incorporation of Aladdin Capital Corp. ("Capital") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.4. 3.3 Articles of Organization of Aladdin Gaming, LLC ("Gaming") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.5.
- ------------------------ (1) Copies of exhibits to this Form 10-K will be furnished to any requesting security holder who furnishes the Company a list identifying the exhibits to be copied by the Company at a charge of $.25 per page. Alternatively, these exhibits can be inspected, without charge at the Public Reference Section of the SEC located at 450 Fifth Street, NW, Washington, DC 20549 or at the SEC internet site: http:// www.sec.gov. 46
EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 3.4 Articles of Incorporation of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.1; Amendment No. 1 to Articles of Incorporation of Enterprises is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.2. 3.5 Operating Agreement of Gaming Holdings is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 3.7. 3.6 Bylaws of Capital are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.8. 3.7 Operating Agreement of Gaming is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.9. 3.8 Bylaws of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.6. 4.1 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as Warrant Agent ("Warrant Agent") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.1. 4.2 Warrant Registration Rights Agreement, dated February 26, 1998, among Enterprises and the Initial Purchasers (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.2. 4.3 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.3. 10.1 Indenture, dated February 26, 1998, among Gaming Holdings, Capital and State Street Bank and Trust Company, as Trustee ("Trustee") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.1. 10.2 Note Registration Rights Agreement, dated February 26, 1998, among Gaming Holdings, Capital and Merrill Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. ("Initial Purchasers") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.2. 10.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust under Articles Sixth u/w/o Sigmund Sommer, London Clubs International, plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 10.3.
47
EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 10.4 Disbursement Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, The Bank of Nova Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed on June 10, 1998, Part II, Item 16, Exhibit 10.4. 10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.5. 10.6 The Gaming Holdings Collateral Account Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.6. 10.7 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.7. 10.8 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs, Gaming Holdings, Aladdin Holdings, LLC, Gaming, Sommer Enterprises, LLC, and the Trust Under Article Sixth u/w/o Sigmund Sommer is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.8. 10.9 Closing Schedules to Amended and Restated London Clubs Purchase Agreement are incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.9. 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 is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.10. 10.11 Salle Privee Agreement, dated February 26, 1998, among Gaming, LCNI and London Clubs is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.11. 10.12 Credit Agreement, dated February 26, 1998, among Gaming, a syndicate of lenders ("Bank Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp as Documentation Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed June 10, 1998, Part II, Item 16, Exhibit 10.13; First Amendment to Credit Agreement dated January 29, 1999, by and among Gaming, Bank Lenders, The Bank of Nova Scotia, as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent. 10.13 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.14.
48
EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 10.14 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin Bazaar Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.15. 10.15 Design/Build Contract, dated December 4, 1997, between Gaming and Fluor Daniel, Inc. is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.16; Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.17; Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.18; Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.19. 10.16 Site Work, Development and Construction Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.20. 10.17 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.21. 10.18 Common Parking Area Use Agreement, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.22. 10.19 Music Project Lease, dated February 26, 1998, between Gaming and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 2, filed on July 22, 1998, Part II, Item 16 Exhibit 10.23. 10.20 Mall Project Lease, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.24. 10.21 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26, 1998, made by Gaming to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.25. 10.22 Development Agreement, dated December 3, 1997, between Aladdin and Northwind Aladdin, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.26.
49
EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 10.23 Energy Service Agreement, dated September 24, 1998, between Aladdin and Northwind Aladdin, LLC. 10.24 Energy Lease, dated December 3, 1997, between Gaming and Northwind Aladdin, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.28. 10.25 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and Gaming is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.29. 10.26 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers, Inc. and Aladdin Bazaar Holdings, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.30; First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997, is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.31; Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50. 10.27 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.32; Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50. 10.28 GAI Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, and GAI, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.34. 10.29 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Richard J. Goeglein is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.35. 10.30 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and James H. McKennon is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.36. 10.31 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Cornelius T. Klerk is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.37.
50
EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 10.32 Galati Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Lee A. Galati is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.38. 10.33 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Jose A. Rueda is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.39. 10.34 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and Gaming as amended as of January, 1998 is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.40. 10.35 Employment and Consulting Agreement, dated July 1, 1997, between Gaming and Richard J. Goeglein, as amended as of January, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.41. 10.36 Employment Agreement, dated July 28, 1997, between Gaming and James H. McKennon is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.42. 10.37 Employment Agreement, dated July 26, 1997, between Gaming and Cornelius T. Klerk is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.43. 10.38 Employment Agreement, dated August 19, 1997, between Gaming and Lee A. Galati is incorporated herein by reference from the Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.44. 10.39 Employment Agreement, dated July 1, 1997, between Gaming and Jose A. Rueda is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.45. 10.40 FF&E Commitment Letter, dated January 23, 1998, between Gaming and General Electric Capital Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed April 9, 1998, Part II, Item 16, Exhibit 10.46; Facilities Agreement between General Electric Capital Corporation and Gaming, dated June 26, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.01; Amendment No. 1 to Facilities Agreement between General Electric Capital Corporation and Gaming, dated September 2, 1998. 10.41 Intercreditor Agreement by and among The Bank of Nova Scotia, General Electric Capital Corporation and Gaming, dated as of June 30, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.02. 10.42 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as Administrative Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.47.
51
EXHIBIT NO. DESCRIPTION - ---------- --------------------------------------------------------------------------------- 10.43 Purchase Agreement, dated February 18, 1998, among Gaming Holdings, Capital, Enterprises, Aladdin Holdings, LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs and the Initial Purchasers is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.48. 10.44 Contributed Land Appraisal prepared by HVS International is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.49. 21.01 List of Subsidiaries. 27.01 Financial Data Schedule. 99.01 Consolidated Financial Statements of Aladdin Gaming Holdings, LLC and subsidiaries.
(b) Reports on Form 8-K. During the fourth quarter of the fiscal year ended December 31, 1998, Gaming Enterprises did not file any current Report on Form 8-K. (c) The exhibits required by Item 601 of Regulation S-K filed as part of this Report or incorporated herein by reference are listed in Item 14(a)(3) above, and the exhibits filed herewith are listed on the Index to Exhibits which accompanies this Report. (d) See Item 14(a)(2) of this Report. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by this undersigned, thereunto duly authorized. REGISTRANT: ALADDIN GAMING ENTERPRISES, INC. By: /s/ JACK SOMMER ---------------------------------------- Jack Sommer, President and Director (principal executive officer)
DATE: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 31, 1999 By /s/ JACK SOMMER ----------------------------------------- Jack Sommer, President and Director March 31, 1999 By /s/ RONALD DICTROW ----------------------------------------- Ronald Dictrow, Secretary and Director March 31, 1999 By /s/ CORNELIUS T. KLERK ----------------------------------------- Cornelius T. Klerk, Treasurer (principal accounting officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Other than this Form 10-K, Aladdin Gaming Enterprises, Inc. has not issued, and will not be issuing, any annual report to its security holders covering Aladdin Gaming Enterprises, Inc.'s last fiscal year. Aladdin Gaming Enterprises, Inc. has not sent, and will not send, any proxy statement, form of proxy or other proxy soliciting material to its security holders. 53 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ------------------------------------------------------------------------- ----------- 3.1 Articles of Organization of Aladdin Gaming Holdings, LLC ("Gaming Holdings") are incorporated herein by reference from Aladdin Gaming Enterprises, Inc.'s ("Enterprises") (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.3...................................................................... 3.2 Articles of Incorporation of Aladdin Capital Corp. ("Capital") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.4............................................ 3.3 Articles of Organization of Aladdin Gaming, LLC ("Gaming") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.5............................................ 3.4 Articles of Incorporation of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.1; Amendment No. 1 to Articles of Incorporation of Enterprises is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.2............................................ 3.5 Operating Agreement of Gaming Holdings is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 3.7..................................................... 3.6 Bylaws of Capital are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.8............................. 3.7 Operating Agreement of Gaming is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.9.................... 3.8 Bylaws of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.6.................... 4.1 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as Warrant Agent ("Warrant Agent") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.1............................................ 4.2 Warrant Registration Rights Agreement, dated February 26, 1998, among Enterprises and the Initial Purchasers (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.2.......................................................... 4.3 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.3.................... 10.1 Indenture, dated February 26, 1998, among Gaming Holdings, Capital and State Street Bank and Trust Company, as Trustee ("Trustee") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.1...........................................
54
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ------------------------------------------------------------------------- ----------- 10.2 Note Registration Rights Agreement, dated February 26, 1998, among Gaming Holdings, Capital and Merrill Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. ("Initial Purchasers") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.2..................................................................... 10.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust under Articles Sixth u/w/o Sigmund Sommer, London Clubs International, plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 10.3............................ 10.4 Disbursement Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, The Bank of Nova Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed on June 10, 1998, Part II, Item 16, Exhibit 10.4............................ 10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.5.................................................... 10.6 The Gaming Holdings Collateral Account Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.6.................................................... 10.7 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.7................... 10.8 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs, Gaming Holdings, Aladdin Holdings, LLC, Gaming, Sommer Enterprises, LLC, and the Trust Under Article Sixth u/w/o Sigmund Sommer is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.8..................................... 10.9 Closing Schedules to Amended and Restated London Clubs Purchase Agreement are incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.9........................................... 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 is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.10.............. 10.11 Salle Privee Agreement, dated February 26, 1998, among Gaming, LCNI and London Clubs is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.11....................................
55
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ------------------------------------------------------------------------- ----------- 10.12 Credit Agreement, dated February 26, 1998, among Gaming, a syndicate of lenders ("Bank Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp as Documentation Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed June 10, 1998, Part II, Item 16, Exhibit 10.13; First Amendment to Credit Agreement dated January 29, 1999, by and among Gaming, Bank Lenders, The Bank of Nova Scotia, as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent.................. 10.13 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.14.................................................................... 10.14 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin Bazaar Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.15................................................... 10.15 Design/Build Contract, dated December 4, 1997, between Gaming and Fluor Daniel, Inc. is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.16; Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.17; Amendment No. 2 to Design/ Build Contract, dated January 28, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.18; Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.19........................... 10.16 Site Work, Development and Construction Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.20........................... 10.17 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.21........................... 10.18 Common Parking Area Use Agreement, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.22....
56
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ------------------------------------------------------------------------- ----------- 10.19 Music Project Lease, dated February 26, 1998, between Gaming and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 2, filed on July 22, 1998, Part II, Item 16 Exhibit 10.23............ 10.20 Mall Project Lease, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.24..................... 10.21 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26, 1998, made by Gaming to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.25........................... 10.22 Development Agreement, dated December 3, 1997, between Aladdin and Northwind Aladdin, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.26.................. 10.23 Energy Service Agreement, dated September 24, 1998, between Aladdin and Northwind Aladdin, LLC................................................... 10.24 Energy Lease, dated December 3, 1997, between Gaming and Northwind Aladdin, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.28.................................... 10.25 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and Gaming is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.29.......................................... 10.26 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers, Inc. and Aladdin Bazaar Holdings, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.30; First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997, is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.31; Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50.......................................... 10.27 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.32; Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50...............................................
57
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ------------------------------------------------------------------------- ----------- 10.28 GAI Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, and GAI, LLC is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.34............. 10.29 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Richard J. Goeglein is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.35.................................................................... 10.30 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and James H. McKennon is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.36.................................................................... 10.31 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Cornelius T. Klerk is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.37.................................................................... 10.32 Galati Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Lee A. Galati is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.38..... 10.33 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Jose A. Rueda is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.39.................................................................... 10.34 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and Gaming as amended as of January, 1998 is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.40.... 10.35 Employment and Consulting Agreement, dated July 1, 1997, between Gaming and Richard J. Goeglein, as amended as of January, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.41.......................................... 10.36 Employment Agreement, dated July 28, 1997, between Gaming and James H. McKennon is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.42........................... 10.37 Employment Agreement, dated July 26, 1997, between Gaming and Cornelius T. Klerk is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.43........................... 10.38 Employment Agreement, dated August 19, 1997, between Gaming and Lee A. Galati is incorporated herein by reference from the Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.44.....................
58
EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ------------------------------------------------------------------------- ----------- 10.39 Employment Agreement, dated July 1, 1997, between Gaming and Jose A. Rueda is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.45........................... 10.40 FF&E Commitment Letter, dated January 23, 1998, between Gaming and General Electric Capital Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed April 9, 1998, Part II, Item 16, Exhibit 10.46; Facilities Agreement between General Electric Capital Corporation and Gaming, dated June 26, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.01; Amendment No. 1 to Facilities Agreement between General Electric Capital Corporation and Gaming, dated September 2, 1998......... 10.41 Intercreditor Agreement by and among The Bank of Nova Scotia, General Electric Capital Corporation and Gaming, dated as of June 30, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.02.................................................................... 10.42 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as Administrative Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.47.......................................... 10.43 Purchase Agreement, dated February 18, 1998, among Gaming Holdings, Capital, Enterprises, Aladdin Holdings, LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs and the Initial Purchasers is incorporated here by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.48........................................................ 10.44 Contributed Land Appraisal prepared by HVS International is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.49.......................................... 21.01 List of Subsidiaries..................................................... 27.01 Financial Data Schedule.................................................. 99.01 Consolidated Financial Statements of Aladdin Gaming Holdings, LLC and subsidiaries.............................................................
59 EX-10.12 2 EXHIBIT 10.12 FIRST AMENDMENT TO CREDIT AGREEMENT Dated as of January 29, 1999 (amending the Credit Agreement, dated as of February 26, 1998) among ALADDIN GAMING, LLC, as the Borrower, VARIOUS FINANCIAL INSTITUTIONS, as the Lenders, THE BANK OF NOVA SCOTIA, as the Administrative Agent for the Lenders, MERRILL LYNCH CAPITAL CORPORATION, as the Syndication Agent for the Lenders, and CIBC OPPENHEIMER CORP., as the Documentation Agent for the Lenders. FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") dated as of January 29, 1999, by and among ALADDIN GAMING, LLC, a Nevada limited-liability company (the "BORROWER"), the various financial institutions as are or may become parties hereto (collectively, the "LENDERS"), THE BANK OF NOVA SCOTIA, as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the Lenders, MERRILL LYNCH CAPITAL CORPORATION, as syndication agent (in such capacity, the "SYNDICATION AGENT") for the Lenders, and CIBC OPPENHEIMER CORP., as documentation agent (in such capacity, the "DOCUMENTATION AGENT") for the Lenders. In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: W I T N E S S E T H: WHEREAS, the Borrower, the Lenders, the Administrative Agent, the Syndication Agent and the Documentation Agent have heretofore entered into a certain Credit Agreement, dated as of February 26, 1998 (the "CREDIT AGREEMENT"); WHEREAS, the Borrower has requested the Lenders to grant certain forbearances and waivers under the Credit Agreement and to enter into certain amendments of the Credit Agreement; and WHEREAS, each of the parties hereto is willing, on the terms and subject to the conditions hereinafter set forth, to so amend the Credit Agreement and grant the forbearances and waivers, but only upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION I.1. CERTAIN DEFINED TERMS. The following terms (whether or not italicized) when used in this Amendment, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings: "FACILITIES AGREEMENT" shall mean that certain Facilities Agreement between General Electric Capital Corporation ("GECC"), for itself and as agent for certain participants, and the Borrower dated as of June 26, 1998, as amended by that certain First Amendment to Facilities Agreement between GECC, for itself and as agent for certain participants, and the Borrower dated as of September 2, 1998, as the same may be further amended in accordance with the Intercreditor Agreement by the Second Amendment to Facilities Agreement if, as and when effective, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "FIRST AMENDMENT TO CREDIT AGREEMENT" shall mean this Amendment. "INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement by and among the Administrative Agent, GECC and the Borrower dated as of June 30, 1998 and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms thereof. "SECOND AMENDMENT TO FACILITIES AGREEMENT" shall mean the second amendment to the Facilities Agreement which is entered into by the Borrower and GECC, for itself and as agent for certain participants, in accordance with the terms of the Intercreditor Agreement. As of the date of this Amendment, the Facilities Agreement has not been amended by the Second Amendment to Facilities Agreement. SECTION I.2. OTHER DEFINED TERMS; CONSTRUCTION. For purposes of this Amendment, capitalized terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement, as amended by this Amendment, and the rules of construction set forth in ARTICLE I of the Credit Agreement shall apply to this Amendment. ARTICLE II EVENTS OF DEFAULT; FORBEARANCES BY THE LENDERS SECTION II.1. INDEBTEDNESS OF ALADDIN MUSIC. Aladdin Music has incurred the Indebtedness listed on Schedule 2.1 to this Amendment which Indebtedness is not permitted under SECTION 7.2.2 of the Credit Agreement. The existence of such Indebtedness by Aladdin Music constitutes an Event of Default under the Credit Agreement which will continue unless -3- waived by the Lenders in their sole discretion. The Lenders agree to forbear from exercising their rights, remedies and options under the Credit Agreement based upon such Event of Default until March 10, 1999 and during such forbearance the Lenders agree to reduce the amount required to bring the Main Project Budget In Balance in accordance with the Credit Agreement by the amount of such Indebtedness. Such forbearance and reduction shall no longer apply without any further notice after 11:59 p.m. on March 10, 1999 unless the following have occurred: (a) If such Indebtedness is due from Aladdin Music to the Borrower, either Completion Guarantor or an Affiliate of Aladdin Music, the Borrower or either Completion Guarantor, as the case may be, the holder of such Indebtedness shall deliver its agreement to Aladdin Music, the Borrower and the Lenders effective as of January 19, 1999, which provides, in relevant part, that (i) such Indebtedness is subject and subordinate in all respects to the Loan, the Loan Documents, the Facilities Agreement and the FF&E Lease Documents, the repayment of all amounts evidenced and secured thereby and the rights, remedies and options of the Lenders and GECC thereunder, as the case may be, (ii) such holder shall forbear from exercising any and all rights to collect such Indebtedness (including rights in bankruptcy) until the earlier of (A) indefeasible payment of the Indebtedness evidenced and secured by the Loan Documents, the Facilities Agreement and the FF&E Lease Documents and (B) such time as the Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2 of the Credit Agreement has been consummated by Aladdin Music and the Music Project Parcel has been released from the Deed of Trust in accordance with CLAUSE (c) of SECTION 7.1.19 of the Credit Agreement and (C) in no event shall any amount under the Credit Agreement or the Facilities Agreement be allocated to repayment or reimbursement of such Indebtedness or be used to fund any such amounts; (b) If all or a portion of such Indebtedness is or becomes due and payable on or before March 10, 1999, Aladdin Music shall pay the amount thereof as and when such Indebtedness becomes due and payable and shall deliver proof of such payment to the Administrative Agent which shall be in form and content satisfactory to it in its sole discretion and which shall include a general release of Aladdin Music with respect to such Indebtedness; -4- (c) Subject to ITEM (b) above, if all or a portion of such Indebtedness is due and payable after March 10, 1999, the Borrower and the Completion Guarantor shall deliver an agreement to the Administrative Agent effective as of January 19, 1999, which shall be in form and content satisfactory to the Administrative Agent in its sole discretion and which shall provide, in relevant part, that (1) Aladdin Music and each Completion Guarantor shall furnish, or cause to be furnished, to the Administrative Agent within 10 days after the end of each calendar month a certificate from Aladdin Music and each Completion Guarantor which lists all unpaid Indebtedness of Aladdin Music and the amount thereof which has become due and payable or for which demand has been made and which includes an unqualified representation that Aladdin Music has not incurred any Indebtedness in addition to that which is set forth in the Borrower's Letter or which is otherwise expressly permitted by the Credit Agreement, as amended by this Amendment, (2) Aladdin Music and each Completion Guarantor have agreed jointly, severally, absolutely and unconditionally to pay such Indebtedness or the portion thereof which becomes due and payable from time to time within 5 days after such Indebtedness or portion thereof becomes due and payable and demand for payment has been made therefor and (3) in addition to the obligations set forth in ITEM (2) of this CLAUSE (c), the Borrower and each Completion Guarantor covenant and agree that with respect to any Indebtedness of Aladdin Music (whether or not listed on SCHEDULE 2.1 or permitted by the Credit Agreement, as amended by this Amendment) which has not been paid within 5 days after such amount becomes due and payable and demand for such payment has otherwise been made, (A) the amount thereof shall be added to the amount required at such time to bring the Main Project Budget In Balance, (B) the waiver granted by the Lenders under this Amendment shall automatically be revoked without further notice and the Lenders shall be entitled immediately to exercise all rights, remedies and options under the Loan Documents and (C) no pending or further Advance Requests will be approved and no pending or further Advances will be made by the Administrative Agent or the Disbursement Agent; and (d) the Borrower has delivered all other waivers of such Event of Default which are required by the Discount Note Indenture and the Facilities Agreement. -5- SECTION II.2. WAIVER OF DEFAULT BY THE BORROWER AND ALADDIN MUSIC. If on or before March 10, 1999, time being of the essence, the requirements set forth in CLAUSES (a), (b), (c) and (d) of SECTION 2.1 of this Amendment have been satisfied by or on behalf of the Borrower and the Second Amendment to Facilities Agreement has been executed and delivered by GECC and the Borrower in accordance with this Amendment, the Event of Default described in Section 2.1 of this Amendment shall be waived by the Lenders. SECTION II.3. REPRESENTATIONS BY THE BORROWER. The Borrower acknowledges that it is unable to make certain representations which it is required to make under SECTION 3.2. of the Disbursement Agreement as a condition to an Advance because CLAUSE (c) of SECTION 7.2.4 of the Credit Agreement needs to be amended as set forth in CLAUSE (j) of SECTION 3.1 of this Amendment. The Borrower will continue to be unable to make such representation until the Credit Agreement is amended in accordance with this Amendment and the Intercreditor Agreement. Between the date of this Amendment and March 10, 1999, the Lenders agree to waive the requirement that the Credit Agreement be amended, as aforesaid. Such waiver shall automatically expire without any further notice at 11:59 p.m. on March 10, 1999. After such expiration, no Advance Requests will be approved and no Advances will be made by the Administrative Agent or the Disbursement Agent until the Credit Agreement has been amended in accordance with this Amendment and the Borrower has otherwise satisfied the conditions in SECTION 3.2 of the Disbursement Agreement. SECTION II.4. BALANCING THE MAIN PROJECT BUDGET. The Borrower acknowledges that as of December 17, 1998, the amount required in order for the Main Project Budget to be In Balance was $4,838,466 plus the amount of the Indebtedness of Aladdin Music described in SCHEDULE 2.1 annexed to this Amendment (collectively, the "IN BALANCE AMOUNT"). The Lenders agree that until March 10, 1999 the In Balance Amount shall be reduced by $2,750,000, the approximate amount which Pepsi-Cola Company has agreed to pay the Borrower pursuant to that certain concession agreement dated November 17, 1998. Such reduction shall no longer apply without any further notice after 11:59 p.m. on March 10, 1999 unless the Facilities Agreement and the Credit Agreement have been amended in accordance with this Amendment. The Borrower agrees that no Advance Requests will be approved and no Advances will be made by the Administrative Agent or the Disbursement Agent until the Borrower has satisfied all of the conditions which are required to be satisfied with respect to each Advance including, without limitation, the performance of its obligations under SECTION 7.1.14 of the Credit Agreement and that an additional Event of Default will exist under the Loan Documents if such In Balance Amount (as adjusted in accordance with the Credit Agreement) is not paid by March 10, 1999, time being of the essence. SECTION II.5. LETTERS OF CREDIT. On or about November 30, 1998, the Completion Guarantors delivered letters of credit to the Administrative Agent in the aggregate amount of $6,574,000 in order to bring the Main Project Budget In Balance. The Lenders agree that the Administrative Agent shall forbear until March 10, 1999 from drawing the letters of credit -6- previously delivered by or on behalf of the Borrower in order for the Main Project Budget to be In Balance. The Borrower and each of the Completion Guarantors agree that such forbearance shall no longer apply without any further notice after 11:59 p.m. on March 10, 1999 unless the Facilities Agreement has been amended in accordance with this Amendment and the Intercreditor Agreement, on or before such date, time being of the essence, and the Administrative Agent shall draw such letters of credit and deposit the proceeds thereof into the Guaranty Deposit Account for disbursement in accordance with the Disbursement Agreement. The Completion Guarantors agree that any demand or draw under the letter of credit delivered by each of them shall be based upon the first certification or statement contained in each letter of credit. SECTION II.6. SECOND AMENDMENT TO FACILITIES AGREEMENT. As of the date of this Amendment, the Borrower has requested GECC and its participants to execute and deliver a second amendment to the Facilities Agreement which is consistent with and includes and approves, as applicable, all of the provisions of this Amendment and which includes (x) an express acknowledgment by GECC that after giving effect to such second amendment, the Borrower has performed all of its obligations under the Facilities Agreement which it is required to perform thereunder through and including the effective date of such second amendment and that the Indebtedness set forth on SCHEDULE 2.1 of this Amendment which has been incurred by Aladdin Music and the Indebtedness to be incurred by Aladdin Music which is permitted under CLAUSE (k) of SECTION 3.1 of this Amendment is "INDEBTEDNESS" (as defined in the Facilities Agreement) of Aladdin Music which is permitted by the Facilities Agreement and that the incurrence thereof has not and will not constitute a "DEFAULT" or "EVENT OF DEFAULT" (as such terms are defined in the Facilities Agreement) or result in the failure of the Borrower to satisfy any of the conditions to "FUNDING" (as such term is set forth in the Facilities Agreement), (y) representations from the Borrower for the benefit of GECC and the Lenders as set forth in SECTIONS 8(a), 8(b), 8(c), 8(d), 8(e), 8(f), 8(g), 8(n), 8(o), 8(p), 8(s) and 8(y) of the Facilities Agreement and (z) a representation from the Completion Guarantors for the benefit of GECC and the Lenders that the Completion Guarantors have no knowledge of any act or condition which, with the giving of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT" under the Facilities Agreement. GECC and its participants have not agreed to enter into any such second amendment to the Facilities Agreement and the Borrower is continuing its discussions with GECC, the outcome of which is unknown at this time. If the Second Amendment to Facilities Agreement in the form required by this SECTION 2.6 is not executed and delivered by GECC and the Borrower in accordance with the Intercreditor Agreement on or before March 10, 1999, time being of the essence, the Borrower and the Completion Guarantors agree that an Event of Default shall exist under the Credit Agreement and the Lenders shall have the right to exercise all rights, remedies and options under the Loan Documents including, without limitation, those granted under ARTICLE VIII of the Credit Agreement and that the Administrative Agent shall have no obligation to approve any Advance Requests and that the Administrative Agent and the Disbursement Agent shall have no obligation to make any Advance. -7- SECTION II.7. RESERVATION OF RIGHTS. The Borrower agrees that neither this Amendment nor the making of any Advance by the Disbursement Agent and the Administrative Agent's consent thereto shall constitute (w) an approval of all or any portion of any Advance Request, (x) a waiver or forbearance by the Disbursement Agent or the Administrative Agent under any of the Loan Documents, except as expressly set forth herein, (y) the acceptance by the Disbursement Agent or the Administrative Agent of any course of conduct by the Borrower or the Completion Guarantor or (z) an agreement by the Administrative Agent to amend any of the Loan Documents without the required approval from the Required Lenders and a corresponding amendment of the Facilities Agreement. The Borrower further agrees that the Administrative Agent and the Disbursement Agent reserve all rights, remedies and options under the Loan Documents to require the Borrower to satisfy in all respects the conditions relating to each Advance and perform all of its obligations under the Loan Documents which are then due and owing or are susceptible of performance, as the case may be. ARTICLE III AMENDMENTS SECTION III.1. AMENDMENTS. The parties hereto hereby agree as follows: (a) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the amendment to the definition of "AVAILABLE FUNDS" as set forth below, the definition of "AVAILABLE FUNDS" in SECTION 1.1 of the Credit Agreement shall be amended in its entirety to read as set forth below: "'AVAILABLE FUNDS' means, from time to time, the sum of (s) amounts which are available to be drawn to fund Line Item Categories under letters of credit deposited by or on behalf of the Borrower pursuant to SECTION 7.1.14 of this Agreement, PLUS (t) so long as no default (beyond the expiration of applicable grace, notice and cure periods) exists under an executed lease, occupancy, concession or license agreement (but not including any letter of intent or other interim agreement) covering a portion of the Main Project which has been approved by the Administrative Agent in its sole discretion (which approval may be conditioned upon the delivery of a subordination, non-disturbance and attornment agreement or continuation agreement, as applicable, and estoppel certificate each in form and content satisfactory to the Administrative Agent in its sole discretion), amounts payable thereunder prior to the Conversion Date for Project Costs which amounts (1) would otherwise have been paid by the Borrower if such lease, occupancy, concession or license agreement had not been entered into and (2) are not otherwise payments or prepayments of rent or other periodic payments to be made for the occupancy, use or right to market products at the Main Project as determined by the -8- Administrative Agent in its sole discretion, PLUS (u) the aggregate of the unutilized Commitments (EXCLUDING, HOWEVER, the Commitments of all Defaulting Lenders) under the Bank Credit Facility, PLUS (v) the aggregate of the amounts on deposit in the Borrower's Funds Account, the Construction Note Disbursement Account and all Anticipated Earnings thereon, PLUS (w) the aggregate of the amounts on deposit in the Guaranty Deposit Account, the Cash Management Account, the Bank Proceeds Account, the Loss Proceeds Account and the Interest Payment Account, PLUS (x) so long as (1) no default under the Site Work Agreement and the Mall Project Loan and no Default hereunder have occurred and are continuing at the relevant time of computation, (2) advances of the Mall Project Loan have commenced on or before June 30, 1998 and have continued in accordance with the approved draw schedule for the Mall Project Loan, (3) advances of the Mall Project Loan to reimburse the Borrower in accordance with the Site Work Agreement are made within 45 days after the Construction Consultant and the Owner Representative have approved the work to be completed by the Borrower pursuant to the Site Work Agreement, the aggregate amounts payable to the Borrower by Aladdin Bazaar pursuant to Section 4.5 of the Site Work Agreement, PLUS (y) the lesser of (1) the aggregate of the amounts available to be drawn under all Approved Equipment Funding Commitments and (2) the aggregate amount of Remaining Costs on the date of calculation for the Equipment Component (as in effect from time to time), PLUS (z) the aggregate amount of Main Project Costs which the Design/Builder and/or Fluor have agreed or confirmed in writing, to the reasonable satisfaction of the Administrative Agent, that they are responsible for paying (on a timely basis relative to the Main Project's cash needs) from their own funds but which they have not yet paid." (b) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the addition of the following definitions to the Credit Agreement, the following definitions shall be added to SECTION 1.1 of the Credit Agreement: "ADJUSTED NET WORTH" means Net Worth increased by an amount equal to the losses attributable to the Music Project (not to exceed $8,660,000 in the aggregate). "COMMON PARKING AREA" is defined in the Site Work Agreement. "COMMON PARKING AREA BUDGET" is defined in SECTION 7.1.24. "EXCESS CONTRIBUTION" is defined in SECTION 7.1.24. "EXCESS CONTRIBUTION AGREEMENT" is defined in SECTION 7.1.24. -9- (c) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the addition of the parenthetical clause set forth below, the following parenthetical clause shall be added at the end of CLAUSE (d) of the definition of "INDEBTEDNESS" in SECTION 1.1 of the Credit Agreement: "(other than (x) prior to the Conversion Date Indebtedness which is to be funded from Available Funds and (y) after the Conversion Date accounts payable by the Borrower arising in the ordinary course of business in connection with the operation of the Main Project as a casino/hotel)" (d) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the amendment to the definition of "LOAN DOCUMENTS" as set forth below, the definition of "LOAN DOCUMENTS" in SECTION 1.1 of the Credit Agreement shall be amended in its entirety to read as set forth below: "'LOAN DOCUMENTs' means, collectively, this Agreement, the Notes, the Letters of Credit, each Pledge Agreement, each Rate Protection Agreement, each Borrowing Request, each Letter of Credit Issuance Request, the Security Agreement, the Keep-Well Agreement, the Completion Guaranty, the Excess Contribution Agreement, the GECC Intercreditor Agreement, the Trademark Security Agreement, the Deed of Trust, the Disbursement Agreement, the Mall Project Completion Assignment, the Fee Letters, the Environmental Indemnity, the Assignment of Contracts, the Assignment of Consulting Agreement, the Assignment of Design/Build Contract, the Assignment of Salle Prive Agreement, the Assignment of Project Management Agreement, the Borrower Collateral Account Agreement, the Holdings Collateral Account Agreement, the Servicing and Collateral Account Agreement, the Design/Builder Consent and Acknowledgment and any other agreement, certificate, document or Instrument delivered in connection with this Agreement and such other agreements, whether or not specifically mentioned herein or therein." (e) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the addition of the sentence set forth below, the following sentence shall be added at the end of the definition of "MAIN PROJECT BUDGET" in SECTION 1.1 of the Credit Agreement: "The Main Project Budget shall include a Line Item and a Line Item Category consistent with the Common Parking Area Budget." -10- (f) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves an amendment to the definition of "REALIZED SAVINGS" as set forth below, the definition of "REALIZED SAVINGS" in SECTION 1.1 of the Credit Agreement shall be amended in its entirety to read as set forth below: "'REALIZED SAVINGS' means: (a) the portion of any decrease to the Guaranteed Maximum Price retained or to be retained by the Borrower in accordance with the provisions of Attachment H to the Design/Build Contract in the 'COST OF THE WORK' (as defined in Section 3 of Attachment G to the Design/Build Contract) contemplated by a Line Item but only to the extent that the Guaranteed Maximum Price has been reduced as a result of such decrease in the anticipated 'COST OF THE WORK' as approved in writing by the Design/Builder and such reduction is confirmed by the Construction Consultant; (b) with respect to the Construction Period Interest Line Item, a decrease in the anticipated cost of construction period interest resulting from (x) a decrease in the interest rates payable by the Borrower prior to the date which is six months after the Conversion Date as determined by the Administrative Agent with the reasonable concurrence of the Borrower taking into account the current and future anticipated interest rates and the anticipated times and amounts of draws under the Bank Credit Facility for the payment of Main Project Costs or (y) the anticipated Conversion Date being earlier than the date set therefor in the Construction Benchmark Schedule as determined by the Owner Representative with the reasonable concurrence of the Construction Consultant; and (c) with respect to any other Line Item, the amount by which the total cost allocated to such Line Item exceeds the total cost incurred by the Borrower to complete all aspects of the Work contemplated by such Line Item which amount shall not be established until the Borrower has actually completed 90% of all such Work or provided other evidence acceptable to the Administrative Agent in its sole discretion (with the concurrence of the Construction Consultant) that such amount is reasonably expected to be realized as a permanent savings prior to completion of 90% of such Work; in each case, which is documented by the Borrower in a Realized Savings Certificate substantially in the form of EXHIBIT W hereto, duly executed and completed with all exhibits and attachments thereto." -11- (g) CLAUSE (n) of SECTION 7.1.1 of the Credit Agreement is hereby amended in its entirety to read as set forth below: "(n) prior to Final Completion, within 30 days after the end of each month, a monthly status report describing in reasonable detail the progress of the construction and completion of the Common Parking Area and each Construction Component and the Main Project as a whole since the immediately preceding report hereunder, including the cost incurred to the end of such month, an estimate of the time and cost required to complete the Common Parking Area and each Construction Component and the Main Project as a whole, the progress of construction and how it relates to the Construction Benchmark Schedule, an accounting of costs which have been incurred and funded with respect to the Common Parking Area, a variance report of the costs incurred through the date of such report from those set forth in the Common Parking Area Budget and such other information and reports as the Administrative Agent or Construction Consultant may reasonably request;" (h) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement includes an amendment to CLAUSE (r) of SECTION 10 of the Facilities Agreement substantially similar to the amendment set forth below, SECTION 7.1.14 of the Credit Agreement shall be amended in its entirety to read as set forth below: "Section 7.1.14 IN BALANCE; BORROWER EQUITY. If at any time and from time to time the Main Project Budget is not In Balance, the Borrower shall deposit or cause to be deposited into the Guaranty Deposit Account, in cash, funds in the amount required to bring the Main Project Budget In Balance. Each such deposit shall be made on the earlier of (x) 10 days after demand therefor by the Administrative Agent or (y) the Business Day immediately preceding the date on which an Advance is to be made by the Lenders pursuant to the Loan Documents or, if applicable, by the Disbursement Agent pursuant to the Disbursement Agreement, as the case may be. With respect to the amount required to bring the Main Project Budget In Balance on November 13, 1998 only, if no Event of Default exists under this Agreement, in addition to or in lieu of cash, the Borrower may deliver or cause to be delivered one or more clean, irrevocable and unconditional letters of credit satisfactory to the Administrative Agent in its sole discretion in such amounts required to bring the Main Project Budget In Balance, in which case the following provisions shall apply: (a) If and to the extent the amount of each Line Item Category set forth in the Main Project Budget has been fully funded from Available Funds or other sources of payment (other than the letters of credit which have been delivered to -12- fund such Line Item Category[ies] which are not In Balance (the "L/C LINE ITEM CATEGORIES")) and additional funds are required therefor, the Administrative Agent may draw on such letters of credit without any notice to the Borrower or any other Person to the extent required to fund such amounts. If any of the letters of credit are dishonored or have been fully drawn or the amounts available thereunder have been reduced to zero and such payments have not been fully paid, the Administrative Agent shall have the right to demand payment by the Borrower in accordance with the first two sentences of this SECTION 7.1.14 and declare an Event of Default if SECTION 8.1.16 of the First Amendment to Credit Agreement applies. (b) The Administrative Agent shall be entitled to realize against any or all of the letters of credit (i) upon the occurrence of an Event of Default hereunder or (ii) in its sole discretion, at any time the Main Project Budget is not In Balance and apply the proceeds thereof at the discretion of the Administrative Agent. (c) During its review of each request for an Advance, the Administrative Agent shall determine whether the L/C Line Item Categories are In Balance. If the L/C Line Item Categories are In Balance without any need for support from the letters of credit and the Main Project Budget is otherwise In Balance or the maximum amounts permitted to be drawn under such letters of credit have been reduced to zero, the Administrative Agent shall return the letters of credit to the Persons which delivered such letters of credit to the Administrative Agent. Provided that the Main Project Budget is In Balance and no act or condition exists which, with the giving of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT" under the Credit Agreement, the Facilities Agreement or the Discount Note Indenture, after request by the Borrower (which request shall be made in connection with a request for an Advance), the Administrative Agent shall permit the amounts of the letters of credit to be reduced to the amount required for the Borrower to perform its obligation under the Credit Agreement to keep the L/C Line Item Categories In Balance. (d) In the event that each letter of credit is not extended or replaced at least fifteen (15) days prior to its stated expiration date, the Administrative Agent shall make a drawing under such letter of credit of the full amount then available thereunder and shall deposit such amount into the Guaranty Deposit Account to be held by the Disbursement Agent in accordance with the terms of the Disbursement Agreement." (i) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the addition of the new Section set forth below, the following new Section shall be added to the Credit Agreement as SECTION 7.1.24: -13- "Section 7.1.24 SITE WORK AGREEMENT; EXCESS CONTRIBUTION AGREEMENT. Aladdin Bazaar has asked the Borrower and AHL to agree under the Site Work Agreement that Aladdin Bazaar will pay up to $36,000,000 for amounts attributable to the design and construction of the Common Parking Area and that the Borrower and AHL will pay all amounts in excess of $36,000,000 for such design and construction. The Borrower has delivered a budget (the "COMMON PARKING AREA BUDGET") which is being reviewed by the Construction Consultant. The Borrower agrees that if the Construction Consultant reasonably determines that adjustments are required in order for the Common Parking Area Budget to be accurate, the Borrower shall make such adjustments as so determined. The Borrower shall pay all reasonable costs, expenses and fees of the Administrative Agent and the Lenders with respect to any reviews of the Common Parking Area Budget and the design and construction of the Common Parking Area including, without limitation, the costs and expenses of the Construction Consultant's reviews of the Common Parking Area Budget from time to time and, if required, attorneys' fees and costs and expenses. In addition, if the Common Parking Area Budget, as approved by the Construction Consultant, shows a cost of completion exceeding $36,000,000, the amount over $36,000,000 shall be funded by the Borrower by delivery of a cash deposit in such amount upon the earlier of (x) such time as the Borrower is otherwise required to bring the Loan In Balance (without giving effect to such excess amount) in accordance with this Credit Agreement and the other Loan Documents and (y) such time as such amount is required in order to pay for such costs of completion (each such amount being referred to as an "EXCESS CONTRIBUTION"). In no event shall (x) any portion of any contingency, reserve or Realized Savings be allocated to the Common Parking Area Line Item Category in the Main Project Budget for amounts to be funded by the Borrower pursuant to this section or (y) any contingency, reserve or Realized Savings be used to fund any such amounts without the prior written consent of the Administrative Agent in its sole discretion. Each month the Construction Consultant shall verify the amounts required to complete construction of the Common Parking Area as part of its review of the Main Project Budget and In Balance requirements. If the Construction Consultant determines in its sole discretion that there should be an increase in the Excess Contributions, the Borrower shall, in accordance with this SECTION 7.1.24, deposit cash into the Guaranty Deposit Account in such increased amount. London Clubs and the Trust shall enter into an agreement (the "EXCESS CONTRIBUTION AGREEMENT") for the benefit of the Lenders and the Administrative Agent which shall provide, in relevant part, that London Clubs and the Trust, jointly and severally (x) shall make all Excess Contributions required from time to time in accordance with this SECTION 7.1.24 (in addition to all other payments under the Excess Contribution Agreement, the Completion Guaranty, the Environmental Indemnity and the Keep-Well -14- Agreement) and (y) shall perform the obligation to keep the Line Item Category for all such amounts in excess of $36,000,000 In Balance in accordance with the Excess Contribution Agreement if the Borrower fails or refuses to do so. The form and content of the Excess Contribution Agreement shall be satisfactory to the Administrative Agent in its sole discretion." (j) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement includes an amendment to ITEM (3) of CLAUSE (d) of SECTION 11 of the Facilities Agreement substantially similar to the amendment set forth below, CLAUSE (c) of SECTION 7.2.4 shall be amended in its entirety to read as set forth below: "(c) ADJUSTED NET WORTH. Adjusted Net Worth as of the close of any such Fiscal Quarter to be less than the sum of $45,000,000 PLUS 85% of positive Net Income (after giving effect to the amount of Restricted Payments made by the Borrower in cash in accordance with CLAUSES (a) and (c) of SECTION 7.2.6, subject to the terms thereof for the period, treated as one accounting period) from the Closing Date through the close of such Fiscal Quarter." (k) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement includes an amendment to CLAUSE (b) of SECTION 11 of the Facilities Agreement substantially similar to the amendment set forth below, the following clauses shall be added as CLAUSE (j), CLAUSE (k), CLAUSE (l) and CLAUSE (m) to SECTION 7.2.2 of the Credit Agreement: "(j) Indebtedness of Aladdin Music (in addition to the Indebtedness referred to in SECTION 2.1 of the First Amendment to Credit Agreement) which has been approved in writing by the Completion Guarantors and which, when combined with the Indebtedness permitted under CLAUSE (k) and the first parenthetical clause in CLAUSE (m) of this SECTION 7.2.2, shall not exceed $3,500,000 in the aggregate for reasonable and necessary pre-development costs and expenses of the Music Project pursuant to agreements with either Completion Guarantor or Affiliates thereof so long as after giving effect to such Indebtedness no event or condition exists under the Credit Agreement, the Facilities Agreement or the Discount Note Indenture which, with the giving of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT" thereunder and five days prior to the incurrence thereof the holder of such Indebtedness delivers its agreement to Aladdin Music, the Borrower and the Lenders which provides, in relevant part, that (i) such Indebtedness is subject and subordinate in all respects to the Loan, the Loan Documents, the Facilities Agreement and the FF&E Lease Documents, the repayment of all amounts evidenced and secured thereby and the rights, remedies and options of the Lenders and GECC thereunder, as the case may be, (ii) such holder shall forbear from exercising any and all rights to collect such Indebtedness (including rights in bankruptcy) until the earlier of (A) indefeasible -15- payment of the Indebtedness evidenced and secured by the Loan Documents, the Facilities Agreement and the FF&E Lease Documents and (B) such time as the Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2 of the Credit Agreement has been consummated by Aladdin Music and the Music Project Parcel has been released from the Deed of Trust in accordance with CLAUSE (c) of SECTION 7.1.19 of the Credit Agreement and (iii) in no event shall any amount under the Credit Agreement or the Facilities Agreement be allocated to repayment or reimbursement of such Indebtedness or be used to fund any such amounts; (k) Indebtedness of Aladdin Music (in addition to the Indebtedness referred to in SECTION 2.1 of the First Amendment to Credit Agreement) which has been approved in writing by the Completion Guarantors and which, when combined with the Indebtedness permitted by CLAUSE (j) and the first parenthetical clause in CLAUSE (m) of this SECTION 7.2.2, shall not exceed $3,500,000 in the aggregate for reasonable and necessary pre-development costs and expenses of the Music Project pursuant to agreements with third parties (other than the Borrower, either Completion Guarantor or an Affiliate of Aladdin Music, the Borrower or either Completion Guarantor, as the case may be) so long as after giving effect to such Indebtedness no event or condition exists under the Credit Agreement, the Facilities Agreement or the Discount Note Indenture which, with the giving of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT" thereunder and five days prior to the incurrence thereof the holder of such Indebtedness delivers its agreement to Aladdin Music, the Borrower and the Lenders which provides, in relevant part, that such Indebtedness shall only be due and payable if and only if and not unless or until such time as the Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2 of the Credit Agreement has been consummated by Aladdin Music and the Music Project Parcel has been released from the Deed of Trust in accordance with CLAUSE (c) of SECTION 7.1.19 of the Credit Agreement and that in no event shall any amount under the Credit Agreement or the Facilities Agreement be allocated to repayment or reimbursement of such Indebtedness or be used to fund any such amounts; (l) Indebtedness of the Borrower which has been approved in writing by the Completion Guarantors in respect of the development and use of the approximately 1,400 seat production showroom at the Main Project (including production of shows and installations with respect to such shows) so long as after giving effect to such Indebtedness no event or condition exists under the Credit Agreement, the Facilities Agreement or the Discount Note Indenture which, with the giving of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT" thereunder, the terms of which and Instruments which evidence and, if applicable, secure such Indebtedness shall be satisfactory to the Administrative Agent as determined in good faith in its sole discretion; and -16- (m) Indebtedness of Aladdin Music which has been approved in writing by the Completion Guarantors for payment of a commission (but not expenses which shall be subject to the limitations in CLAUSE (k) of this SECTION 7.2.2) for procuring a lender for the Music Project and/or equity investor (which shall not be the Borrower, either Completion Guarantor or an Affiliate of Aladdin Music, the Borrower or either Completion Guarantor, as the case may be) in Aladdin Music so long as after giving effect to such Indebtedness no event or condition exists under the Credit Agreement, the Facilities Agreement or the Discount Note Indenture which, with the giving of notice or passage of time, would constitute a "DEFAULT" or "EVENT OF DEFAULT" thereunder and five days prior to the incurrence thereof the holder of such Indebtedness delivers its agreement to Aladdin Music, the Borrower and the Lenders which provides, in relevant part, that such Indebtedness shall only be due and payable if and only if and not unless or until such time as the Indebtedness permitted under CLAUSE (i) of SECTION 7.2.2 of the Credit Agreement has been consummated by Aladdin Music and the Music Project Parcel has been released from the Deed of Trust in accordance with CLAUSE (c) of SECTION 7.1.19 of the Credit Agreement and that in no event shall any amount under the Credit Agreement or the Facilities Agreement be allocated to repayment or reimbursement of such Indebtedness or be used to fund any such amounts." (l) From and after the effective date of the Second Amendment to Facilities Agreement (but not before) and provided that the Second Amendment to Facilities Agreement expressly approves the addition of SECTION 8.1.16 as set forth below, the following new Section shall be added to the Credit Agreement as SECTION 8.1.16: "SECTION 8.1.16. DISHONOR OR EXPIRATION OF LETTER OF CREDIT. If any letter of credit deposited by or on behalf of the Borrower hereunder is dishonored by the issuer thereof or is not extended within fifteen (15) days prior to the expiration thereof (unless the Lenders have been given written instructions to draw such letter of credit fifteen (15) days prior to the expiration thereof)." ARTICLE IV CONDITIONS PRECEDENT AND COVENANT SECTION IV.1. CONDITIONS TO EFFECTIVENESS. This Amendment shall be and become effective as of the date (the "EFFECTIVE DATE") on which each of the following conditions precedent shall have been satisfied. (a) EXECUTION OF AMENDMENT. The Administrative Agent shall have received counterparts of this Amendment executed on behalf of the Borrower, the -17- Administrative Agent, the Syndication Agent, the Documentation Agent and the Required Lenders. (b) INCUMBENCY, ETC. The Administrative Agent shall have received (with copies for each Lender) a certificate, dated the date hereof, of an Authorized Representative of the Borrower certifying (i) as to the incumbency and signatures of the Person or Persons authorized to execute and deliver this Amendment and any instruments or agreements required hereunder, (ii) as to an attached copy of one or more resolutions or other authorizations of the manager of the Borrower certified by the Authorized Representative of such manager as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment and any instruments or agreements required hereunder, and (iii) that the Organizational Documents of the Borrower have not been modified since the date on which they were last delivered to the Administrative Agent, upon which certificate the Administrative Agent, the Syndication Agent, the Documentation Agent and each Consenting Lender (collectively, the "FINANCING PARTIES") may conclusively rely until it shall have received a further certificate of an Authorized Representative of the Borrower canceling or amending such prior certificate. (c) FEES. All reasonable fees and costs and expenses of Mayer, Brown & Platt and other professionals employed by the Administrative Agent and all other reasonable expenses of the Administrative Agent in connection with the negotiation, execution and delivery of this Amendment and the transactions contemplated herein shall have been paid in full. (d) SATISFACTORY LEGAL FORM. Each Financing Party and its counsel shall have received all information, approvals, opinions, documents or instruments as each Financing Party or its counsel may have reasonably requested, and all documents executed or submitted pursuant hereto by or on behalf of the Borrower shall be satisfactory in form and substance to each Financing Party and its counsel. (e) DEFAULT. After giving effect to this Amendment the following statements shall be true and correct: (i) to the best knowledge of the Borrower, except as expressly set forth in this Amendment, no act or condition exists which, with the giving of notice or passage of time would constitute a "DEFAULT" or "EVENT OF DEFAULT" (as defined in -18- the Credit Agreement and the Facilities Agreement) has occurred and is continuing as of the date hereof, and (ii) no material adverse change in (A) the financial condition, business, property, prospects or ability of the Borrower to perform in all material respects its obligations under any Operative Document or any of the documents evidencing and securing the FF&E Financing to which it is a party or (B) the financial condition, business, property, prospects and ability of any other Aladdin Party or, to the best knowledge of the Borrower, LCNI, the Design/Builder or Fluor to perform in all material respects its obligations under any Operative Document to which it is a party has occurred since the Closing Date. (f) CONSENTS AND APPROVALS. All approvals and consents required to be taken, given or obtained, as the case may be, by or from any Governmental Instrumentality or another Person, or by or from any trustee (including, without limitation, the Discount Note Indenture Trustee) or holder of any indebtedness or obligation of the Borrower, that are necessary or, in the reasonable opinion of the Administrative Agent, advisable in connection with the execution, delivery and performance of this Amendment by all parties hereto, shall have been taken, given or obtained, as the case may be, shall be in full force and effect and the time for appeal with respect to any thereof shall have expired (or, if an appeal shall have been taken, the same shall have been dismissed) and shall not be subject to any pending proceedings or appeals (administrative, judicial or otherwise) and shall be in form and substance satisfactory to the Administrative Agent. (g) DELIVERY OF AMENDMENT. The Borrower shall have delivered this Amendment to all Persons entitled under the Operative Documents to receive delivery hereof. (h) OPINIONS. The Administrative Agent shall have received such opinions of counsel as it deems necessary, dated as of the date of this Amendment and addressed to the Administrative Agent, the Lenders and, if applicable, the Disbursement Agent, which shall be in form and substance satisfactory to the Administrative Agent. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce each Financing Party to enter into this Amendment, the Borrower hereby reaffirms, as of the date hereof, its representations and warranties contained in Article VI of the Credit Agreement and additionally represents and warrants unto each Financing Party as set forth in this ARTICLE V. -19- SECTION V.1. SCHEDULE 2.1. To the best knowledge of the Borrower, Schedule 2.1 annexed to this Amendment, as of the date of hereof, is true, correct and complete in all respects. SECTION V.2. MATTERS PERTAINING TO THE FACILITIES AGREEMENT. (a) The Borrower has not directly or indirectly amended (by Change Order or otherwise), modified (by Change Order or otherwise), allocated, reallocated or supplemented or permitted or consented to the amendment (by Change Order or otherwise), modification (by Change Order or otherwise) allocation, reallocation or supplementation of the Construction Benchmark Schedule in any manner which would extend the Completion Date. (b) The Borrower has performed all of its obligations under ITEM (1) of CLAUSE (a) of SECTION 12 of the Facilities Agreement. SECTION V.3. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, delivery and performance by the Borrower of this Amendment and each other document executed or to be executed by it in connection with this Amendment are within the Borrower's powers, have been duly authorized by all necessary action, and do not (a) contravene the Borrower's Organizational Documents; (b) contravene any contractual restriction binding on or affecting the Borrower; (c) contravene any court decree or order or Legal Requirement binding on or affecting the Borrower; or (d) result in, or require the creation or imposition of, any Lien on any of the Borrower's properties except as expressly contemplated by the Operative Documents, and the Financing Parties may conclusively rely on such representation and warranty. SECTION V.4. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower of this Amendment or any other document to be executed by it in connection with this Amendment. SECTION V.5. VALIDITY, ETC. This Amendment constitutes, and each other document executed by the Borrower in connection with this Amendment, on the due execution and delivery thereof, will constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms, except as such enforceability may be -20- limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors rights generally and by general principles of equity. SECTION V.6. LIMITATION. Except as expressly provided hereby, all of the representations, warranties, terms, covenants and conditions of the Credit Agreement and each other Operative Document shall remain unamended and unwaived and shall continue to be, and shall remain, in full force and effect in accordance with their respective terms. The amendments, modifications and consents set forth herein shall be limited precisely as provided for herein, and shall not be deemed to be a waiver of, amendment of, consent to or modification of any other term or provision of the Credit Agreement, the Facilities Agreement any Operative Document, or other Instrument referred to therein or herein, or of any transaction or further or future action on the part of the Borrower or any other Person which would require the consent of the Agents, the Lenders, GECC or the Discount Note Indenture Trustee. SECTION V.7. OFFSETS AND DEFENSES. The Borrower has no offsets or defenses to its obligations under the Loan Documents or the documents evidencing and securing the FF&E Financing and no claims or counterclaims against any of the Agents, the Lenders or the Construction Consultant. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION VI.1. RATIFICATION OF AND REFERENCES TO THE CREDIT AGREEMENT. This Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, shall continue in full force and effect and is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. SECTION VI.2. HEADINGS. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof. SECTION VI.3. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES OF SUCH STATE. SECTION VI.4. CROSS-REFERENCES. References in this Amendment to any Article or Section are, unless otherwise specified, to such Article or Section of this Amendment. -21- SECTION VI.5. OPERATIVE DOCUMENT. This Amendment is an Operative Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement. SECTION VI.6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION VI.7. COUNTERPARTS. This Amendment may be executed by the parties hereto in any number of counterparts and on separate counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. ALADDIN GAMING, LLC By: /s/ Richard J. Goeglein Name: Richard J. Goeglein Title: President THE BANK OF NOVA SCOTIA, as the Administrative Agent By: /s/ Alan W. Pendergast Name: Alan W. Pendergast Title: Relationship Manager MERRILL LYNCH CAPITAL CORPORATION, as the Syndication Agent By: /s/ Howard B. Sople Name: Howard B. Sople Title: Vice President CIBC OPPENHEIMER CORP., as the Documentation Agent By: /s/ Dean J. Decker Name: Dean J. Decker Title: Executive Director, CIBC Oppenheimer Corp., As Agent By signing below, the Guarantors (w) ratify and reaffirm the Loan Documents to which they are a party, (x) confirm their agreement to the terms of this Amendment and (y) acknow- ledge that they have no offsets or defenses to their respective obligations under the Loan Documents to which they are a party and no claims or counterclaims against the Agents, the Lenders or the Construction Consultant. ALADDIN BAZAAR HOLDINGS, LLC By: /s/ Ron Dictrow Name: Ron Dictrow Title: Secretary/Treasurer THE TRUST UNDER ARTICLE SIXTH UNDER THE WILL OF SIGMUND SOMMER By: /s/ Jack Sommer Name: Jack Sommer Title: Trustee LONDON CLUBS INTERNATIONAL PLC By: /s/ G. Barry Hardy Name: G. Barry Hardy Title: Finance Director SCHEDULE 2.1 Unpaid invoices for Aladdin Music As of January 22, 1998
Schreck Culinary ADP/Marshall TLCP Rockwell HKS Morris Design ------------ ---------- ------------- ------------ ----------- ---------- 2,000.00 5,000.00 275,000.00 131,743.93 1,157.43 2,640.00 706,000.00 116,752.22 3,510.00 16,714.21 19,104.77 3,500.00 185,000.00 121,157.81 123.75 21,138.21 82,216.34 3,742.00 174,000.00 9,760.00 23,452.47 3,250.00 1,718.81 7,635.63 14,657.45 141,218.37 4,691.10 10,110.67 1,996.01 447.40 3,183.57 376.60 Estimate per Tishman ------------ ---------- ------------- ------------ ----------- ---------- Total Accounts Payable 2,000.00 5,000.00 1,422,372.25 648,953.32 1,157.43 13,515.75 ------------ ---------- ------------- ------------ ----------- ---------- Trust Advances -100,000.00 Trust Advances -100,000.00 -50,000.00 Planet Hollywood Advances -100,000.00 Jack Sommer Advance -500,000.00 ------------ ---------- ------------- ------------ ----------- ---------- Net Accounts Payable 2,000.00 5,000.00 722,372.25 498,953.32 1,157.43 13,515.75 ------------ ---------- ------------- ------------ ----------- ---------- Pre-Opening McNamara/ Planet Total Capitalized Expensed Tishman Salvia, Inc. Hollywood RWDI Construction Costs Skadden,Arps ---------- ------------ ----------- ----------- ------------------ -------------- 44,320.88 59,400.00 46,300.00 567,562.24 537,673.00 2,493.43 28,835.80 857,591.45 4,666.30 119.55 44,104.83 9,300.16 1,186.47 316,768.19 107,096.55 183,760.00 26,702.47 9,354.44 155,875.82 14,801.77 1,996.01 447.40 3,183.57 376.60 0.00 0.00 Estimate per Tishman 5,000.00 5,000.00 0.00 0.00 0.00 0.00 ---------- ------------ ------------ ---------- --------------- ------------- Total Accounts Payable 65,780.77 89,541.82 0.00 46,300.00 2,294,621.34 537,673.00 ---------- ------------ ------------ ---------- --------------- ------------- Trust Advances -100,000.00 Trust Advances -13,890.00 -163,890.00 Planet Hollywood Advances 100,000.00 0.00 Jack Sommer Advance -500,000.00 0.00 ---------- ------------ ------------ ---------- --------------- ------------- Net Accounts Payable 65,780.77 89,541.82 100,000.00 32,410.00 1,530,731.34 537,673.00 ---------- ------------ ------------ ---------- --------------- ------------- Related party Payables Sommer Trust Advance for Rockwell costs 100,000.00 Advance for HKS costs 50,000.00 Advance to RWDI - Consulting Engineers 13,890.00 Advance for Rockwell costs 100,000.00 Jack Sommer Advance for Rockwell costs 500,000.00 --------------- ------------- Related Party Payables 763,890.00 0.00 --------------- ------------- TOTAL --------------- ------------- ------------ Total Liabilities for Aladdin Music, LLC. 2,294,621.34 537,673.00 2,832,294.34 --------------- ------------- ------------ --------------- ------------- ------------
EX-10.23 3 EXHIBIT 10.23 ENERGY SERVICE AGREEMENT ENERGY SERVICE AGREEMENT, dated as of September 24, 1998, between Aladdin Gaming, LLC, a Nevada limited-liability company (the "Customer"), and Northwind Aladdin, LLC, a Nevada limited-liability company (the "Supplier"). W I T N E S S E T H: WHEREAS, Customer, in conjunction with the Aladdin Bazaar, LLC ("Bazaar") and Aladdin Music, LLC ("Music") (Customer and Music collectively are referred to as the "Parties" and each individually as a "Party"), are developing a resort, casino, shopping and entertainment complex in Clark County, Nevada to be comprised of the Aladdin Hotel and Casino, the Desert Passage Mall and a music-themed hotel and casino and certain related facilities (collectively, the "Complex"); and WHEREAS, concurrently with the execution of this Agreement, Music and Bazaar also are executing Energy Service Agreements with the Supplier (such Energy Service Agreements, together with this Agreement, as any of them may be amended, restated, modified or supplemented and in effect from time to time, are collectively referred to herein as the "Complex Energy Service Agreements"); and WHEREAS, the Customer is developing a luxury themed hotel of approximately 2,600 rooms (the "Hotel"), a 116,000 square foot casino (the "Casino"), a 1,400-seat production showroom, seven restaurants and a newly renovated 7,000-seat Theatre of the Performing Arts (the "Theatre" and together with the Hotel and Casino, the "Premises") which will be part of the Complex; and WHEREAS, the Customer has entered into an agreement with the Supplier dated as of December 3, 1997 (the "Development Agreement") to develop and construct an energy facility (such facility, together with the Supplier Interconnection Equipment, the "Northwind Facilities") on a 0.64 acre portion of the Complex site to supply hot water, chilled water and electricity to the Complex, including supplying hot water, chilled water and electricity to the Premises; WHEREAS, the Customer intends to purchase its chilled water, hot water and electricity needs for the premises from the Supplier; and WHEREAS, the Customer is the beneficiary of a guaranty of Unicom Corporation (the "Guarantor"), a parent company of the Supplier, dated as of December 3, 1997 (the "Guaranty") pursuant to which the Guarantor unconditionally and irrevocably guaranties to the Customer the performance of the obligations and duties of the Supplier under the Development Agreement and this Agreement to construct and demonstrate "Final Completion" of the Plant, subject to a limitation of the lesser of (i) $30 million or (ii) the "Guaranteed Maximum Price" as finally determined and agreed upon pursuant to the Development Agreement, plus interim operating costs up to the "Substantial Completion Date"; and WHEREAS, the Customer has entered into a lease with the Supplier dated as of December 3, 1997 (the "Lease") to lease a site (the "Site") to the Supplier on which the Supplier will construct and operate the Plant pursuant to the Development Agreement and this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is hereby agreed between the Supplier and the Customer as follows: ARTICLE 1 DEFINITIONS 1.1 DEFINITIONS. As used herein, the terms set forth in Annex A hereto shall have the meanings specified or referred to in Annex A. ARTICLE 2 ENERGY SERVICE 2.1 SERVICES; EXCLUSIVITY; RIGHT OF FIRST REFUSAL; PERFORMANCE; CUSTOMER AGREEMENTS. (a) PROJECT SCOPE; CUSTOMER ENERGY REQUIREMENTS. The Northwind Facilities will be engineered, designed and constructed under the terms of the Development Agreement and in accordance with the design and equipment parameters set forth in Exhibit A hereto (such Exhibit, as it may be amended, restated, modified or supplemented and in effect from time to time, is referred to as the "Project Scope"), to generate and provide to the Complex: (a) chilled water ("Chilled Water Services"), (b) hot water ("Hot Water Services"), and (c) primary and secondary AC electricity (up to and including the initial transformation) generated both by the Northwind Facilities and third party sources of electricity ("Electricity Services", and together with Chilled Water Services and Hot Water Services, the "Services"), in capacities which are set forth in Exhibit A. The characteristics and capacities of the Northwind Facilities have been agreed upon by the Parties pursuant to the statement of projected energy requirements for the Complex under the heading "Contracted Demand" set forth in Exhibit B hereto. (The definitive specifications of the Plant Energy Requirements are set forth in Exhibit B.1 and the Customer Energy Requirements are set forth in Exhibit B.2. Exhibit B.1, as it may be amended, restated, modified or supplemented and in effect from time to time, is referred to as the "Energy Requirements.") (b) SERVICES. Subject to the provisions of the Development Agreement, which govern the Supplier's obligation to engineer, design and construct the Northwind Facilities, the Supplier agrees that it will provide Initial Services up to the Initial Energy Requirements to the Customer on the Initial Services Date and Services to the Customer on the Substantial Completion Date up to the Energy Requirements. With respect to Electricity Services, the Northwind Facilities shall be capable of generating 4.9 megawatts. The Supplier shall have the sole responsibility for procuring from third party electricity sources, and providing to the Customer up to the Specified Demand Amount in effect from time to time, the Electricity Services whether or not generated by the Northwind Facilities. (c) EXCLUSIVITY; RIGHT OF FIRST REFUSAL. The Supplier agrees that, so long as the Customer is not in default hereunder and subject to the provisions of the following paragraphs of this Section 2.1(c), the Customer shall have first call on that portion of the Services produced and procured by the Northwind Facilities necessary to serve the Customer Energy Requirements set forth in Exhibit B.1. The Customer agrees that, for the term of this Agreement and thereafter so long as this Agreement remains in effect, it shall purchase all of its requirements for Services from the Supplier, except to the extent that, (i) the Customer's requirements for Services exceed its allocated portion of Services as set forth in Exhibit B.1 and the Supplier does not agree to supply such excess in accordance with this Section 2.1, or (ii) the Supplier does not supply such Services for any reason. If the Northwind Facilities are being operated to meet the Energy Requirements and the Customer determines that its requirements for one or more Services exceed those set forth in Exhibit B.1, and if the Northwind Facilities are then able to supply such additional requirements of Services (the "Additional Services") and the Supplier has not entered into commitments to sell such Services to anyone else other than the Complex Energy Service Agreements, which, while this Agreement is in effect, the Supplier shall not do without the prior written consent of the Customer, then the Customer shall have the obligation to purchase all the Additional Services from the Supplier except as otherwise permitted by this Section 2.1 and Section 6.1(c) and Section 6.3, and the Supplier shall be obligated to supply the Additional Services. In the event that the Customer shall determine that its Services requirements exceed those set forth in Exhibit B.1 hereto and the provision of such Services would not require the Plant to exceed the capacities set forth on Exhibit A hereto and the Supplier has not entered into commitments to sell such Services to third parties, in accordance with the terms hereof, then the Supplier shall provide such Services to the Customer at the existing rates comprising the Consumption Charges applicable to such Services, and without any increase in the Capacity Charges payable hereunder. In the event that the Customer shall determine that its Services requirements exceeds those set forth in Exhibit B.1 hereto and such Services requirements would cause the Plant to exceed the capacities set forth in Exhibit A hereto, then the Customer will negotiate in good faith with the Supplier to reach agreement as to the terms and conditions upon which the Supplier will provide Additional Services, in accordance with Section 2.1(c)(i)-(v) of this Agreement. Customer may simultaneously solicit bids from other sources of energy services. Supplier shall have the right to match the terms and conditions of the lowest tender or proposal within the bid process set forth below. The terms and conditions of the bid process shall be as follows: (i) the Customer shall prepare a statement (the "Additional Services Request") setting forth specifics of the amount and type of the Additional Services which the Customer desires to obtain, the period for which the Additional Services are to be obtained, the date (or dates) upon which such Services are to commence, any changes to the Customer's equipment which are contemplated or intended to be made in connection therewith and such other information as may be relevant, and shall provide a copy of the Additional Services Request to the Supplier and request the Supplier to consider providing the Additional Services in accordance with the Additional Services Request. In the event that the Supplier shall desire additional information or specifications concerning the matter, the Supplier shall request such information or specifications in writing and the Customer shall thereafter provide such additional information or specifications to the Supplier as soon as reasonably possible following such request and the Additional Services Request shall be deemed modified or supplemented to include the same; (ii) if the Supplier determines that it will offer to provide the Additional Services requested, then the parties shall negotiate in good faith the terms upon which the Additional Services shall be provided, including the amount of additional Contract Capacity Charges payable as a result of changes to the Plant and increased operations expenses only and additional Consumption Charges which will be payable by the Customer in respect thereof and upon reaching agreement with respect thereto the parties shall thereupon take all actions which are necessary to implement and carry out such agreement, including negotiating and executing any relevant documents or agreements (or amendments to existing documents and agreements) including an appropriate amendment to the Project Scope and to the Contract Capacity Charge and the Consumption Charges; (iii) in addition to the above paragraphs (i) and (ii), the Customer may simultaneously provide the Additional Services Request to any other Person or Persons and solicit offers to provide the Additional Services from such other Person or Persons and if any of such other Persons responds with an offer to provide the Additional Services and the Customer determines that it intends to accept such an offer, then the Customer shall give written notice thereof to the Supplier which notice shall include a summary of the terms and conditions of the offer which the Customer intends to accept (the "Offer"). In the event that the Supplier desires additional information or clarification concerning the Offer, the Supplier shall request the same in writing within four (4) days of the date upon which it receives the notification and the Customer shall thereafter provide such additional information or clarification to the Supplier as permitted under the terms of the Offer as soon as reasonably possible following such request and the Offer shall be deemed modified or supplemented to include the same; (iv) the Supplier shall have ten (10) days from the date upon which it receives the notification (or ten (10) days from the date upon which it receives any additional information or clarification requested) under clause (iii) above that the Customer intends to accept the Offer to determine if the Supplier is willing to provide the Additional Services on the terms of the Offer and, if it is so willing, to so indicate to the Customer by written notice thereof to the Customer (the "Notice of Exercise") given within such ten (10) day period stating that the Supplier will provide the Additional Services on the terms and conditions set forth in the Offer, whereupon the Supplier shall be deemed to have made an offer to the Customer to provide the Additional Services on the terms and conditions set forth in the Notice of Exercise and the Offer and the Customer shall be deemed to have accepted such offer by the Supplier. Notwithstanding anything to the contrary contained herein, if the Supplier is unwilling or unable to match the Offer, the Customer shall have the right to purchase the Additional Services from such other Person or Persons; (v) the Customer and the Supplier shall thereupon take all actions which are necessary to implement and carry out the arrangements and undertakings contemplated by the Notice of Exercise and the Offer, including negotiating and executing any relevant documents or agreements (or amendments to existing documents and agreements), including an appropriate amendment to the Project Scope and to the Contract Capacity Charge and the Consumption Charges. In the event that any Additional Services Request contemplates increasing services in two or more phases, then, unless the Supplier and the Customer shall then agree otherwise, each such phase shall be deemed to be subject to a distinct right of first refusal hereunder and the Customer shall be required to comply with the procedures set forth herein with respect to each such phase. (d) PERFORMANCE. At all times while this Agreement is in force, but subject to the terms hereof, the Supplier will operate the Northwind Facilities to comply with the Project Scope and all applicable federal, state and local codes, laws, rules and regulations. The Supplier's obligations will include, but not be limited to, (i) performing all day-to-day operations, routine testing, normal maintenance, service and repair of the Northwind Facilities; (ii) the estimating, scheduling, coordinating and monitoring the performance of any extraordinary service, maintenance, repair, improvement or modification to the Northwind Facilities; (iii) carrying out such performance tests of equipment as is required under this Agreement or otherwise reasonably requested by the Customer; (iv) coordinating maintenance and power deliveries with the Customer and (v) providing for the handling and disposal of chemicals and hazardous materials at and from the Site; and (vi) subject to Section 5.7, obtaining and maintaining all required licenses, permits, approvals and clearances to provide the Services and operate the Northwind Facilities. The Supplier shall at all times maintain the appropriate operating personnel at the Northwind Facilities, twenty four (24) hours per day, seven (7) days per week. The Supplier agrees to coordinate matters with those parties designated by the Customer to be the Customer's representative with respect to this Agreement or portions thereof. The Customer shall have the right, upon at least twenty four (24) hours' advance notice, or no notice in the event of an emergency, to inspect the operation of the Northwind Facilities during normal business hours and to review the Supplier's maintenance and operating records to assure compliance with this Section 2.1(d). 2.2 CHILLED WATER. (a) Commencing on the Commencement Date, the Supplier agrees to supply at the Chilled Water Delivery Point and the Customer agrees to purchase the Customer's requirements of Chilled Water Service up to the capacity or capacities described in Exhibit B.2 under the heading "Contracted Demand". Chilled water the Supplier provides under this Agreement shall not be intermixed by the Customer with any other water or other substances without the prior written consent of the Supplier, which consent shall not be unreasonably withheld. (b) The Supplier shall ensure that the chilled water is delivered to the Chilled Water Delivery Point at a design temperature of not more than 36 degrees Fahrenheit, measured at the Chilled Water Delivery Point. (c) Provided that the Supplier is in compliance with Section 2.2(b) above, the Customer will ensure that all chilled water supplied hereunder is returned to the Supplier at the Chilled Water Return Point at a temperature not less than 20 degrees Fahrenheit in excess of the temperature at which such chilled water was supplied and otherwise uncontaminated in any material respect and in the condition in which it was received. In the event Customer fails to comply with this Section 2.2(c), the Supplier may elect, as its sole remedy (other than as set forth in Section 6.2(a) and Section 6.3(a) with respect to a Payment Default), to determine the actual cost(s) to the Supplier of such failure and invoice the Customer on the next monthly invoice under Section 2.7 for such amount(s) as additional Consumption Charges hereunder. In such event, the Supplier shall notify the Customer of such action and such invoice(s) shall be accompanied by detailed calculations demonstrating the manner in which such additional Consumption Charges have been determined, and such additional Consumption Charges shall thereupon be payable in accordance with Section 2.8. 2.3 HOT WATER. (a) Commencing on the Commencement Date, the Supplier agrees to supply at the Hot Water Delivery Point and the Customer agrees to purchase the Customer's requirements of Hot Water Services up to the capacity or capacities described in Exhibit B under the heading "Customer Energy Requirements." Hot water the Supplier provides under this Agreement shall not be intermixed by the Customer with any other water or other substances without the prior written consent of the Supplier, which consent shall not be unreasonably withheld. (b) The Supplier will ensure that the hot water is delivered to the Hot Water Delivery Point at a design temperature of not less than 180 degrees Fahrenheit, measured at the Hot Water Delivery Point. (c) Provided that the Supplier is in compliance with Section 2.3(b) above, the Customer will ensure that all hot water supplied hereunder is returned to the Supplier at the Hot Water Return Point at a temperature at least 35 degrees Fahrenheit less than the temperature at which it was delivered and otherwise uncontaminated in any material respect and in the condition in which it was received. In the event Customer fails to comply with this Section 2.3(c), the Supplier may elect to determine the actual cost(s) to the Supplier of such failure and invoice the Customer on the next monthly invoice under Section 2.7 for such amount(s) as additional Consumption Charges hereunder. In such event, the Supplier shall notify the Customer of such action and such invoice(s) shall be accompanied by detailed calculations demonstrating the manner in which such additional Consumption Charges have been determined, and such additional Consumption Charges shall thereupon be payable in accordance with Section 2.8. 2.4 ELECTRICITY. Commencing on the Commencement Date, the Supplier shall make available at the Electricity Delivery Points electricity to meet all of the Customer's primary and secondary AC electricity (up to and including the initial transformation -- i.e., immediately prior to the Customer Interconnection Equipment) needs for the Premises, up to the Specified Demand Amount then in effect. 2.5 CHARGES. In consideration of the Supplier's undertakings hereunder, the Customer shall pay to the Supplier, when and in the manner required by Section 2.8, the following charges, as the same may be adjusted from time to time pursuant to Section 2.6 and any other applicable provisions of this Agreement: (a) CONTRACT CAPACITY CHARGE - a monthly Contract Capacity Charge for Customer's share of the capital cost of the Plant determined in accordance with Exhibit C hereto, as the same may be amended, restated, modified or supplemented and in effect from time to time, for each month or portion thereof occurring after the Commencement Date, whether or not any Services are taken by the Customer during such month; and (b) CONSUMPTION CHARGE - a monthly Consumption Charge for Services actually taken by the Customer during each month or portion thereof occurring after the Substantial Completion Date, determined in accordance with Exhibit C hereto, as the same may be amended, restated, modified or supplemented and in effect from time to time, for each month or portion thereof occurring after the Substantial Completion Date. The Contract Capacity Charge shall be paid by the Customer monthly in accordance with Section 2.8 so long as this Agreement remains in force and has not been terminated, whether or not the Customer actually takes or uses any Services and, except as provided for in Section 6.1(c), whether or not there shall exist a default by the Supplier in any of its obligations hereunder. 2.6 ADJUSTMENTS. (a) On each annual anniversary of the Commencement Date, the Contract Capacity Charge and the Consumption Charges for the Contract Year then beginning shall be adjusted as set forth in Section 2.6 (b) and in accordance with Exhibit C. (b) The Supplier shall adjust the Contract Capacity Charge payable during the remaining term hereof then in effect and the Consumption Charges to reflect any changes in Supplier's costs of providing any Service that results directly from the adoption or modification of any applicable laws, rules or regulations of any governmental authority, or from any change in the interpretation by any court, tribunal or regulatory agency of any such applicable laws, rules or regulations or any other Force Majeure Event, after the date of this Agreement, and such adjustment shall become effective immediately upon notice of the adjustment to Customer. 2.7 SERVICE INVOICES. On or about the first day of each month, beginning with the first month which commences after the Substantial Completion Date, the Supplier shall deliver to the Customer a monthly invoice which reflects any Consumption Charges for the prior month just ended. Beginning with the first invoice delivered following the Commencement Date, such invoice shall also reflect the Contract Capacity Charge for the month then beginning and any other amounts then owing by the Customer under this Agreement. In the event that the Commencement Date is a date other than the first day of a calender month, then the first invoice for Contract Capacity Charges shall also include a prorated Contract Capacity Charge for the portion of the immediately preceding month occurring after the Commencement Date. In the event that the term of this Agreement ends on a date other than the first day of a calender month, then the Contract Capacity Charge for the final month shall be prorated accordingly. 2.8 PAYMENT. Payment of each invoice shall be due in full, on or before the thirtieth (30th) day following the date each invoice is received by the Customer (each a "Due Date"). The Customer shall make each payment invoiced by the Supplier when due without any further notice or demand, without offset of any kind, and irrespective of dispute to the amount of such invoice or otherwise, except as provided for in Section 6.1(b). In addition to any actions which the Supplier may take during the continuance of a Customer Default, whether at law or in equity or otherwise, a service charge shall be imposed if payment of an invoice is not received within thirty (30) days after such invoice is delivered to the Customer equal to one and one-half percent (1.50%) per month, or the maximum legal rate, whichever is less, on the unpaid balance of such invoice for the period from the fifteenth (15th) day after such invoice was delivered through and including the date of payment thereof (calculated using actual days elapsed and a year of 365 or 366 days, as applicable). 2.9 TAXES. In addition to the Contract Capacity Charges and the Consumption Charges payable hereunder, the Customer will pay all Taxes, including, without limitation, any Taxes which the Supplier is required to collect, except to the extent that such Taxes have been included in determining the Contract Capacity Charges then payable. ARTICLE 3 MAINTENANCE OF EQUIPMENT, SYSTEMS AND METERS 3.1 MAINTENANCE OF SUPPLIER INTERCONNECTION EQUIPMENT. (a) At all times while this Agreement is in force, the Supplier shall operate and maintain the Supplier Interconnection Equipment, in accordance with the O&M Specifications. If any of the Supplier Interconnection Equipment is damaged or destroyed as a direct result of the acts of the Customer or its agents, employees, tenants, customers, contractors or other Persons for whom the Customer is responsible, then the Customer shall be liable for the cost of the required repair or replacement. (b) The Supplier, its agents and employees will not authorize or knowingly permit any Person, except a duly authorized employee or agent of the Supplier or the Customer, to operate, maintain, alter or otherwise affect the Supplier Interconnection Equipment or any component thereof or any equipment of the Customer, to break or replace any seal or lock of the Supplier or the Customer, or to alter or interfere with the operation of any item of equipment installed by the Customer. (c) The Supplier will not modify the Supplier Interconnection Equipment in any material respect without the prior written consent of the Customer, which consent shall not be unreasonably withheld. The Supplier's operations or equipment shall not adversely affect the Customer's ability to receive the Services in accordance with the provisions hereof and the Exhibits attached hereto and, in the event they do, the Supplier shall, at its own expense, except as set forth in Section 3.2, make such reasonable changes in its operations or equipment as are necessary to restore capacity in respect of the Services. 3.2 CUSTOMER'S EQUIPMENT. The Customer will notify the Supplier of substantial modifications it makes to the operating equipment and systems of the Premises and will be responsible for the maintenance of such equipment and systems. The Customer will not modify its equipment so as to adversely affect the Supplier's ability to deliver or the Customer's ability to receive the Services, or, if it does, the Customer shall, at its own expense, make such reasonable changes in its equipment as are necessary to permit the Supplier to deliver, and the Customer to receive, the Services in the capacities required hereby. 3.3 METERING. (a) The Supplier will provide metering equipment to measure the delivery of electricity to the Customer, the quantity of chilled water and hot water delivered to the Customer and the temperature at the Chilled Water Delivery Points and the Hot Water Delivery Points, respectively, of the chilled water and hot water being delivered to, and returned by, the Customer. Electrical meters shall be placed on the secondary site of each transformer, and the results of the electrical metering shall be based on coincidental demand. All metering equipment will be furnished, paid for, owned and maintained by the Supplier. All such metering equipment shall be of the type which provides, and preserves a continuous flow of the relevant data twenty four (24) hours per day; all parties shall have full right of access to all such data and printouts thereof at all times and without reference to the other parties. The Supplier will regularly test its metering equipment in accordance with the manufacturer's recommendations but not less than two (2) times per year and, if requested by the Customer, will conduct such tests in the presence of a representative of the Customer. All testing shall include recalibration. If requested by the Customer, the Supplier will conduct such testing on additional occasions; PROVIDED, that unless such testing indicates that the tested equipment provides metering results which are inaccurate by three percent (3%) or more with respect to water or by one-half of one percent (0.5%) or more with respect to electricity in a manner which is adverse to the Customer, the Customer will pay all out-of-pocket costs and expenses incurred by the Supplier in conducting such additional tests. The Supplier will maintain an accurate log or record of all tests, whether initiated by the Supplier or the Customer, and will make the results of such tests available in a comprehensible manner to the Customer promptly upon request. (b) If any test of the metering equipment reveals equipment that has failed to accurately record consumption of the Services metered thereby, the Supplier shall restore such metering equipment to a condition of accuracy or replace it. If the metering equipment is in error by three percent (3%) or more with respect to water or by one-half of one percent (0.5%) or more with respect to electricity, then the Supplier will repair or replace such defective metering equipment within a reasonable period after receiving notice or becoming aware thereof and an adjustment shall be made in respect of the Consumption Charges for such Service in accordance with clause (d) below. (c) The regular meter reading and billing period will be monthly. If more than one meter is installed on the Premises, the readings of all meters will be used in calculating the invoice with respect thereto. (d) If the Supplier's metering record is interrupted at any time for any reason, or is found to be inaccurate and in need of repair or replacement under Section 3.3(b), the measurement of Services to be billed for such period of interruption, or for the period from the last test of the affected meters which shows them to have been operating within the acceptable limits of error under Section 3.3(b) through the date upon which such meters are corrected, will be estimated by the Supplier, acting reasonably, based upon past Customer usage during a similar period and under similar conditions if such information is available (and if such information is not available, based upon fuels consumed during such period and any other relevant information and/or bases which may reasonably be used for such purpose in the circumstances), and the Customer will pay invoices during such period based on the estimated measurement; subject to the Customer's right to withhold up to $12,500 in the aggregate from invoices based on estimates in any such period and dispute the same in good faith if the Customer reasonably disagrees with such estimated measurement. (e) The Customer will provide to Supplier, without charge, adequate space, power and access on the Premises for the housing and maintenance of all metering and related equipment and other equipment related to the delivery of Energy which the Supplier provides to comply with its obligations hereunder; PROVIDED, however, that the Supplier shall act in accordance with all reasonable safety and security rules, regulations and policies then in effect on the Customer's property or other reasonable rules or requirements which the Customer may impose, and the Supplier's use shall in no way materially adversely affect the Customer's other activities at the Premises. ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS 4.1 MUTUAL REPRESENTATIONS. (a) Each party represents and warrants to the other that it has the requisite limited-liability company capacity to enter into this Agreement and fulfill its obligations hereunder, that the execution and delivery by it of this Agreement and the performance by it of its obligations hereunder have been duly authorized by all requisite action of its members, and by its board of directors or other governing body, and that, subject to compliance with any applicable regulatory laws or regulations governing the sale or delivery of the Services, the entering into of this Agreement and the fulfillment of its obligations hereunder does not contravene any law, statute or contractual obligation of the party giving the representation or warranty. (b) Each party represents and warrants to the other that no suit, action or arbitration, or legal administrative or other proceeding is pending or has been threatened against the representing party that would affect the validity or enforceability of this Agreement or the ability of the representing party to fulfill its commitments hereunder, or that could result in any material adverse change in the business or financial condition of the representing party. 4.2 SUPPLIER REPRESENTATIONS. The Supplier hereby represents and warrants to the Customer that, as of the date of this Agreement, the Supplier is an indirect wholly-owned subsidiary of Unicom Corporation. 4.3 SUPPLIER COVENANTS. (a) CONTINGENCY PLAN. The Supplier covenants that it shall be responsible for developing a written contingency plan, with the technical assistance of the Customer, setting forth an agreed upon process for dealing with interruptions to Services, which contingency plan shall have as its goal minimizing the duration and effect of such interruptions to Services. Because the contingency plan may require the purchase or lease of equipment, the parties shall use their best efforts to agree upon the contingency plan on or before the date upon which the "Guaranteed Maximum Plant Price" is fixed under the Development Agreement. If the parties are unable to agree upon the contingency plan on or before such date, then the Supplier shall be entitled to require an increase in the Guaranteed Maximum Plant Price with respect to any items required by the final contingency plan agreed upon which terms were not included in determining the Guaranteed Maximum Plant Price. In order to facilitate the process of establishing the contingency plan, within 120 days after the date of receipt of the Notice to Proceed by the Supplier, the Supplier will prepare an initial draft thereof and provide the same to the Customer, which, within fifteen (15) days of receipt thereof, shall review the same and provide written comments with respect thereto to the Supplier, or, if the Customer deems such plan to be satisfactory, then the Customer shall provide written confirmation of such satisfaction to the Supplier within such fifteen (15) day period. (In the absence of any written comments from the Customer within such fifteen (15) day period, the Supplier shall be entitled to presume that the Customer is satisfied with such plan as provided.) In the event that the Customer provides comments, the parties will meet to review the same and seek in good faith to incorporate such comments into the agreed final plan. (b) OWNERSHIP OF NORTHWIND. The Supplier covenants that it shall not permit any transfer of any membership interest in the Supplier by the sole member of the Supplier as of the date of this Agreement, and not to issue any new membership interests in the Supplier, except as provided for in Section 10.2, without the prior written consent of the Customer (such consent not to be unreasonably withheld). (c) THIRD PARTY ENERGY SERVICE AGREEMENTS. The Supplier covenants that it shall not modify the Energy Service Agreement entered into by the Supplier with Music without Customer's prior written consent, provided such consent is not unreasonably withheld (provided, however, that Customer's consent shall not be required in the event of a Payment Default), and that such Agreement is in force substantially identical to this Agreement. ARTICLE 5 ADDITIONAL AGREEMENTS 5.1 CONDITIONS PRECEDENT TO EFFECTIVENESS. (a) The Supplier and the Customer agree that this Agreement and the obligations of the parties hereunder shall not become effective until each of the following conditions has been satisfied: (i) all exhibits to this Agreement shall have been agreed upon in definitive form, initialed by the parties and attached hereto, it being agreed and acknowledged that certain of the exhibits attached hereto on the date of execution of this Agreement have been identified as "preliminary" and are subject to further refinement as agreed by the parties, within specified applicable time limits identified herein, in connection with finalization of the plans and specifications for the Premises; (ii) the Supplier shall have entered into a construction agreement in form and terms reasonably satisfactory to the Supplier providing for the construction of the Northwind Facilities; and (iii) Financial Closing shall have occurred and the Customer shall have become the fee owner of the "Aladdin Lands" (as such term is defined in the Development Agreement), subject to any Customer obligations to convey portions thereof to Bazaar and Music. (b) In addition, it shall be a condition precedent to the initial obligation of the Supplier to deliver any Service hereunder on the date when such Service is first required to be provided by it hereunder that (i) the Customer shall have complied in all material respects with all of its covenants and Agreements contained herein to be complied with during the period from the date hereof to the date upon which such Service is to be delivered, and (ii) the Customer shall have provided to the Supplier evidence reasonably satisfactory to the Supplier that the Customer has obtained or is or will use all reasonable efforts to obtain all clearances, permits, licenses and approvals which are necessary for the Customer to construct and/or operate the Premises as contemplated hereby and receive such Services from the Supplier as of such date. (c) In addition, it shall be a condition precedent to the initial obligation of the Customer to receive any Service hereunder on the date when such Service is first required to be provided hereunder or to pay Contract Capacity Charges or Consumption Charges otherwise required to be received by it hereunder that: (i) the Supplier shall have complied in all material respects with all of its covenants and Agreements contained herein to be complied with during the period from the date hereof to the date when such Service is to be delivered, and (ii) the Supplier shall have provided to the Customer evidence reasonably satisfactory to the Customer that the Supplier has obtained or will use all reasonable efforts to obtain all third party clearances, permits, licenses and approvals which are necessary for the Supplier to construct and/or operate the Northwind Facilities as contemplated hereby. 5.2 INSURANCE. The respective insurance requirements for the Supplier and the Customer are set forth in Exhibit E attached hereto, and shall be maintained throughout the term of this Agreement. The liability of each party under this Agreement to the other party shall not be diminished by the insurance limitations set forth in said Exhibit E, except as set forth in below in this Section 5.2. All insurance policies required by this Section shall provide that such policies may not be cancelled or terminated without thirty (30) days prior written notice to the Customer, Customer's lenders and the Supplier. All liability insurance policies of Supplier and all insurance policies of Customer shall name the Customer's lender as an additional insured. Each party hereto agrees that the insurance described above to be provided by the other party may be provided through blanket coverages which may be provided in whole or in part through a policy or policies covering other liabilities and locations of the party obligated to provide such insurance and its affiliates. Each party hereby releases, to the extent legally possible for it to do so without invalidating its insurance coverages, for itself and on behalf of its insurer, the other party hereto and its respective officers, directors, agents, members, partners, servants and employees from liability for any loss or damage to any or all property located on the Aladdin Lands which loss or damage is of the type and within the limits covered by the "all-risk" property damage insurance and other property/casualty insurance which the parties have agreed to obtain and maintain in effect pursuant to this Section 5.2, irrespective of any negligence on the part of the released party and its respective officers, directors, agents, members, partners, servants or employees, which may have contributed to or caused such loss or damage. Each party covenants that it will, if available, obtain for the benefit of the other party and its officers, directors, agents, members, partners, servants and employees, a waiver of any right of subrogation which the insurer of such party may acquire against such party by virtue of the payment of any such loss covered by insurance. In the event a party is by law, statute or governmental regulation unable to obtain a waiver of the right of subrogation for the benefit of the other party (and its respective officers, directors, agents, members, partners, servants and employees), or its insurance carriers will not give such a waiver, or its property/casualty insurance will be invalidated or terminated by the waiver and release set forth in the first sentence of this paragraph, then, during any period of time when such waiver is unobtainable, said party shall not have been deemed to have released any subrogated claim of its insurance carrier against such party (or its respective officers, directors, agents, members, partners, servants and employees), and during the same period of time, such other party shall not have been deemed to have released the party which has been unable to obtain such waiver (or such party's respective officers, directors, agents, members, partners, servants, or employees) from any claims it or its insurance carrier may assert which otherwise would have been released pursuant to this Section 5.2. 5.3 CONFIDENTIAL INFORMATION. The Customer and the Supplier each agree to treat in confidence all information regarding this Agreement and the performance by the parties of their obligations hereunder and all information which either the Customer or the Supplier will have obtained from the other party in contemplation of entering into, or in the performance of, this Agreement and not make any use of any of such information for any purpose other than complying with its obligations under this Agreement and the Related Agreements. Such information will not be communicated to any Person other than the Customer, the Supplier, Aladdin Bazaar, LLC and Aladdin Music, LLC and their respective officers, directors, employees, members, agents, attorneys and professional consultants, except to the extent disclosure of such information: (a) is required by law or governmental authority; (b) is made by a party pursuant to litigation in which such party is a party; (c) is made to any lender or prospective lender to such party (PROVIDED such lender or prospective lender agrees in writing to keep such information confidential on the terms set forth in this Section 5.3); or (d) is made to a Person under contract with the disclosing party, or to which the disclosing party wishes to sell or assign all or part of its business or an equity interest in such Person in a transaction permitted hereby, which Person has given a confidentiality undertaking which is substantially similar to this one. If either party is required to disclose confidential information pursuant to clause (a) above, such party will take reasonable steps to limit the extent of the disclosure and to make such disclosure confidential under the circumstances and will, to the extent it reasonably can do so in the circumstances, afford the other party hereto notice of such request for disclosure so as to permit such other party to seek an appropriate protective order or other means by which such information may be maintained in confidence pursuant to such disclosure. Information provided by a party hereunder will remain the sole property of the party providing such information. The obligation of each party to treat in confidence, and not to use, information which it will have obtained from the other party will not apply to any information which (x) is or becomes available to such party from a source not otherwise under obligations of confidentiality with respect thereto, other than the party providing such information, or (y) is or becomes available to the public other than as a result of disclosure by such party or its agents in breach of this Section 5.3. 5.4 FINANCIAL INFORMATION. The Customer agrees to provide to the Supplier from time to time the following financial information concerning the Customer: (a) copies of all definitive documentation governing indebtedness incurred by the Customer to finance (or refinance) the construction of the Premises; (b) until such time, if ever, as the Customer becomes a reporting company under the Securities Exchange Act of 1934, as amended (or any successor statute thereto), copies of all monthly, quarterly and annual financial statements and forecasts which the Customer is obligated to provide to its lenders or to the trustee in respect of the 13.5% Senior Discount Notes Due 2010 to be issued by certain Affiliates of the Customer, which financial statements and forecasts will be provided concurrently or promptly after they are provided to such lenders and/or such trustee; (c) in the event that the Customer or its parent entity shall file a registration statement under the Securities Act of 1933, as amended (or any successor statute thereto), the Customer will provide a copy of such registration statement (including any preliminary prospectus contained therein) to the Supplier promptly after the same has been filed with the United States Securities and Exchange Commission, or any successor entity thereto (the "SEC"); and (d) from and after the date, if ever, upon which the Customer or its parent entity shall become a reporting company under the Securities Exchange Act of 1934, as amended (or any successor statute thereto), in lieu of the financial statements required by the preceding clause (b), the Customer will provide to the Supplier, by hard copy or electronically, promptly after filing of the same with the SEC, copies of all reports and financial statements filed with the SEC, including, but not limited to, any reports on any of Form S-K, Form 10-K or Form 10-Q and any annual reports to shareholders. All such financial information, other than information which is contained in filings with the SEC, shall be received and held in confidence and shall not be used or disclosed by the Supplier except as permitted by Section 5.3 hereof with respect to the confidential information provided by the Customer to the Supplier. 5.5 TRANSFER OF INFORMATION TO CUSTOMER PURSUANT TO SALE. The Supplier hereby agrees that in the event that the Customer acquires the Northwind Facilities pursuant to Section 6.3, 6.4 or 9.3, the Supplier will provide the Customer with copies of all specifications, manufacturers' warranties, design drawings, operating manuals and maintenance records for the Northwind Facilities, as well as other information concerning the design, operation and maintenance of the Northwind Facilities which are in the possession or control of the Supplier and which are relevant or reasonably necessary to the Customer's ownership or operation of the Northwind Facilities and will transfer to the Customer all of the Supplier's right, title and interest in and to such materials and items, which transfer shall be without recourse and without representation or warranty as to title to any such materials or items. 5.6 FUEL AND ELECTRICITY ARRANGEMENTS. From time to time, as the Customer may reasonably request, the Supplier shall provide the Customer with information concerning the Supplier's arrangements then in effect with respect to the purchase of fuels for use in providing Services hereunder and with respect to obtaining electricity from third party providers. The Supplier agrees that it shall use best efforts to obtain economical and reliable sources of fuels and electricity from third party providers. 5.7 REGULATORY COMPLIANCE RE ELECTRICITY. (a) The provisions of this Section 5.7 shall not in any way affect the obligation of the Supplier to construct and demonstrate "Final Completion" (as such term is defined in the Development Agreement) of the Northwind Facilities, or to provide Chilled Water Service or Hot Water Service or to procure and provide to the Customer electricity up to the Specified Demand Amount applicable from time to time under this Agreement. The parties acknowledge that the generation, distribution, transmission and/or sale of Electricity Services by the Supplier hereunder may cause the Supplier and/or its Affiliates to be subject to compliance with or obtaining exemption from certain federal and Nevada laws and regulations. The Supplier agrees, for itself and its Affiliates, subject to Section 5.7(b) hereof, to comply with, or obtain the necessary exemption from, any applicable laws and regulations affecting the Supplier's generation, distribution, transmission and/or sale of Electricity Services hereunder such that, on the Substantial Completion Date, the Supplier will lawfully be able to provide, or cause to be provided, such Electricity Services to the Customer. The Customer, in turn, agrees to comply with any request of the Supplier which the Customer, in its good faith judgment, deems reasonable in connection with such regulatory compliance, including, without limitation, a request to amend this Agreement, the Lease or the Development Agreement in any way reasonably (in the good faith judgment of the Customer) necessary in the circumstances, so long as, as a result thereof, (i) the reliability of the Electric Services provided to the Customer is not adversely affected, (ii) the Supplier's responsibility to comply with its obligations in accordance with this Agreement, the Development Agreement and the Lease remains in full force and effect, (iii) the fees paid by the Customer pursuant to this Agreement are not increased, and (iv) the Customer's costs and expenses of any such action will be borne solely by the Supplier, providedthat this subsection (iv) shall not apply to the extent such action becomes reasonably necessary, in whole or in part, as a result of a change in the Customer's circumstances. (b) The Customer agrees that, provided the Supplier uses best efforts to comply or obtain any necessary exemption from any applicable federal and Nevada laws and regulations, the Supplier need not become a "public utility" under Nevada law in order to comply with its obligations under this Agreement and Unicom Corporation need not, solely as a result of Supplier's compliance with its obligations under this Agreement, become a registered holding company pursuant to the Public Utility Holding Company Act of 1935 ("PUHCA"), as amended. Subject to the foregoing, the Customer and the Supplier agree to the following: (i) Notwithstanding any other provisions in this Agreement, from the Substantial Completion Date to March 1, 2000, the Supplier shall only be obligated to provide the Customer with electricity produced by the Northwind Facilities; (ii) The Supplier shall use best efforts to ensure that on or before March 1, 2000 it will be able to provide to the Customer, pursuant to the terms of this Agreement, the Electricity Services as defined in Section 2.1; best efforts shall not include requiring the Supplier to become a "public utility" under Nevada law, but shall include, if necessary to meet the Supplier's obligations, certification of the Northwind Facilities as a "Qualifying Facility" as defined in the Public Utility Regulatory Policies Act of 1978, as amended, and the regulations implementing such Act promulgated by the Federal Energy Regulatory Commission, as amended; provided that in order to certify the Northwind Facilities as a Qualifying Facility, the Supplier shall be permitted to transfer a membership interest in the Supplier to a third party, provided the Supplier obtains the Customer's prior written approval, such approval not to be unreasonably withheld or delayed, and provided the Supplier allows the Customer the right of first refusal to acquire the requisite membership interest in the Supplier; (iii) For so long as the Supplier is lawfully able to do so without becoming a "public utility" under Nevada Law, after March 1, 2000, the Supplier shall provide the Customer its Electricity Services, which shall include both electricity generated by the Supplier and electricity otherwise obtained by the Supplier for the Customer; provided, however that such electricity not generated by the Supplier shall be provided by the Supplier to the Customer pursuant to and as part of this Agreement; or (iv) In the event the Supplier, despite its best efforts, is unable to provide the Electricity Services without becoming a "public utility" under Nevada Law or a registered holding company under PUHCA, then after March 1, 2000: 1. the Supplier shall sell to the Customer and the Customer shall purchase from the Supplier all electricity generated by the Northwind Facilities; 2. the Supplier shall be required to obtain on its own behalf, from a third party, electricity required to serve the Northwind Facilities; 3. the Customer shall contract with a third party of its choosing to supply the Customer with the electricity required by the Customer not generated by the Supplier at the Northwind Facilities. Such contract shall be of the shortest term practicable to ensure that the rates, terms and conditions thereof are commercially reasonable (and the Customer and the Supplier shall use reasonable efforts to coordinate their purchases under clauses (iv)2 and (iv)3 to seek to obtain advantageous rates); 4. the Supplier guarantees to the Customer that the blended rate paid by the Customer after March 1, 2000 for electricity, such blended rate to include the rate paid by the Customer to the Supplier and by the Customer to the third party Supplier pursuant to the previous subparagraph 3, shall be lower than the rate then charged by Nevada Power Company to customers with a load comparable to the Customer's load (the "Rate Standard"). The Customer shall provide the Supplier with yearly statements, if applicable, establishing that the blended rate paid by the Customer for such year was not lower than the Rate Standard for such year. In such event, and within thirty (30) days of receipt of such statement, the Supplier shall make a payment to the Customer sufficient to give the Customer a blended rate which is lower than the Rate Standard. (v) The Customer agrees that in the event the Supplier subsequently becomes able to provide the total Electric Services to the Customer without being considered a "public utility" under Nevada law, then the Customer shall purchase the total Electricity Services from the Supplier in accordance with the terms of this Agreement upon the expiration of any third party contract(s) described above in Section 5.7(b)(iv)(3) then in effect. ARTICLE 6 DEFAULTS AND REMEDIES 6.1 SUPPLIER DEFAULTS. (a) PERFORMANCE FAILURES. (i) the occurrence of any of the following events shall constitute a "Performance Failure": 1. if, at any time after the Substantial Completion Date and for any reason other than a Force Majeure Event, chilled water is not provided to the Supplier's side of the Chilled Water Delivery Point at 13,905 gallons per minute and 42 degrees Fahrenheit or lower; 2. if, at any time after the Substantial Completion Date and for any reason other than a Force Majeure Event, hot water is not provided to the Supplier's side of the Hot Water Delivery Point at 2882 gallons per minute and 200 degrees Fahrenheit or higher; or 3. if, at any time after the Initial Services Date but prior to the Substantial Completion Date for any reason other than a Force Majeure Event, chilled water is not provided to the Supplier's side of a Chilled Water Delivery Point at 4800 gallons per minute and 46 degrees Fahrenheit or lower. (ii) ACTIONS TO BE TAKEN. Promptly upon becoming aware of a Performance Failure (whether by notice thereof from the Customer or by the Supplier's monitoring of its systems and the operation of the Northwind Facilities or otherwise) the Supplier shall: 1. immediately seek to determine the cause of such Performance Failure and shall apprise the Customer of the Supplier's conclusion as to such cause as quickly as possible and provide the Customer with a corrective action plan consistent with the Contingency Plan, which the Supplier will implement at its sole cost and expense where the Performance Failure is for any reason other than a Force Majeure Event, except that such implementation with respect to a Performance Failure described in Section 6.1(a)(i)3 will be at the Customer's expense, and use its best efforts to accommodate any changes thereto which the Customer reasonably requests; 2. commence implementation of such corrective action plan, using all best efforts to correct or cure such Performance Failure in the shortest period of time; (iii) ADDITIONAL MEASURES. In addition to the above, immediately upon becoming aware of a Performance Failure, Supplier shall allow Customer or Customer's agents immediate access to the Northwind Facilities and permit Customer full inspection rights of the Northwind Facilities. (b) SERVICE FAILURES. (i) the occurrence of any of the following events shall constitute a "Service Failure": 1. if, at any time after the Substantial Completion Date and for any reason other than a Force Majeure Event, chilled water is not provided to the Supplier's side of the Chilled Water Delivery Point at 13,905 gallons per minute and 44 degrees Fahrenheit or lower; 2. if, at any time after the Substantial Completion Date and for any reason other than a Force Majeure Event, hot water is not provided to the Supplier's side of the Hot Water Delivery Point at 2882 gallons per minute and 190 degrees Fahrenheit or higher; 3. if, at any time after the Substantial Completion Date and for any reason other than a Force Majeure Event, primary and secondary AC electricity (up to and including the initial transformation) delivered to an Electricity Delivery Point is less than the Specified Demand Amount then in effect; 4. if, at any time after the Initial Services Date but prior to the Substantial Completion Date for any reason other than a Force Majeure Event, chilled water is not provided to the Supplier's side of the Chilled Water Delivery Point at 4800 gallons per minute and 48 degrees Fahrenheit or lower; or 5. if any Performance Failure exists for any seventy two (72) hours of any ninety six (96) hour period. (ii) ACTIONS TO BE TAKEN. Promptly upon becoming aware of a Service Failure (whether by notice thereof from the Customer or by the Supplier's monitoring of its systems and the operation of the Northwind Facilities or otherwise) the Supplier shall: 1. immediately seek to determine the cause of such Service Failure and shall apprise the Customer of the Supplier's conclusion as to such cause as quickly as possible and provide the Customer with a corrective action plan consistent with the Contingency Plan, which the Supplier will implement at its sole cost and expense where the Service Failure is for any reason other than a Force Majeure Event, except that such implementation with respect to a Performance Failure described in Section 6.1(b)(i)4 will be at the Customer's expense, and use its best efforts to accommodate any changes thereto which the Customer reasonably requests; 2. commence implementation of such corrective action plan, using all best efforts to correct or cure such Service Failure in the shortest period of time; 3. if the Supplier believes that correcting or curing such Service Failure requires or can reasonably be anticipated to require more than eight (8) hours from the time either party became aware of the Service Failure, promptly notify the Customer of the same and advise the Customer of the efforts which the Supplier believes will be necessary to accomplish such correction or cure, the probable timetable for doing so and any load management adjustments which the Supplier believes will be helpful to minimizing the impact of such Service Failure on the operation of the Premises; and 4. if the Supplier believes that correcting or curing such Service Failure requires or can reasonably be anticipated to require more than twenty four (24) additional hours (thirty two (32) hours from the time either party became aware of the Service Failure), and the Customer believes that the Premises cannot be operated in a reasonably normal manner due to such ongoing Service Failure, Supplier shall procure, at its own expense (but without reduction of the Contract Capacity Charges and Consumption Charges hereunder except to the extent each reduction is mandated by Section 6.1(c)(ii) below), substitute Services (meaning, for example, in the case of Chilled Water Services or Hot Water Services, portable temporary chillers or boilers) in accordance with the Contingency Plan to be brought to the site and put into operation as quickly as possible. (iii) ADDITIONAL MEASURES. In addition to the above, immediately upon becoming aware of a Service Failure, Supplier shall allow Customer or Customer's agents immediate access to the Northwind Facilities and permit Customer full inspection rights of the Northwind Facilities. If Customer identifies the cause of such Service Failure and requires corrective action or cure, Supplier shall either promptly take such corrective action or promptly make such cure, or permit the Customer to take any action reasonably intended to correct or cure such Service Failure at the Supplier's sole cost and expense (except that, other than as provided in Section 6.1(c)(ii) below, the Customer shall remain liable for the Contract Capacity Charge) and/or assume control of the Northwind Facilities and maintain such control until the Service Failure has been cured or corrected. (c) SERVICE DEFAULTS. If any Service Failure other than a Service Failure under Section 6.1(b)(i)(4) continues for any thirty two (32) hours of any forty eight (48) hour period, it shall be deemed a "Service Default" and the following additional provisions shall apply: (i) CONTROL OF NORTHWIND FACILITIES. The Customer shall have the right to assume control of the Northwind Facilities and maintain such control until such Service Default has been cured or corrected and take any action reasonably intended to correct or cure such Service Default at the Supplier's sole cost and expense (except that, other than as provided in Section 6.1(c)(ii) below, the Customer shall remain liable for the Contract Capacity Charge). (ii) ABATEMENT. The Customer shall be entitled to an abatement of the Contract Capacity Charge for the month during which such Service Default has occurred in an amount equal to (A) the Contract Capacity Charge then in effect for such month multiplied by a fraction, the numerator of which shall be the number of days during which such Service Default has occurred during such month and the denominator of which shall be the number of days in such months, multiplied by (B) 70% if such Service Default was with respect to Chilled Water Service, or 9% if such Service Failure was with respect to Hot Water Service, or 21% if such Service Default was with respect to Electricity Service. The amount of any applicable abatement of Contract Capacity Charges under this Section 6.1(b) shall be due and payable on the first day of the month following the month during which such Service Default shall have occurred and may be off-set by the Customer against the Contract Capacity Charge which is due and payable on such date with respect to the month then beginning. (iii) RETAIN CONSULTANTS AND IMPLEMENT CONSULTANTS' RECOMMENDATIONS. The Customer shall have the right to hire, at the expense of the Supplier, an independent consultant to review the circumstances involving the Service Default and make written recommendations as to reasonable corrective action (the "Consultants' Recommendations"), which shall be provided to the Supplier and promptly implemented by the Supplier at its sole expense (or, if the Customer has assumed control of the Northwind Facilities pursuant to Section 6.1(b)(i), may be implemented by the Customer at the Supplier's sole expense). (iv) TERMINATION OF AGREEMENT. In the event that the Supplier fails to promptly implement the Consultants' Recommendations in accordance with a reasonable timetable agreed upon by the consultant, or to otherwise correct any Service Default (or provide substitute services reasonably acceptable to the Customer for the Services which are the subject of such Service Default) within the timetable reasonably recommended by such independent consultants, the Customer shall have the right to terminate this Agreement by not less than thirty (30) days' prior written notice to the Supplier specifying the effective date of termination, which shall be the date upon which Customer acquires the Northwind Facilities pursuant to Section 6.4. (d) OTHER DEFAULTS. (i) In the event of failure, other than a Performance Failure, a Service Failure or a Service Default, by the Supplier to comply with or perform any agreement or obligation to be complied with or performed by the Supplier in accordance with this Agreement, which failure is not the result of actions or omissions of the Customer and which failure remains uncorrected or uncured thirty (30) days after notice of such failure is given to the Supplier by the Customer (or, if such failure is of such a nature that it cannot reasonably and with due diligence be corrected or cured within such thirty (30) day period and the Supplier commences action to correct or cure such default within such thirty (30) day period and thereafter diligently and without interruption or delay completes the correction or cure of such failure, such longer time as is necessary to complete such correction or cure, in no event to exceed one hundred eighty (180) days), the Customer shall have the right: (1) at the Supplier's sole cost and expense (except that, other than as provided in Section 6.1(c)(ii) below, the Customer shall remain liable for the Contract Capacity Charge), to take any action reasonably intended to correct or cure such failure; or (2) to terminate this Agreement by not less than thirty (30) days' prior written notice to the Supplier specifying the effective date of termination. (ii) TERMINATION WITHOUT PREJUDICE. Any election by the Customer to terminate this Agreement under Section 6.1 shall be without prejudice to the other rights and obligations of the parties hereunder and shall not relieve the Supplier of its obligation to provide Services hereunder until the effective date of termination, but any subsequent correction by the Supplier of the event which is the basis for such notice of termination shall not be effective to cause rescission of the effectiveness of such termination unless the Customer shall otherwise agree at the time of the subsequent correction, provided that the Customer acquires the Northwind Facilities pursuant to Section 6.4. 6.2 CUSTOMER DEFAULTS. The occurrence at any time with respect to the Customer of any of the following events constitutes a Customer Default: (a) failure by the Customer to make, within twenty five (25) days after the Due Date, any payment stated herein to be due from it hereunder (each, a "Payment Default"); provided, however, that failure to make a payment which results from the Customer's right of abatement pursuant to Section 6.1 hereof shall not be a Payment Default; (b) except as otherwise excused pursuant to Section 7.1 hereof, failure, other than a Payment Default, by the Customer to comply with or perform any agreement or obligation to be complied with or performed exclusively by the Customer in accordance with this Agreement, which failure is not the result of actions or omissions by the Supplier, or Music, if such failure is not remedied on or before the 30th day after notice of such failure is given to the Customer and Music by the Supplier, provided if such default is of such a nature that it cannot reasonably and with due diligence be cured within such thirty (30) day period and the Customer commences to cure such default within such thirty (30) day period and thereafter diligently and without interruption or delay completes the cure of such default within a reasonable period of time, but in no event to exceed one hundred eighty (180) days, it will not constitute a Customer Default. 6.3 REMEDIES UPON CUSTOMER DEFAULT. (a) In addition to any other remedies available at law or in equity, upon the occurrence of a Payment Default, the Supplier shall have the right, upon providing the Customer with an additional five (5) days' prior written notice (sixty (60) days from when the invoice was received by the Customer), to discontinue the supply of Services to the Customer until the Customer remedies such Payment Default; PROVIDED that if such Payment Default continues for a period of one hundred fifty (150) consecutive days (one hundred eighty (180) days from when the invoice was received) or more the Supplier, by written notice to the Customer, may terminate the Customer's right to cure such Payment Default by terminating this Agreement, without prejudice to the Supplier's claims in respect to such Payment Default and other rights accruing hereunder prior to such termination. (b) In the event of a Customer Default, other than a Payment Default, which remains uncorrected or uncured thirty (30) days after notice of such Customer Default is given to the Customer by the Supplier (or if such Customer Default is of such a nature that it cannot reasonably and with due diligence be corrected or cured within such thirty (30) day period and the Customer commences action to cure or correct such Customer Default within such thirty (30) day period and thereafter diligently and without interruption or delay completes the correction or cure such Customer Default, such longer time as is necessary to complete such connection or cure, in no event to exceed one hundred eighty (180) days), the Supplier shall have the right to require the Customer to purchase the Northwind Facilities for a purchase price equal to the Make Whole Amount at such time. 6.4 CUSTOMER'S OBLIGATION TO PURCHASE UPON TERMINATION. If the Supplier shall fail to comply with its obligations to correct any Service Default which it is obligated to correct hereunder and the Customer has given notice of termination of this Agreement pursuant to Section 6.1(b), Section 6.1(c) or Section 6.1(d), then the Supplier shall thereupon be obligated to sell, assign and transfer, and the Customer shall thereby be obligated to purchase and acquire possession and ownership of the Northwind Facilities upon the effective date of termination for a purchase price (the "Payment Amount") equal to (a) the Supplier's investment in the Northwind Facilities, determined in accordance with Exhibit C, multiplied by a fraction the numerator of which shall be the number of months remaining in the Initial Term and the denominator of which shall be 240, minus (b) any costs incurred by Customer for required repair and/or maintenance. The Payment Amount shall not provide for any return on Supplier's project investment. (See 9.2) In such event, on such date of termination or as soon as reasonably possible, the Customer shall pay to the Supplier through escrow and by wire transfer of immediately available funds, an amount equal to the Payment Amount and shall, with respect to all contracts approved of by Customer in advance of their execution (which approval the Customer will consider in good faith) concurrently assume, and agree to indemnify and hold the Supplier harmless from, as of the date of such termination and for all periods thereafter, all obligations of the Supplier accruing on or after the date of termination under any contracts or Agreements with respect to the Northwind Facilities (excluding, however, at the option of the Customer, any such contract or agreement entered into with Nevada Power Company (or any wholly-owned subsidiary of Nevada Power Company), Boston Edison, Ontario Hydro, Houston Industries or UTT or any of their Affiliates which in Customer's sole discretion is deemed to be materially more onerous to the Supplier than a third party arm's length agreement for the same goods or services would be in the circumstances) under a written assignment and assumption agreement in form and substance reasonably satisfactory to the Supplier and its counsel, against delivery by the Supplier of possession of the Northwind Facilities and an executed bill of sale therefor in form and substance reasonably satisfactory to the Customer and its counsel. 6.5 LENDERS' RIGHT TO CURE. Each party hereto hereby agrees that in the event that the other party hereto shall make any assignment of its rights hereunder to any lender or lenders to whom such party provides a security interest in such party's right, title and interest in the Premises or the Northwind Facilities, as applicable, in connection with financing (or refinancing) the Premises or the Northwind Facilities, respectively, that each party will provide such lenders or the entity identified to the parties as having authority to act as the agent for such lenders with all notices given pursuant to this Agreement and that such lender or lenders shall have an additional ten (10) days to cure any failure by such party to comply with its obligations hereunder. The Supplier agrees that it shall afford Music and Bazaar, and their lenders, identical cure rights. 6.6 REMEDIES NOT EXCLUSIVE. The right of the Customer to terminate this Agreement pursuant to Section 6.1 and to acquire the Northwind Facilities pursuant to Section 6.4 and the rights of the Supplier to cease providing Services and to terminate this Agreement and/or require the Customer to purchase the Northwind Facilities pursuant to Section 6.3 shall not be deemed to be exclusive and, except as expressly waived in Section 8.1 and Section 8.2, shall be in addition to any and all other rights either of them may have at law or in equity for any default under Section 6.1(d) or any Service Default or Customer Default (as applicable) hereunder after notice and any opportunity to cure provided for herein. The remedies provided herein for a Performance Failure or a Service Failure shall be the exclusive remedies until such failure or failures become a Service Default. ARTICLE 7 FORCE MAJEURE 7.1 FORCE MAJEURE. (a) If either party hereto is prevented from or delayed in performing any of its obligations hereunder by reason of a Force Majeure Event, such party will notify the other party in writing as soon as practicable and will be excused from its obligations hereunder to the extent of such interference; PROVIDED, that no payment obligation hereunder will be excused or delayed as the result of a Force Majeure Event. (b) The party whose performance hereunder is prevented or delayed as the result of a Force Majeure Event will use reasonable efforts to remedy its inability to perform; PROVIDED, however, nothing in this Section 7.1(b) will be construed to require the settlement of any strike, walkout or other labor dispute with its employees on terms which are contrary to its interest. The Supplier agrees however, that in the event of a strike, walkout or other labor dispute which may reasonably be expected to interrupt the providing of Services due to the Supplier's employees participating in or honoring such strike, walkout or dispute, (i) the Supplier, at Supplier's sole cost and expense (but without reduction in Contract Capacity Charges), shall use good faith efforts to operate the Northwind Facilities using management or other personnel which will not participate in or honor such strike, walkout or dispute, and (ii) if the Supplier will not be able to operate the Northwind Facilities using such management or other personnel, the Supplier will cooperate with the Customer to permit the Customer or its duly authorized representative, at Supplier's sole cost and expense (without reduction in Consumption Charges and Contract Capacity Charges), to operate the Northwind Facilities in such circumstances, PROVIDED that such operation is carried out by personnel which are, in the Supplier's reasonable judgment, adequately trained and experienced to operate the Northwind Facilities. (c) CONDEMNATION. In the event of a condemnation or eminent domain taking of all or part of the site upon which the Plant is to be located (a "Taking"), Supplier shall, as soon as practicable, determine whether it is commercially reasonable and technically feasible in the circumstances for Supplier to redesign, repair and/or restore the Northwind Facilities such that the Supplier can meet its obligations to provide Services to the Customer hereunder. In the event Supplier determines that it is commercially reasonable and technically feasible, Supplier will so inform Customer, this Agreement shall remain in force and, to the extent set forth in Section 8.2 of the Northwind Lease, Supplier shall be entitled to the award or awards from such Taking and the Contract Capacity Charges payable hereunder thereafter shall be adjusted downward in an amount corresponding to any such award paid to the Supplier. In the event that Supplier determines that it is not commercially reasonable or technically feasible in the circumstances to redesign, repair or restore the Northwind Facilities, then Supplier shall so notify Customer and such notice shall also constitute termination of this Agreement, effective on the date when such Taking shall effectively prevent Supplier from complying with its obligations to provide Services hereunder, and, to the extent set forth in Section 8.1 of the Northwind Lease, Supplier shall be entitled to the award or awards from such Taking. Notwithstanding the foregoing, in the event Supplier and Customer disagree as to whether it is commercially reasonably and technically feasible in the circumstances for Supplier to redesign, repair or restore the Northwind Facilities, then Supplier and Customer shall promptly meet and use their best efforts to resolve such dispute. If the Parties are unable to resolve such dispute within ten (10) days, then the Parties shall refer such dispute to the "Independent Engineer"(as defined in the Development Agreement). The Independent Engineer's conclusion as to whether it is commrcially reasonable and technically feasible in the circumstances for Supplier to redesign, repair or restore the Northwind Facilities shall be accepted by and binding upon the Parties. (d) In the event of a Force Majeure Event of a nature such that, by implementation of the Contingency Plan (or a part thereof), Services may be provided to the Customer during the interruption caused by such Force Majeure Event, then, upon the Customer's request and at the Customer's expense, except as set forth in Section 7.1(b) above, the Supplier shall use its best efforts to implement the Contingency Plan (or portion thereof which is applicable) to mitigate the interruption of Services caused by such Force Majeure Event. ARTICLE 8 INDEMNIFICATION 8.1 INDEMNIFICATION BY THE SUPPLIER. The Supplier agrees to protect, indemnify and hold harmless the Customer Group Member from and against any and all Loss and/or Expense, other than lost business, lost profits and other special and/or consequential damages, whether direct or indirect (all claims for which are hereby irrevocably waived), incurred by the Customer Group Member in connection with or arising from: (a) any breach by the Supplier of its obligations hereunder; (b) the installation, maintenance, operation, repair, removal, replacement or alteration of any portion of the Northwind Facilities or the Supplier's metering and other equipment and piping on the Premises, including the Supplier Interconnection Equipment, or any acts or omissions of the Supplier or those Persons under its direction or control in connection therewith; PROVIDED such Loss or Expense does not result from actions or omissions of the Customer or those Persons under its direction or control (including its agents and those which it has authorized or knowingly permitted to act on its behalf); (c) any unauthorized operation, maintenance or alteration of, or action affecting, the Customer's equipment, or any component thereof, by the Supplier or those Persons under its direction or control (including its agents and those which it has authorized or knowingly permitted to act on its behalf); or (d) any claims, obligations, damages, expenses or liabilities to third parties for personal injury or property damage to the extent they arise out of any legally actionable action of the Supplier or its agents, contractors or employees, or those Persons under its direction or control, PROVIDED that this indemnity shall not apply to the extent that the claim, obligation, damage, expense or liability arises from the negligence or willful misconduct of, or a breach of the Customer's obligations under this Agreement by, the Customer, its agents, contractors or employees, or those Persons under its direction or control; but excluding any Loss or Expense arising from interruption of Services permitted by Section 6.3(a) or Section 7.1. 8.2 INDEMNIFICATION BY THE CUSTOMER. The Customer agrees to protect, indemnify and hold harmless the Supplier Group Member from and against any and all Loss and/or Expense incurred by the Supplier Group Member in connection with or arising from: (a) any breach by the Customer of its obligations hereunder; (b) any acts or omissions of the Customer or those Persons under its direction or control; PROVIDED such Loss or Expense does not result from the acts or omissions of the Supplier or those Persons under its direction or control (including its agents and those which it has authorized or knowingly permitted to act on its behalf) or, other than as set forth in clause (c) below, any third Persons; or (c) any claims, obligations, damages, expenses or liabilities to third parties for personal injury or property damage to the extent they arise out of any legally actionable action of the Customer or its agents, contractors or employees, or those Persons under its direction or control, PROVIDED that this indemnity shall not apply to the extent that the claim, obligation, damage, expense or liability arises from the negligence or willful misconduct of, or a breach of the Supplier's obligations under this Agreement by, the Supplier, its agents, contractors or employees, or those Persons under its direction or control. 8.3 NOTICE OF CLAIMS. (a) If a claim is asserted or action brought against an Indemnified Party and the Indemnified Party believes that it is entitled to indemnification under this Article 8, the Indemnified Party shall promptly notify the Indemnitor, in writing, of such claim or action. Such notice shall be provided in sufficient time to enable the Indemnitor to assert and prosecute appropriate defenses to the claim or action; PROVIDED, that failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to the extent it will have been prejudiced by such failure. Upon the receipt of such notice, the Indemnitor shall make a prompt determination of whether it believes it is required to indemnify the Indemnified Party, and shall promptly notify the Indemnified Party, in writing, of its determination. If the Indemnitor determines that it is required to indemnify, it shall assume the defense of the Indemnified Party, including the employment of counsel, and shall thereafter pay all costs and expenses relative to the defense of the claim or action. The Indemnified Party shall cooperate with the Indemnitor in all reasonable aspect in this defense. The Indemnified Party shall also have the right, at its own expense, to employ separate counsel in any such action and to participate in the defense thereof. The Indemnitor shall not be liable for any settlement of any claim or action made without its consent. (b) In calculating any Loss or Expense there will be deducted (i) the amount of any insurance recovery by the Indemnified Party in respect thereof (and no right or subrogation will accrue hereunder to any insurer) or, in the event that the Indemnified Party has failed to maintain any insurance coverage required by this Agreement to be maintained by such party or fails to make a timely claim under any applicable insurance, the amount of the insurance recovery which would reasonably be expected to have been received had such insurance been maintained and/or such claim been timely filed, and (ii) the amount of any tax benefit to the Indemnified Party (or any of its Affiliates) with respect to such Loss or Expense (after giving effect to the tax effect of receipt of the indemnification payments). (c) After any Claim Notice has been given pursuant hereto, the amount of indemnification to which an Indemnified Party will be entitled under this Article 8 will be determined: (i) by the written agreement between the Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of any court of competent jurisdiction; or (iii) by any other means to which the Indemnified Party and the Indemnitor agree. ARTICLE 9 TERM 9.1 TERM. (a) Unless the Supplier has been given by Customer the Notice to Proceed on or before May 1, 1998 and the conditions precedent set forth in Section 5.1 hereof have been met to the Supplier's reasonable satisfaction on or before such date (or, with respect to any condition which the Supplier is willing to waive on or before such date, waived in a writing delivered to the Customer on or before such date), at any time thereafter the Supplier may terminate this Agreement and its obligations hereunder by written notice to the Customer, such termination to be effective immediately; provided, however, that upon Supplier's acceptance of the Notice to Proceed, Supplier's right to terminate this Agreement pursuant to this section shall be null and void, and no longer in effect. In the event that the Development Agreement is terminated by Aladdin pursuant to Section 10(b) thereof, or by the Supplier pursuant to Section 2(k), Section 10(d) or Section 10(c) thereof, then this Agreement shall concurrently terminate and be of no further force or effect. (b) Unless sooner terminated pursuant to clause (a) above or any of Section 6.1 or Section 6.4, Section 7.1(c) or Section 9.3, this Agreement will remain in effect for the Initial Term, and will continue in effect for each Renewal Term, if any; PROVIDED that there shall not be more than three (3) Renewal Terms hereunder. Unless written notice that this Agreement will terminate on the last day of the then current Initial Term or Renewal Term is provided by either party at least twelve (12) months prior to the end of the then current Initial Term or Renewal Term, this Agreement will continue for an additional Renewal Term. 9.2 EFFECT OF TERMINATION. Upon the expiration or termination of this Agreement: (a) unless the Customer purchases the Northwind Facilities pursuant to Section 9.3 or directs the Supplier to remove the Northwind Facilities pursuant to Section 9.2(b) (in which case the Supplier shall so disconnect and remove the Northwind Facilities), the Supplier shall abandon the Northwind Facilities as is and where is and shall have no further obligations under this Agreement or the Lease in respect thereof; (b) if the Customer directs the Supplier to remove the Northwind Facilities, then the Supplier, at the Customer's expense (less any net proceeds of salvage or other disposition of the Northwind Facilities), will remove the Northwind Facilities and all Supplier Interconnection Equipment and any other property of the Supplier on the Premises in a prudent and workmanlike manner, and will repair and restore in a manner reasonably satisfactory to the Customer all damage to the Premises caused by such removal (and pay for such damage where caused by Supplier's negligence or wilful misconduct), and the Customer will provide the Supplier access to the Premises reasonably requested by the Supplier to allow the Supplier to remove such property in a timely fashion; (c) the Customer will pay the Supplier all amounts then payable to the Supplier hereunder (including costs of removal under clause (b) above or, in the event the Customer is purchasing the Northwind Facilities under any of Sections 6.3, 6.4, or 9.3, the purchase price payable); and (d) the Customer and the Supplier will have no further obligations hereunder other than (i) obligations accruing prior to the date of such termination or expiration, (ii) Customer's obligations to provide access rights pursuant to Section 9.2(b) and (iii) obligations under Section 5.3 and Article 8, all of which will survive the expiration or termination of this Agreement. 9.3 THE CUSTOMER'S OPTION TO PURCHASE. (a) Each of the Customer and the other Customer Group Members shall have a continuing non-exclusive option to purchase the Northwind Facilities at any time prior to termination of this Agreement, exercisable by the Customer alone or together with one or both Customer Group Members by written notice given to the Supplier not less than one (1) year prior to the date upon which such purchase shall close as specified in such notice (the "Closing Date"), which notice shall state that the option under this Section 9.3 is being exercised. The purchase price payable upon such exercise shall equal the Make Whole Amount as of the date of such purchase. The option granted hereby shall expire and be of no further force or effect on the earliest of (i) the expiration of the Term hereof, or (ii) the date upon which any other entity which has an option to purchase the Northwind Facilities effectively exercises such option. It shall be a condition to the Supplier's obligation to consummate the sale hereunder that concurrently with closing the Customer shall assume, and indemnify and hold the Supplier harmless from, all obligations of the Supplier accruing after the Closing Date under all contracts and Agreements with respect to the Northwind Facilities under which any performance obligations will continue following such sale and at the closing the Supplier shall assign and the Customer shall assume all such contracts and Agreements under a written assignment and assumption agreement. (b) In the event that the Customer gives notice that it is exercising its option under this Section 9.3 to acquire the Northwind Facilities, then: (i) not less than ten (10) days nor more than six (6) months prior to the Closing Date, the Supplier shall obtain and deliver to the Customer payoff letters, in form and substance reasonably satisfactory to the Customer, from the holders of any Facilities Debt or any trustee or agent with power to act for such holders stating the principal amount of such Facilities Debt as of the Closing Date, any accrued interest thereon through such date, and any other amounts which shall be payable in respect thereof as of the Closing Date; (ii) not less than ten (10) days prior to the Closing Date, the Supplier shall provide to the Customer a written statement of the Make Whole Amount, determined as of the Closing Date, accompanied by appropriate detail. The Customer and its advisors shall be deemed to have accepted such statement unless written objection thereto is delivered to the Supplier within three (3) days after the date of receipt thereof by the Customer. Any such written objection shall specify in reasonable detail the reasons therefor. In the event of such objection, the Supplier and the Customer shall meet and try to reach agreement as to the Make Whole Amount, but if such agreement is not reached within five (5) days after the date upon which such written objections are received by the Supplier, then such matter shall be submitted to three outside accounting firms, one of which shall be the Customer's outside accounting firm, one of which shall be the Supplier's outside accounting firm, and the third of which shall be chosen by the first two firms, and such accounting firms shall each determine the Make Whole Amount and the two determinations which are closest together shall then be averaged and the average of such two determinations shall be the Make Whole Amount; (c) Closing of the purchase shall occur on the Closing Date (or, if such day is not a business day, on the next following business day) or such other date as the parties may agree upon through an escrow established by the Parties. At the closing, the Supplier shall execute and deliver to the Customer such bills of sale and instruments of assignment (including the assignment and assumption agreement referred to in clause (a) above) as are necessary or appropriate to transfer to the Customer all of the Supplier's right, title and interest in and to the Northwind Facilities and any contracts or Agreements to be assigned, on an "as is, where is" basis, without representation or warranty other than as to the Supplier's due authorization and legal capacity to execute and deliver such instruments, documents and Agreements, and the Customer shall deliver to the Supplier the purchase price, by wire transfer of immediately available funds or by other payment means acceptable to the Supplier, and shall execute and deliver such assignment and assumption agreement. (d) In the event that the Customer exercises its option to purchase under this Section 9.3, effective upon closing of the purchase, this Agreement and the Lease shall automatically terminate. (e) In the event that the Customer exercises the option granted by this Section 9.3 but shall fail to consummate the purchase pursuant to such option, such failure shall be a breach of the Customer's obligation to purchase the Northwind Facilities arising pursuant to exercise of such option and the Supplier shall be entitled to any remedies therefor which may be available at law or in equity. ARTICLE 10 GENERAL PROVISIONS 10.1 NOTICES. All notices or other communications required or permitted hereunder shall be in writing addressed to the respective party as set forth below and shall be personally served, telecopied or sent by reputable overnight courier service and shall be deemed to have been given: (a) if delivered in person, when delivered; (b) if delivered by telecopy, on the date of transmission if transmitted on a Business Day before 4:00 p.m. Chicago time, otherwise on the next Business Day (PROVIDED, in either case, that receipt of such transmission is confirmed); and (c) if delivered by overnight courier, one (1) day after delivery to courier properly addressed. Notices and other communications shall be addressed to the applicable party as follows: If to the Customer, to: Aladdin Gaming, LLC c/o Aladdin Management Corporation 280 Park Avenue, 38th Floor New York, New York 10017 Attention: Ronald Dictrow Fax: (212) 661-0844 If to the Supplier, to: Northwind Aladdin, LLC c/o Unicom Thermal Technologies Inc. 30 West Monroe Street Suite 500 Chicago, IL 60603 Attention: President Fax: 312-346-3201 If to the Customer's Lender(s), to such addresses as Customer specifies to Supplier in writing. If to the Supplier's Lender(s), to such addresses as Supplier specifies to Customer in writing. Any party hereto may change its address for notices and other communications hereunder by a notice delivered to the other party hereto in accordance with this Section 10.1 as then in effect. 10.2 SUCCESSORS AND ASSIGNS. (a) Neither party shall assign its interest or delegate its duties under this Agreement without the prior written consent of the other party, (which consent shall not be unreasonably withheld), except: (i) the Supplier may assign its right, title and interest under this Agreement, or any part thereof, to any wholly-owned subsidiary of Unicom Corporation; (ii) the Customer may assign its right, title and interest under this Agreement, or any part thereof, to any Affiliate, or to Music. Upon any such assignment by the Customer, the Supplier will provide any such assignee with all Notices given by the Supplier pursuant to this Agreement and such assignee (and its lenders) shall have the same respective rights to cure any failure by the Customer to comply with its obligations hereunder that the Customer and its lenders have hereunder. In addition, if such assignee (or its lenders) assumes the Customer's rights and obligations hereunder, unconditionally and in a writing delivered to the Supplier, then, upon a request in writing from all such assignees stating that they desire the Supplier to sell some or all of the Services to third parties and specifying the portions of Services which they wish to have the Supplier sell to third parties and expressly and unconditionally committing to relinquish back to the Supplier such portions of the Services to effect such sale (the "Relinquished Services") as of a date specified in such request (but without any reduction in Contract Capacity Charges or Consumption Charges payable hereunder), and provided that such assignees pay all reasonable costs and expenses thereof, then the Supplier will use commercially reasonable efforts to sell any or all of the Relinquished Services to third parties on terms and conditions acceptable to such assignees, and any amounts which the Supplier receives from third parties in respect of Relinquished Services (if any) shall be applied to the Contract Capacity Charges and Consumption Charges payable hereunder (such application to be determined by the Supplier reasonably and in good faith and consistent with the concepts reflected in Exhibit C hereto and subject to such assignees' approval, not to be unreasonably withheld). (iii) the Customer may assign its right, title and interest in this Agreement to any lender or lenders to whom the Customer provides a security interest in the Customer's right, title and interest in the Premises in connection with financing (or refinancing) the Premises; (iv) the Customer may assign, without the Supplier's consent, the Customers's right, title and interest in this Agreement to any purchaser of the Premises or all of the interests in the Customer; and (v) the Supplier may assign its right, title and interest in this Agreement to any lender or lenders to whom the Supplier provides a security interest in the Supplier's right, title and interest in the Northwind Facilities in connection with financing (or refinancing) the Northwind Facilities. In connection with any such financing or refinancing, from time to time, upon request, each party will provide one or more estoppel certificates in form and substance reasonably satisfactory to the other or such lender. No consent by either party to any assignment or delegation by the other party shall be deemed to be a novation or otherwise to relieve the transferring party of its obligations hereunder unless otherwise expressly so stated in such consent. (b) The Supplier agrees not to permit any transfer of any membership interest in the Supplier, and not to issue any new membership interests in the Supplier without the prior written consent of the Customer (such consent not to be unreasonably withheld); provided, however that the Customer hereby agrees to any such transfer or issuance to Nevada Power Company (or any wholly-owned subsidiary of Nevada Power Company), Boston Edison, Ontario Hydro, Houston Industries, or to any entity which is beneficially owned solely by Unicom Corporation and one of Nevada Power Company, Boston Edison, Ontario Hydro or Houston Industries (or any wholly owned subsidiary of Unicom Corporation); provided further that Unicom Corporation (or any wholly-owned subsidiary of Unicom Corporation) at all times holds at least a 51% share in the Supplier, unless such percentage requirement needs to be modified in order for Supplier to comply with Section 5.7 hereof. (c) This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person (other than the parties and successors and assigns permitted by this Section 10.2 and Persons expressly benefitted by the provisions of Sections 8.1 and 8.2) any right, remedy or claim under or by reason of this Agreement. 10.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Annex, the Exhibits and Schedules referred to herein, the Development Agreement, the Guaranty the Lease and the Energy Services Coordination Agreement and the documents delivered pursuant hereto and thereto contain the entire understanding of the parties hereto with regard to the subject matter contained herein or therein, and supersede all prior Agreements or understandings between or among any of the parties hereto. This Agreement will not be amended, restated, modified or supplemented except by a written instrument signed by an authorized representative of each of the parties hereto. 10.4 INTERPRETATION. Article titles and headings to sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.5 WAIVERS. Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof. Any such waiver will be validly and sufficiently authorized for the purposes of this Agreement if, as to any party, it is authorized in writing by an authorized representative of such party. The failure of any hereto to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach. 10.6 EXPENSES. Except as otherwise set forth herein, each party hereto will pay all costs and expenses incident to its negotiation and preparation of this Agreement and to its performance and compliance with all Agreements and conditions contained herein on its part to be performed or complied with, including the fees, expenses and disbursements of its counsel and accountants. 10.7 PARTIAL INVALIDITY. Wherever possible, each provision hereof will be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein will, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision will be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. Upon any such determination that any term or other provision hereof is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner, to the end that the transactions contemplated hereby are fulfilled to the extent possible in the circumstances. 10.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be considered an original instrument, but all of which will be considered one and the same agreement, and will become binding when one or more counterparts have been signed by each of the parties hereto and delivered to the Supplier and the Customer. 10.9 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the internal laws and decisions of the State of Nevada. 10.10 TIME. Time is of the essence hereof. 10.11 NO PARTNERSHIP. This Agreement does not and shall not be construed to create or establish a partnership, agency, joint venture, lease, license or any other relationship between the parties hereto, nor constitute either party as an agent of the other. Neither party hereto shall hold itself out to others, by act or omission, contrary to the terms of this Section 10.11. 10.12 ARBITRATION. In the event of any dispute hereunder between the parties, either party may at any time refer the dispute to be settled by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association. [Balance of page intentionally left blank; signature page follows.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first written above. ALADDIN GAMING, LLC By: /s/ Ronald Dictrow Name: Ronald Dictrow Title: Executive Vice President NORTHWIND ALADDIN, LLC By: /s/ John Mitola Name: John Mitola Title: Vice President & General Manager ANNEX A DEFINITIONS The following terms shall have the meanings specified or referred to herein: "ADDITIONAL PROJECT INVESTMENT" means capital expenditures, finance costs and other related costs and expenses incurred by the Supplier for the purposes of the Northwind Facilities at any time after original completion thereof, determined on an "all costs" basis and inclusive of all financing costs through the date of determination, but shall not include Development Expenses or Total Project Investment. "ADDITIONAL SERVICES" shall have the meaning set forth in Section 2.1(c). "ADDITIONAL SERVICES REQUEST" shall have the meaning set forth in Section 2.1(c). "AFFILIATE" means (i) Bazaar and Music and (ii) with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. "BUSINESS DAY" means a weekday which is not a statutory legal holiday in the city of Las Vegas, Nevada. "CHILLED WATER DELIVERY POINT" means the Delivery Point for chilled water, as further set forth in Exhibit A. "CHILLED WATER INTERCONNECTION EQUIPMENT" means Supplier Interconnection Equipment used for the transfer of Energy from chilled water. "CHILLED WATER RETURN POINT" means a Return Point for chilled water after it has passed through the Chilled Water Interconnection Equipment for return to the Northwind Facilities. "CHILLED WATER SERVICES" has the meaning set forth in Section 2.1(a). "CLAIM NOTICE" means a notice by a Customer Group Member or a Supplier Group Member seeking indemnification pursuant to Article 8. "COMMENCEMENT DATE" means the earlier of (a) the date upon which the Premises is first opened for business to the public, or (b) March 1, 2000. "COMPLEX" is defined in the Recitals hereto. "CONSULTANT'S RECOMMENDATIONS" has the meaning set forth in Section 6.1. "CONSUMER PRICE INDEX" means the U.S. City Average Consumer Price Index, all items other than food and Energy, not seasonably adjusted, as it appears in the "News" as published monthly by the United States Department of Labor, Bureau of Labor Statistics; PROVIDED, however, that if said Consumer Price Index shall cease to exist or is changed, then the term "Consumer Price Index" shall mean such other or similar index or formula as Supplier reasonably selects to measure change in the purchasing power of the U.S. dollar. "CONSUMPTION CHARGE" has the meaning set forth in Section 2.5(b). "CONTRACT CAPACITY CHARGE" has the meaning set forth in Section 2.5(a). "CONTRACT YEAR" means a one year period to time beginning on the Commencement Date or any anniversary thereof and ending one day less than one year later. "CUSTOMER" means the Person identified as the "Customer" in the first paragraph of this Agreement, and the successors and permitted assigns of such Person. "CUSTOMER AGREEMENT" means each agreement under which the Customer agrees to provide to any third Person any Services to be obtained from the Supplier hereunder, as any such agreement may be in effect from time to time. "CUSTOMER DEFAULT" means the events described in Section 6.2. "CUSTOMER ENERGY REQUIREMENTS" means those energy requirements of the Customer as set forth in Exhibit B.2. "CUSTOMER GROUP MEMBER" means the Customer, its successors and permitted assigns, its officers, directors, employees and agents, and its Affiliates and their respective successors and permitted assigns. "CUSTOMER INDEMNIFIABLE EVENT" means the events described in Section 8.2. "CUSTOMER INTERCONNECTION EQUIPMENT" means that equipment owned and operated by the Customer to receive Services, as shown on EXHIBIT D hereto. "DELIVERY POINT" means a point at which the Supplier delivers Services, as shown on EXHIBIT A hereto. "DEVELOPMENT AGREEMENT" means that certain Development Agreement dated as of December 3, 1997, between the Customer and the Supplier, as the same may be amended, restated, modified or supplemented and in effect from time to time. "DEVELOPMENT COSTS" means the aggregate of: (a) all costs and expenses of the Supplier, the Customer, and Music incurred prior to December 3, 1997 for outside engineering work in connection with the design and construction of the Northwind Facilities and the matters set forth in this Agreement and the Related Agreements and the documentation thereof; (b) all costs and expenses of the Supplier incurred on or after December 3, 1997 in connection with the design and construction of the Northwind Facilities and the matters set forth in this Agreement and the Related Agreements and the documentation thereof, provided that internal legal and engineering costs and expenses shall only be included to the extent that the same do not exceed, in the aggregate, $375,000; and (c) all costs and expenses of the Customer, and Music incurred on or after December 3, 1997 for outside engineering work in connection with the design and construction of the Northwind Facilities and the matters set forth in this Agreement and the Related Agreements and the documentation thereof; but only to the extent that the same, when aggregated with all of the costs and expenses of Customer and Music for outside engineering work prior to December 3, 1997, in the aggregate do not exceed an amount reasonably agreed to, in writing, by Customer and Supplier. "DUE DATE has the meaning set forth in Section 2.8. "ELECTRICITY DELIVERY POINT" means any point in the Premises at which electricity is to be received by the Customer, as shown on EXHIBIT A hereto. "ELECTRICITY SERVICES" has the meaning set forth in Section 2.1(a). "ENERGY" means any or all of chilled water, hot water and/or electricity, as the context may require. "EXPENSES" means any and all expenses incurred in connection with investigating, defending or asserting any claim, action, suit or proceeding incident to any matter indemnified against hereunder (including, without limitation, court filing fees, court costs, arbitration fees or costs, witness fees, and reasonable fees and disbursements of legal counsel, investigators, expert witnesses, consultants, accountants and other professionals). "FINANCIAL CLOSING" has the meaning given such term in the Development Agreement. "FORCE MAJEURE EVENT" means any act, event, cause or condition that is beyond the control of the party hereto which is affected thereby, that is not caused by such party's fault or negligence, to the extent by the exercise of reasonable diligence such party is unable to overcome or prevent, including, but not limited to: acts of God, war, civil commotion, embargoes, epidemic, fires, cyclones, droughts or floods, emergencies (other than those caused by the negligence or willful misconduct of the party claiming the Force Majeure Event), change in applicable law and Takings under the terms of this Agreement. "HOT WATER DELIVERY POINT" means the Delivery Point for hot water, as further described in Exhibit A. "HOT WATER INTERCONNECTION EQUIPMENT" means Supplier Interconnection Equipment used for the transfer of Energy from hot water. "HOT WATER RETURN POINT" means a Return Point for hot water after it has passed through the Hot Water Energy Transfer Stations for return to the Northwind Facilities. "HOT WATER SERVICES" has the meaning set forth in Section 2.1(a). "INDEMNIFIED PARTY" means a Customer Group Member or a Supplier Group Member seeking indemnification pursuant to Section 8.3. "INDEMNITOR" means a Supplier Group Member or a Customer Group Member from which indemnification is sought pursuant to Section 8.3. "INITIAL CUSTOMER ENERGY REQUIREMENTS" shall have the meaning set forth in Exhibit B. "INITIAL SERVICES" means the delivery of chilled water from the Initial Services Date to the Commencement Date at the capacity and temperature specified in Exhibit B under the heading "Initial Services". "INITIAL SERVICES DATE" means the date nine months from the date on which the Notice to Proceed is received by the Supplier. "INITIAL TERM" means the period of time beginning on and including the Commencement Date and ending on and including the day immediately prior to the twentieth (20th) anniversary of the Commencement Date. "O&M SPECIFICATIONS" means the Operation and Maintenance Specifications to be agreed upon by the parties prior to Final Completion and initialed by the parties and attached hereto as EXHIBIT F, as the same may be amended, restated, modified or supplemented and in effect from time to time. "LOSS" means any and all losses, costs, obligations, liabilities, settlement payments, awards, judgments, fines, penalties, damages, expenses, deficiencies or other charges, but excluding in any event any lost profits and other special or consequential damages, which result from any Customer Indemnifiable Event or Supplier Indemnifiable Event. "MAKE WHOLE AMOUNT" means, as of any date of determination thereof, an amount equal to the aggregate of (a) the Debt Amount, plus (b) the Equity Amount. For purposes of this definition of "Make Whole Amount": (a) "Debt Amount" shall mean, as of any date of determination thereof, the aggregate of: (i) the then outstanding Debt Service Amount as finally determined pursuant to Exhibit C; plus (ii) any prepayment penalty, premium or other charge payable in connection with the payment or prepayment of such indebtedness, provided that, unless the Customer has approved the terms of the indebtedness, the amount(s) under this clause (iii) shall be limited to such prepayment penalty, premium or charge as would be payable in a comparable financing negotiated at arm's length with unrelated parties; provided, however, that if, in connection with the purchase of the Northwind Facilities, the Customer is permitted by the holders of such indebtedness to assume the Supplier's obligations in respect thereof and the Supplier is released of its obligations in respect thereof concurrently with such assumption, then the Debt Amount shall be zero (0). (The Supplier agrees to use reasonable efforts to obtain the consent of such holders to any such rights of assumption.); and (b) "Equity Amount" shall mean, as of any date of determination thereof, an amount equal to "Return on Equity Amounts" for all remaining Contract Years or portions thereof in the Initial Term discounted by, for each monthly payment thereof, the interest rate applicable to the U.S. Treasury bill, bond or note (as applicable) having a maturity comparable (or as nearly comparable as there may be) to the date when such payment is scheduled to be due, plus (ii) 250 basis points. "NORTHWIND FACILITIES" has the meaning given in the Recitals of this Agreement. "NORTHWIND LEASE" means that certain ground lease of the Site dated as of December 3, 1997, between the Supplier, as lessee, and the Customer as lessor, as the same may be amended, restated, modified or supplemented and in effect from time to time. "NOTICE OF EXERCISE" has the meaning set forth in Section 2.1(c). "NOTICE TO PROCEED" means a written notice from the Customer to the Supplier given in accordance with the Development Agreement and stating that the Supplier shall commence the design and construction of the Northwind Facilities under the Development Agreement. "OFFER" has the meaning set forth in Section 2.1(c). "PAYMENT AMOUNT" has the meaning set forth in Section 6.4. "PAYMENT DEFAULT" has the meaning set forth in Section 6.2(a). "PERFORMANCE FAILURE" has the meaning set forth in Section 6.1. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or governmental authority or regulatory body. "PLANT ENERGY REQUIREMENTS" means the full requirements of the Northwind Facilities as set forth in Exhibit B.1. "PROJECT SCOPE" has the meaning set forth in Section 2.1(a). "PREMISES" has the meaning set out in the Recitals to this Agreement. "PPI" means the Producer Price Index-Commodities for Western South Central Region for commercial natural gas, as it appears in the Producer Price Index published by the United States Department of Labor, Bureau of Labor Statistics; PROVIDED, however, that if said Producer Price Index shall cease to exist or is changed, then the term "PPI" shall mean such other or similar index or formula as Supplier reasonably selects to measure change in the price for commercial natural gas in the Southwestern United States. "RELATED AGREEMENTS" means collectively, the Northwind Lease and the Development Agreement. "RETURN POINT" means, with respect to Chilled Water Services, the point at which chilled water returns to Supplier's pipes after it has passed through an Energy transfer station, as shown on EXHIBIT A hereto, and, with respect to Hot Water Services, the point at which hot water returns to Supplier's pipes after it has passed through an Energy transfer station, as shown on EXHIBIT A hereto. "RENEWAL TERM" means, in the event that no party has given the notice of termination described in Section 9.1 with respect to the Initial Term or any Renewal Term, the period of time beginning on and including the day immediately after the last day of such Initial Term or Renewal Term and ending on and including the day immediately prior to the fifth (5th) anniversary of the last day of such Initial Term or Renewal Term. "SEC" means the United States Securities Exchange Commission. "SERVICE DEFAULT" has the meaning set forth in Section 6.1(b). "SERVICE FAILURE" has the meaning set forth in Section 6.1(b). "SERVICES" has the meaning set forth in Section 2.1(a). "SITE" means the real property in Las Vegas, Nevada, which is leased to the Supplier and is subject to the Northwind Lease and which is described in EXHIBIT G hereto. "SPECIFIED DEMAND AMOUNT" means, as of any date of determination, the amount of Electricity Service which the Supplier is then obligated to provide to the Customer under this Agreement, which amount shall be 4.9 megawatts (or 4.1 megawatts in the event one generating unit is shut down during required maintenance) for the period from the Substantial Completion Date to March 1, 2000, and thereafter shall be 20 megawatts but which amount may, after March 1, 2000, be decreased from time to time by the Customer by giving not less than thirty (30) days prior written notice thereof to the Supplier; provided that if a reduction is requested, then such reduction can only be made if notice is in accordance with notice required under any applicable third party electricity supply Agreements and the Customer pays any corresponding charges under such electricity contracts attributable to such reduction. "SUBSTANTIAL COMPLETION DATE" means the date of "Substantial Completion" as such term is defined in the Development Agreement. "SUPPLIER" means the Person identified as the "Supplier" in the first paragraph of this Agreement, and the successors and permitted assigns of such Person. "SUPPLIER GROUP MEMBER" means Supplier, its successors and permitted assigns, and its officers, directors, employees and agents, and its Affiliates and their respective successors and permitted assigns. "SUPPLIER INDEMNIFIABLE EVENT" means the events described in Section 8.1. "SUPPLIER INTERCONNECTION EQUIPMENT" means the equipment and related piping and apparatus between the Supplier's distribution system and the Customer's equipment, including, without limitation, a plate frame heat exchanger assembly or equivalent device, piping, valves, metering equipment and controls and additional equipment, if any, described in the O&M Specifications, installed by the Supplier on the Premises pursuant to the terms of this Agreement for use in providing the Services to the Customer, and all replacements and additions thereto from time to time. "TAKINGS" has the meaning set forth in Section 7.1(c). "TAX" means any present or future tax (including all sales and use taxes), levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any federal, provincial or local taxing authority on Services provided by Supplier or on the Northwind Facilities or the Supplier's operations in respect thereof, or any payments made by Customer under this Agreement, excluding taxes on the income of the Supplier. "TOTAL PROJECT INVESTMENT" means the aggregate investment of the Supplier in the Northwind Facilities and all related equipment and piping, when completed, determined on an "all costs" basis and inclusive of all financing costs and Development Costs through the date of determination, including Pre-Commencement Capacity Charge, as defined in Exhibit C. EXHIBIT A PROJECT SCOPE EXHIBIT B ENERGY REQUIREMENTS [Describe, including peak requirements and load profiles.] EXHIBIT C CONTRACT CAPACITY CHARGE AND CONSUMPTION CHARGE EXHIBIT D CUSTOMER INTERCONNECTION EQUIPMENT EXHIBIT E INSURANCE EXHIBIT F INSTALLATION, OPERATION AND MAINTENANCE SPECIFICATIONS EXHIBIT G LEGAL DESCRIPTION OF THE SITE TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS 2 1.1 Definitions 2 ARTICLE 2 ENERGY SERVICE 2 2.1 Services; Exclusivity; Right of First Refusal; Performance; Customer Agreements 2 2.2 Chilled Water 7 2.3 Hot Water 8 2.4 Electricity 8 2.5 Charges 8 2.6 Adjustments 9 2.7 Service Invoices 9 2.8 Payment 10 2.9 Taxes 10 ARTICLE 3 MAINTENANCE OF EQUIPMENT, SYSTEMS AND METERS 10 3.1 Maintenance of Supplier Interconnection Equipment 10 3.2 Customer's Equipment 11 3.3 Metering 11 ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS 13 4.1 Mutual Representations 13 4.2 Supplier Representations 13 4.3 Supplier Covenants. 14 ARTICLE 5 ADDITIONAL AGREEMENTS 15 5.1 Conditions Precedent To Effectiveness 15 5.2 Insurance 16 5.3 Confidential Information 17 5.4 Financial Information 18 5.5 Transfer of Information to Customer Pursuant to Sale 19 5.6 Fuel and Electricity Arrangements 19 5.7 Regulatory Compliance Re Electricity 19
i
ARTICLE 6 DEFAULTS AND REMEDIES 22 6.1 Supplier Defaults 22 6.2 Customer Defaults 28 6.3 Remedies Upon Customer Default. 28 6.4 Customer's Obligation to Purchase Upon Termination 29 6.5 Lenders' Right to Cure 30 6.6 Remedies Not Exclusive 30 ARTICLE 7 FORCE MAJEURE 31 7.1 Force Majeure 31 ARTICLE 8 INDEMNIFICATION 32 8.1 Indemnification by the Supplier 32 8.2 Indemnification by the Customer 33 8.3 Notice of Claims 34 ARTICLE 9 TERM 35 9.1 Term 35 9.2 Effect of Termination 35 9.3 The Customer's Option to Purchase 36 ARTICLE 10 GENERAL PROVISIONS 38 10.1 Notices 38 10.2 Successors and Assigns 40 10.3 Entire Agreement; Amendments 41 10.4 Interpretation 42 10.5 Waivers 42 10.6 Expenses 42 10.7 Partial Invalidity 42 10.8 Execution in Counterparts 43 10.9 Governing Law 43 10.10 Time 43 10.11 No Partnership 43 10.12 Arbitration 43
ii EX-10.40 4 EXHIBIT 10.40 AMENDMENT NO. 1 TO FACILITIES AGREEMENT THIS AMENDMENT NO. 1 TO FACILITIES AGREEMENT (this "Amendment") is made as of the 2nd day of September, 1998, between GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS ("GE Capital"), and ALADDIN GAMING, LLC ("Aladdin Gaming"). The parties have heretofore executed that certain Facilities Agreement dated as of June 22, 1998 (the "Agreement"), and desire to amend the Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties agree as follows: 1. In Annex A to the Agreement, the definition of "Premium Percentage" is deleted and the following substituted in lieu thereof. "Premium Percentage" shall mean the following specified percentages: if prepayment occurs on the 4th through 7th payment date, 2%; if prepayment occurs on the 8th through 15th payment date, 1%; and if prepayment occurs on or after the 16th payment date, 0%." 2. Except as expressly set forth herein, the terms and conditions of the Agreement remain unmodified and in full force and effect. 3. THIS ASSIGNMENT AND THE RIGHTS AND OBLIGTIONS OF THE PARTES HEREUNDER SHALL BE COVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE. IN WITNESS WHEREOF, this Amendment No. 1 to Facilities Agreement has been duly executed as of the date first above written. ALADDIN GAMING, LLC By: /s/ Cornelius T. Klerk ------------------------------------- Name: Cornelius T. Klerk Title: Senior Vice President, Chief Financial Officer GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS By: /s/ Daniel Gioia ---------------------------- Name: Daniel Gioia Title: Senior Risk Manager 1 PURSUANT TO SECTION 5.1(c) OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF JUNE 30, 1998, BY AND AMONG THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT, GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS, AND ALADDIN GAMING, LLC, THE UNERSIGNED CONSENTS TO THE EXECUTION OF THEFOREGOING AMENDMENT BY ALADDIN GAMING, LLC. THE BANK OF NOVA SCOTIA, As Administrative Agent By: /s/ Alan Pendergast --------------------------- Name: Alan Pendergast Title: Relationship Manager 2 EX-21.01 5 EXHIBIT 21.01 EXHIBIT 21.01 LIST OF SUBSIDIARIES ALADDIN GAMING ENTERPRISES, INC. Aladdin Gaming Holdings, LLC, a Nevada limited liability company ALADDIN GAMING HOLDINGS, LLC (direct and indirect subsidiaries) Aladdin Capital Corp., a Nevada corporation Aladdin Gaming, LLC, a Nevada limited liability company Aladdin Music Holdings, LLC, a Nevada limited liability company Aladdin Music, LLC, a Nevada limited liability company EX-27.01 6 EXHIBIT 27B
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 0 0 0 0 1 0 0 17,050 0 0 0 0 13,247 3,800 17,050 0 0 0 0 10,620 0 0 (10,620) 0 (10,620) 0 0 0 (10,620) (3.69) (3.69)
EX-99.01 7 EXHIBIT 99.01 Report of Independent Public Accountants To the Board of Directors and Members of Aladdin Gaming Holdings, LLC: We have audited the accompanying consolidated balance sheets of Aladdin Gaming Holdings, LLC (a Nevada limited liability company in the development stage) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, members' equity and cash flows for the year ended December 31, 1998 and for the period from inception (December 1, 1997) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming Holdings, LLC and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the year ended December 31, 1998, and for the period from inception (December 1, 1997) to December 31, 1998 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company is currently in default of certain debt covenants and management estimates that additional funds will be required to complete the construction of the new Aladdin Hotel and Casino and maintain compliance with current and future debt covenants. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. ARTHUR ANDERSEN LLP Las Vegas, Nevada March 30, 1999 27 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------ ----------------- ASSETS Current assets: Cash and cash equivalents.......................................................... $ 1,248 $ 7 Receivables, related parties....................................................... 77 - Other receivables.................................................................. 765 - Inventory.......................................................................... 60 - Prepaid assets..................................................................... 119 - Restricted land to be transferred.................................................. 6,842 - ------------ --- Total current assets............................................................. 9,111 7 ------------ --- Property and equipment: Land............................................................................... 33,407 - Furniture, fixtures and equipment.................................................. 272 - Construction in progress........................................................... 86,557 - Capitalized interest............................................................... 8,213 - ------------ --- 128,449 - Less accumulated depreciation and amortization....................................... 17 - ------------ --- Net property and equipment......................................................... 128,432 - ------------ --- Other assets: Restricted cash and cash equivalents............................................... 227,983 - Interest receivable--restricted cash............................................... 859 - Other assets....................................................................... 2,061 - Debt issuance costs, net of accumulated amortization of $2,831 and $-0- as of December 31, 1998 and 1997, respectively......................................... 34,315 - ------------ --- Total other assets............................................................. 265,218 - ------------ --- $ 402,761 $ 7 ------------ --- ------------ --- LIABILITIES AND MEMBERS' EQUITY Current liabilities: Current maturities of long-term debt............................................... $ 274,000 $ - Accounts payable................................................................... 3,394 - Construction payable............................................................... 12,063 - Obligation to transfer land........................................................ 6,842 - Accrued interest................................................................... 1,734 - Accrued expenses................................................................... 113 - ------------ --- Total current liabilities........................................................ 298,146 - ------------ --- Long-term debt, net of discount...................................................... 114,353 - Related party payables............................................................... 4,119 1 Advances to purchase membership interests............................................ 3 3 Members' equity: Common membership interest, 1,000,000 common shares issued and outstanding as of December 31, 1998................................................................ 28,608 3 Deficit accumulated during the development stage................................... (42,468) - ------------ --- Total members' equity.......................................................... (13,860) 3 ------------ --- $ 402,761 $ 7 ------------ --- ------------ ---
The accompanying notes are an integral part of these consolidated financial statements. 28 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1998 (IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) FOR THE YEAR ENDED THROUGH DECEMBER DECEMBER 31, 1998 31, 1998 ------------------ ------------------ Pre-opening costs......................................................... $ 24,737 $ 24,737 Other (income) expense: Interest income....................................................... (12,472) (12,472) Interest expense...................................................... 38,416 38,416 Less: Interest capitalized............................................ (8,213) (8,213) -------- -------- Total other (income) expense...................................... 17,731 17,731 -------- -------- Net loss accumulated during the development stage......................... $ 42,468 $ 42,468 -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 29 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
ALADDIN LONDON SOMMER GAMING CLUBS ENTERPRISES, ENTERPRISES, NEVADA, LLC LLC INC. GAI, LLC TOTAL ----------- ----------- ---------- ----------- ---------- BALANCE, DECEMBER 1, 1997........................... $ - $ - $ - $ - $ - Members' contributions.............................. 1 - - 2 3 ----------- ----------- ---------- ----------- ---------- BALANCE, DECEMBER 31, 1997.......................... 1 - - 2 3 Net loss accumulated during the development stage... (19,960) (10,617) (10,617) (1,274) (42,468) Members' contributions.............................. (47,317) 28,247 50,000 - 30,930 Members' equity costs............................... (1,093) (581) (581) (70) (2,325) ----------- ----------- ---------- ----------- ---------- BALANCE, DECEMBER 31, 1998.......................... $ (68,369) $ 17,049 $ 38,802 $ (1,342) $ (13,860) ----------- ----------- ---------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
The accompanying notes are an integral part of these financial statements. 30 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 AND THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1998 (IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) FOR THE YEAR ENDED THROUGH DECEMBER DECEMBER 31, 1998 31, 1998 ------------------ ------------------ Cash flows from operating activities: Net loss................................................................ $ (42,468) $ (42,468) Depreciation and amortization........................................... 17 17 Amortization of debt costs.............................................. 2,831 2,831 Amortization of original issue discount................................. 14,306 14,306 Increase in interest receivable......................................... (859) (859) Increase in inventory................................................... (60) (60) Increase in prepaid expense............................................. (118) (118) Increase in accounts receivable......................................... (842) (842) Increase in other assets................................................ (2,061) (2,061) Increase in accounts payable............................................ 3,394 3,394 Increase in accrued expenses............................................ 113 113 Increase in accrued interest............................................ 1,734 1,734 Increase in related party payable....................................... 3,354 3,354 ------------------ ------------------ Net cash used in operating activities..................................... (20,659) (20,659) ------------------ ------------------ Cash flows from investing activities: Payments for construction in progress................................... (66,184) (66,184) Payments for furniture and equipment.................................... (272) (272) Payments for capitalized interest....................................... (8,213) (8,213) Increase in restricted cash............................................. (227,983) (227,983) ------------------ ------------------ Net cash used in investing activities..................................... (302,652) (302,652) ------------------ ------------------ Cash flows from financing activities: Proceeds from issuance of notes......................................... 100,047 100,047 Proceeds from long-term debt............................................ 274,000 274,000 Repayment of long-term debt............................................. (547) (547) Debt issuance costs..................................................... (37,146) (37,146) Members' contributions.................................................. 65,000 65,003 Members' equity costs................................................... (2,325) (2,325) Payment of debt on contributed land..................................... (74,477) (74,477) Payable to related parties.............................................. - 1 Advances to purchase membership interests............................... - 3 ------------------ ------------------ Net cash provided by financing activities................................. 324,552 324,559 ------------------ ------------------ Net increase in cash...................................................... 1,241 1,248 Cash at beginning of period............................................... 7 - ------------------ ------------------ Cash at end of period..................................................... $ 1,248 $ 1,248 ------------------ ------------------ ------------------ ------------------ Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid for interest, net of amount capitalized......................... $ 11,332 $ 11,332 Members' contributions--book value Land.................................................................... 33,407 33,407 Construction in progress................................................ 7,000 7,000 Equipment acquired equal to assumption of debt............................ 547 547 Increase in construction payables......................................... 12,826 12,826
The accompanying notes are an integral part of these consolidated financial statements. 31 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming Holdings"), was established on December 1, 1997. Gaming Holdings was initially owned by Aladdin Gaming Enterprises, Inc., a Nevada corporation (25%), Sommer Enterprises, LLC, a Nevada limited liability company (72%) ("Sommer Enterprises"), and GAI, LLC, a Nevada limited liability company (3%). On February 26, 1998, London Clubs International, plc ("London Clubs"), through its subsidiary London Clubs Nevada, Inc. ("LCNI"), contributed $50 million for a 25% interest in Gaming Holdings common membership interests ("Holdings Common Membership Interests"). Sommer Enterprises contributed a portion of land for Holdings Common Membership Interests. Aladdin Gaming Enterprises, Inc. ("Gaming Enterprises"), which is owned 100% by Sommer Enterprises, contributed a portion of land, $7 million of predevelopment costs and $15 million in cash for Holdings Common Membership Interests. After the additional contributions, Sommer Enterprises, LLC owns 47% of Gaming Holdings, LCNI owns 25% of Gaming Holdings, Gaming Enterprises owns 25% of Gaming Holdings and GAI, LLC owns 3% of Gaming Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that they shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holding Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. See Note 5 for additional disclosures regarding voting power. Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds a majority interest in Gaming Holdings. The members of AHL are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95% interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW") which holds a 5% interest in AHL. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of the 13 1/2% Senior Discount Notes ("Notes"). Capital will not have any material operations or assets and will not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music"). Gaming Holdings and its subsidiaries are collectively referred to herein as "Company." The operations of the Company have been primarily limited to the design, development, financing and construction of a new Aladdin Hotel and Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately 35-acre world-class resort, casino and entertainment complex ("Complex") located on the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of Las Vegas Boulevard. The Aladdin has been designed to include a luxury themed hotel of approximately 2,600 rooms, an approximately 116,000 square foot casino, an approximately 1,400-seat production showroom and six restaurants. The Complex will comprise: (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a second hotel and casino with a music and entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be separately 32 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) owned in part by an affiliate of the Company and Aladdin Music is currently seeking a joint venture partner for the Aladdin Music Project. The consolidated financial statements include the accounts of Gaming Holdings and its wholly-owned subsidiaries. Significant inter-company accounts are eliminated in consolidation. CASH, CASH EQUIVALENTS AND RESTRICTED CASH The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 1998, restricted cash consisted of cash and cash equivalents held for construction and development of the Aladdin. PROPERTY AND EQUIPMENT Property and equipment consists primarily of expenditures incurred for the design and construction of the Aladdin and have been capitalized as construction in progress. These amounts are expected to be reclassified to buildings and land improvements upon completion of the facility and will be depreciated over the useful life of the assets. Furniture, fixtures and equipment are stated at cost and depreciation is computed using the straight-line method over the estimated useful life of between three and ten years. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using first-in first-out method. FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS The carrying amount of cash equivalents, receivables and all current liabilities approximates fair value because of the short term maturity of these instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. See Note 2 for additional fair value disclosures. INTEREST COSTS Interest costs associated with major construction projects are capitalized. Interest is capitalized on amounts expended to construct the Aladdin using the weighted-average cost of the Company's outstanding borrowings. The capitalized interest will be recorded as part of the asset to which it relates and will be amortized over the asset's useful life. Capitalization of interest ceases when the project is substantially complete. INTEREST RATE SWAPS The Company uses interest rate swaps and similar financial instruments to assist in managing interest incurred on its long-term debt. The difference between amounts received and amounts paid under such agreements, as well as any costs or fees, is recorded as a reduction of, or addition to, interest expense as incurred over the life of the swap or similar financial instruments. 33 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRE-OPENING COSTS In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 98-5 REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"). The provisions of SOP 98-5 are effective for fiscal years beginning after December 15, 1998 and require that the costs associated with start-up activities (including pre-opening costs of casinos) be expensed as incurred. SOP 98-5 permits early adoption in fiscal years for which annual financial statements have not yet been issued. Effective January 1, 1998, the Company adopted the provisions of SOP 98-5. Pre-opening costs include, but are not limited to, salary related expenses for new employees and management opening team, travel and lodging expenses, training costs, advertising and marketing, organizational costs and all temporary facility costs (i.e. rent, insurance, utilities, etc.). DEBT DISCOUNT AND ISSUANCE COSTS Debt discount and issuance costs are capitalized and amortized to expense based on the terms of the related debt agreements using the effective interest method or a method which approximates the effective interest method. INCOME TAXES The Company is a limited liability company and will be taxed as a partnership for federal income tax purposes. Accordingly, no provision for federal income taxes was recorded because the taxable income or loss is included in the income tax returns of the members. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity sections of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company has determined that comprehensive income and net income as reported in the accompanying financial statements are the same. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. The Company currently operates as one segment. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the 34 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT Long-term debt and current maturities of long-term debt is comprised of the following:
DECEMBER 31, 1998 ----------------- (IN THOUSANDS) Long-term debt: Senior Discount Notes (Net of unamortized discount of $107,147).......... $ 114,353 -------- -------- Current maturities of long-term debt: Term B Loan.............................................................. $ 114,000 Term C Loan.............................................................. 160,000 -------- Total current maturities of long-term debt............................. $ 274,000 -------- --------
SENIOR DISCOUNT NOTES On February 26, 1998, Gaming Holdings, Capital and Gaming Enterprises consummated a private offering ("Offering") under Rule 144A of the Securities Act of 1933. The Offering consisted of 221,500 units ("Units"), each Unit consisting of: (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount Notes due 2010 ("Notes") of Gaming Holdings and Capital; and (ii) 10 warrants ("Warrants") to purchase 10 shares of Class B non-voting common stock, no par value, of Gaming Enterprises. The Notes and the Warrants became separately transferable on July 23, 1998. The Warrants became exercisable on July 23, 1998, and will expire on March 1, 2010. On August 26, 1998, Gaming Holdings and Capital completed an exchange offer for 100% of the aggregate principal amount of the Notes pursuant to a registration statement dated July 23, 1998. The Notes were exchanged for notes with substantially the same terms issued in the private placement on February 26, 1998. The initial accreted value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all the issued and outstanding Series A Preferred Interests of Gaming held by Gaming Holdings. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of Gaming Holdings, Capital and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates; or (vii) enter into new lines of business. 35 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED) Gaming Holdings' future interest and principal payments required under the Note will be funded from distributions by Gaming to the extent available. Gaming has certain restrictions which limit its ability to distribute cash to Gaming Holdings (see the following discussion under "Term Loans"). There can be no assurance that Gaming's distributions will be sufficient to meet the required principal and interest payments of the Notes. TERM LOANS--CURRENT MATURITIES OF LONG-TERM DEBT On February 26, 1998, Gaming entered into a $410.0 million Credit Agreement ("Bank Credit Facility" or "Credit Agreement") with various financial institutions and the Bank of Nova Scotia as the administrative agent for the lenders (collectively, "Lenders"). The Credit Agreement consists of three separate term loans. Term A Loan comprises a term loan of $136.0 million and matures seven years after the initial borrowing date. Term B Loan comprises a term loan of $114.0 million and matures eight and one-half years after the initial borrowing date. Term C Loan comprises a term loan of $160.0 million and matures ten years after the borrowing date. The Term B Loan and the Term C Loan were funded by the Lenders on February 26, 1998 and the funds are held by Gaming in the cash collateral account for the future development of the Aladdin. The Term B Loan and the Term C Loan proceeds could not be utilized until the proceeds from the Notes were completely exhausted. As of December 31, 1998, 100% of the Notes proceeds, approximately $23.6 million of the Term B Loan Proceeds, net of interest earned and approximately $21.5 million of the Term C Loan proceeds, net of interest earned had been utilized to develop and construct the Aladdin. The Term A Loan has not been funded. The Company pays interest on the term loans as follows: Term A Loan, at the London Interbank Offered Rate ("LIBOR") plus 300 basis points until the Aladdin commences operations, then LIBOR plus an amount between 150 basis points and 275 basis points depending upon Gaming's earnings before interest, taxes, depreciation and amortization ("EBITDA"); Term B Loan, LIBOR plus 200 basis points while the funds are held in the cash collateral account and LIBOR plus 350 basis points once the funds are utilized for the construction of the Aladdin; and Term C Loan, LIBOR plus 200 basis points while the funds are held in the cash collateral account and LIBOR plus 400 basis points once the funds are utilized to for the construction of the Aladdin. Interest on the term loans is due quarterly. During 1998, the Company's indirect subsidiary, Aladdin Music, incurred indebtedness of approximately $2.8 million in connection with the pre-development costs and expenses of the Aladdin Music Project while pursuing prospective joint-venture partners ("Music Indebtedness"). The incurrence of the Music Indebtedness was not pre-approved by the Lenders as required under the Credit Agreement and thus the incurrence of the Music Indebtedness constituted an event of default under the Credit Agreement. On January 29, 1999, the Credit Agreement was amended for the following: (i) a reduction in the net worth requirement; (ii) a waiver of the event of default due to the Music Indebtedness, assuming satisfaction of certain conditions; (iii) changes to certain definitions in the Credit Agreement, including the definition of "Available Funds," "Realized Savings" and "Indebtedness;" (iv) permit the utilization of letters of credit to fund the November, 1998 Out-of-Balance (see Note 5 regarding additional disclosure related to the November, 1998 Out-of-Balance); (v) require the Company to fund costs for the Carpark which are in excess of $36 million; (vi) permit Aladdin Music to incur an additional aggregate indebtedness of $3.5 million for reasonable and necessary predevelopment costs and expenses for the Aladdin Music 36 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED) Project and to enter into agreements for the payment of certain commissions; (vii) permit certain indebtedness in connection with a 1,400-seat production theater; and (viii) other technical amendments (collectively, "First Amendment to the Credit Agreement"). Further, the First Amendment to the Credit Agreement provided that if the FF&E Financing documents (see the following discussion under "Furniture, Fixtures and Equipment Financing" ("FF&E Financing")) were not correspondingly amended by March 10, 1999, an event of default would exist under the Credit Agreement. After various discussions with the lenders under the FF&E Financing, the Company determined that it would not be in its best interest to effect corresponding amendments to the FF&E Financing documents consistent with the First Amendment to the Credit Agreement. The Company, London Clubs and the Sommer Trust have submitted a proposed second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement"), to cure the events of default. The Second Amendment to the Credit Agreement provides: (i) the Music Indebtedness has been paid by or on behalf of Aladdin Music and this event of default is waived by the Lenders; (ii) a capital contribution in the amount of approximately $18.5 million (see Note 8 regarding additional disclosures) has been made to bring the Main Project Budget "In Balance," as defined in the Credit Agreement; (iii) the letters of credit which were posted in connection with the November 1998 Out-of-Balance will be drawn and the proceeds deposited in Gaming's account; (iv) amending certain definitions of the Credit Agreement, including, "Available Funds," "Indebtedness," and "Realized Savings"; (v) requiring any costs in excess of $36 million for completing the Carpark will be funded by the Sommer Trust and London Clubs; (vi) requiring that Gaming maintain a minimum "Net Worth" at the close of each calendar month of not less than $100.0 million plus 85% of positive Net Income (as defined); and (vii) other technical amendments to the Credit Agreement. The Company has been advised by its counsel, that the Second Amendment to the Credit Agreement will not require the approval or consent of either the FF&E Financing lenders or the Noteholders. The Second Amendment to the Credit Agreement would require additional contributions to the Company on a monthly basis if the Company's net worth falls below $100 million. The Company estimates that additional contributions of approximately $33 million will be required to maintain a net worth of $100 million prior to the opening of the Aladdin. The Company has informed both London Clubs and the Sommer Trust of the estimated future equity contributions required under the net worth limit. Because certain provisions of the First Amendment to the Credit Agreement are not effective and the Second Amendment to the Credit Agreement has not been approved by the Lenders, the Lenders are no longer required to forbear exercising their rights, remedies and options with respect to the events of default under the Credit Agreement, which if exercised, would result in delays in funding under the Credit Agreement or termination of the Credit Agreement. Based on the above discussion, the Company is in default under its Credit Agreement as of the date of the filing of these financial statements and therefore has classified the Term B Loan and Term C Loan as current maturities of long-term debt. The following discussion related to the Term B Loan and Term C Loan is only applicable if the Second Amendment to the Credit Agreement is approved by the Lenders and the Lenders do not exercise their rights, remedies and options with respect to the events of default under the Credit Agreement. 37 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED) Principal payments for the Term Loans do not commence until the end of the first quarter following the commencement of operations of the Aladdin. The following table details the required yearly principal amortization during operations.
PRINCIPAL AMORTIZATION (AFTER COMMENCEMENT OF OPERATIONS) TERM A LOAN TERM B LOAN TERM C LOAN - --------------------- ------------ ------------ ------------ (IN THOUSANDS) Year 1 $ 16,000 $ 1,200 $ 1,600 Year 2 20,000 1,200 1,600 Year 3 28,000 1,200 1,600 Year 4 32,000 1,200 1,600 Year 5 40,000 1,200 1,600 Year 6 68,000 1,600 Year 7 40,000 48,400 Year 8 102,000 ------------ ------------ ------------ TOTALS $ 136,000 $ 114,000 $ 160,000 ------------ ------------ ------------ ------------ ------------ ------------
In addition to the principal amortization schedules, the Company is required to make mandatory prepayments beginning the first quarter following the commencement of operations of the Aladdin. The mandatory prepayments are based on a percentage of Gaming's excess cash flow as defined in the Credit Agreement. The mandatory prepayments are due quarterly and the percentages of excess cash flow are detailed below:
PERCENTAGE OF EXCESS CASH FLOW --------------------- Year 1 65% Year 2 60% Year 3 and thereafter 55%
As security for the Bank Credit Facility, the Company has entered into a deed of trust in favor of the Lenders securing the Notes and all obligations of the Company under the Bank Credit Facility, encumbering the Aladdin (including any and all leasehold interests) as a first priority lien. In addition, the Company has either assigned or entered into security agreements in favor of the Lenders for all present and future leases, accounts, accounts receivable, licenses and any other tangible or intangible assets owned or leased by the Company, subject to the rights of the FF&E Lenders under the FF&E Financing (see the following discussion under "Furniture, Fixtures and Equipment Financing ("FF&E Financing")). As further security for the Bank Credit Facility and to the extent permissible, the owners of the Company have pledged their interests in the Company to the Lenders and Gaming Holdings has pledged its interest in Gaming to the Lenders other than the Series A Preferred Interests. The Bank Credit Facility contains covenants that (subject to certain exceptions) restrict the ability of Gaming and its subsidiaries to, among other things: (i) incur additional indebtedness, liens or other encumbrances; (ii) pay dividends or make similar distributions; (iii) sell assets or make investments; 38 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED) (iv) enter into mergers, consolidations, or acquisition transactions; or (v) enter into certain transactions with affiliates. FURNITURE, FIXTURES AND EQUIPMENT FINANCING ("FF&E FINANCING") On June 30, 1998, the Company entered into FF&E Financing which provides for operating lease financing of up to $60.0 million and a term loan facility of $20.0 million to obtain gaming equipment and other specified equipment. Funding under the FF&E Financing is available beginning six months prior to the construction completion date of the Aladdin. Repayment of principal and interest is due in quarterly installments upon the construction completion date of the Aladdin. The term of the operating lease financing is 36 months (with the Company having two, one year options to renew) and the term of the loan facility is five years. The interest rate from the funding date until the construction of the Aladdin is complete is either the 30-day LIBOR plus 478 basis points or the Prime Rate plus 275 basis points. After the construction completion date, the interest rate shall be the 90-day LIBOR plus 478 basis points. As of December 31, 1998, the FF&E financing had not been funded. On February 17, 1999, GMAC Commercial Mortgage ("GMAC"), one of the participants in the FF&E Financing, issued a "Note of Default" based on the Company's proposal to amend the minimum net worth amount under the FF&E Financing documents and further provided that GMAC was terminating its obligations to fund under the FF&E Financing. On February 26, 1999, the Company responded that, pursuant to the Intercreditor Agreement, dated June 30, 1998, no participant in the FF&E Financing, including GMAC, could declare a Default or Event of Default (other than a payment default) prior to the initial funding under the FF&E Financing and that in fact no default or event of default existed. INTEREST RATE SWAPS The Company has entered into various interest rate swaps to manage interest expense, which is subject to fluctuations due to the variable nature of LIBOR. The Company has interest rate swap agreements under which it pays a fixed interest rate and receives a variable interest rate. At December 31, 1998, the Company had interest rate swaps with a notional amount of approximately $787.3 million that consist of the following: (i) a cap and floor notional amount of $250 million; (ii) a swap with an original notional amount of $114 million increasing to a maximum of $222.5 million; (iii) a swap with a notional amount of $160 million; and (iv) a swap option with a notional amount of $154.8 million. As of December 31, 1998, the Company had a portfolio of variable rate debt outstanding in the amount of $274 million. Under these agreements, the Company will receive interest from the counterparty at a variable rate equal to LIBOR and the Company will pay the counterparty fixed rates of interest as follows: (a) until the Aladdin commences operations, for the Term A Loan and the Term B Loan interest is fixed at 5.883% and for the Term C Loan interest is fixed at 6.485%; and (b) once the Aladdin has commenced operations, for the Term A Loan and the Term B Loan, the maximum interest is 7.00% and the minimum is 5.65%, and for the Term C Loan, the interest has been fixed at 6.485%. The LIBOR applicable to these agreements was 5.3125% at December 31, 1998. The notional amounts do not represent amounts exchanged by the parties, and thus are not a measure of exposure of the Company. The amounts exchanged are normally based on 39 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT AND CURRENT MATURITIES OF LONG-TERM DEBT (CONTINUED) the notional amounts and other terms of the swaps. The variable rates are subject to change over time as LIBOR fluctuates. Neither the Company nor the counterparty, which is a prominent financial institution, is required to collateralize their respective obligations under these swaps. The Company is exposed to loss if the counterparty defaults. The Company does not hold or issue rate swap agreements for trading purposes. FAIR VALUE OF LONG-TERM DEBT, CURRENT MATURITIES OF LONG-TERM DEBT AND INTEREST RATE SWAPS The estimated fair value of the Company's long-term debt, current maturities of long-term debt and interest rate swaps have been determined using appropriate market information and valuation methodologies. Considerable judgment is required to determine the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
DECEMBER 31, 1998 ---------------------------- CARRYING AMOUNT FAIR VALUE ---------------- ---------- (IN THOUSANDS) Senior Discount Notes........................................... $ 114,353 $ 50,945 Term B Loan..................................................... 114,000 114,000 Term C Loan..................................................... 160,000 160,000 Interest Rate Swaps Loss........................................ - 13,895
The fair value for the Company's Senior Discount Notes is based on dealer quotes for those instruments. The fair values for the Company's Term B Loan and Term C Loan are assumed to approximate carrying values as the interest rate on the loans fluctuate with changes in LIBOR (i.e., a variable rate loan). The fair market value of the Company's interest rate swaps is based on the estimated termination values at December 31, 1998 as provided by the counterparty to the swaps. 3. GOING CONCERN ASSUMPTION The Company is currently in default of certain provisions related to its Bank Credit Facility, as disclosed in Note 2. Management has, therefore, classified the Term B and Term C Loan as current maturities of long-term debt. The Company plans to (i) cure the events of default referred to above; (ii) continue to comply with current and future Bank Credit Facility debt covenants; and (iii) obtain adequate funding through project completion. To accomplish these plans, management (a) is currently seeking an additional contribution of $18.5 million from London Clubs (which the Company has been advised will be funded by London Clubs); (b) together with London Clubs and the Sommer Trust, has submitted a proposed Second Amendment to the Credit Agreement (see Note 2), which seeks to cure all current events of default; and (c) has informed both London Clubs and the Sommer Trust of its estimate of future equity contributions of approximately $33 million required under the net worth test proposed under the Second Amendment to the Credit Agreement. If for any reason, funding under the Credit Agreement ceases, the Company will not have sufficient liquidity and capital resources to meet all its current and long term commitments and obligations, and to complete construction and commence operation of the new Aladdin Hotel and Casino. 40 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. LEASES The Company leases certain real property, furniture and equipment. At December 31, 1998 aggregate minimum rental commitments under noncancelable operating leases with initial or remaining terms of one year or more consisted of the following:
YEAR ENDING DECEMBER 31, - ------------------------------------ OPERATING LEASES ------------------- (IN THOUSANDS) 1999 $ 646 2000 200 2001 15 ----- Total Minimum Lease Payments $ 861 ----- -----
Rental expense amounted to approximately $0.5 million for the year ended December 31, 1998. 5. INCREASE IN THE COMPANY'S BOARD OF MANAGERS Under the Credit Agreement, $25 million of the total project costs were designated as contingency funds. Contingency funds are made available to the Company as a function of the project's percentage of construction complete. However, the Company committed to changes in the plans and specifications early in the project while the percentage of completion was low. In addition, the Company revised certain items of the project budget and adjusted the budget accordingly, including an increase to pre-opening costs. Thus, because financial commitments were made when the contingency funds were not yet available to pay for such changes, an out-of-balance of approximately $6.5 million was created in November, 1998 ("November 1998 Out-of-Balance"). The Sommer Trust and London Clubs posted letters of credit in the amounts of $1,030,500 and $5,543,500, respectively, to fund the November 1998 Out-of-Balance. The Sommer Trust and London Clubs are parties to the Bank Completion Guaranty whereby, among other things, the parties agreed to fund certain project costs increases and to a contribution agreement ("Contribution Agreement"), dated as of February 26, 1998, whereby, among other things, the parties agreed to share all the obligations under the Bank Completion Guaranty, 75% to the Sommer Trust and 25% to London Clubs. On November 30, 1998, the Sommer Trust and London Clubs agreed that because the Sommer Trust did not fund its proportionate share of the November 1998 Out-of-Balance, (a) the Sommer Trust and its affiliates shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings, and (b) the Board of Managers for Gaming Holdings and Gaming was expanded from the then-current five Board members to six and the number of Board Members London Clubs designated was increased from two to three. Notwithstanding the change to increase London Clubs' voting power and the increase in the number of board members, the supermajority provisions contained in the Gaming Holdings' Operating Agreement which require the approval of the holders of at least 80% of the Gaming Holdings Common Membership Interests remain unaffected by this agreement. 41 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. RELATED PARTY TRANSACTIONS AND GUARANTEES LAND CONTRIBUTION AND RESTRICTED LAND As discussed in Note 1, both Sommer Enterprises, LLC and Gaming Enterprises contributed land to the Company. The land was originally owned by AHL, a related party under common control, and therefore the land has been recorded at its carryover basis. In addition, the land was subject to certain indebtedness which was paid by the Company on the date of the contribution. The indebtedness exceed the carryover basis of the land and therefore resulted in a negative contribution by Sommer Enterprises, LLC. The carryover basis of the land was approximately $40.25 million, but a portion of the land has been classified as restricted land due to a requirement to transfer the land to Aladdin Bazaar, LLC. Aladdin Bazaar, LLC is owned effectively 37.5% by the Sommer Trust. Aladdin Bazaar, LLC is currently constructing and will operate a themed entertainment shopping mall and 4,800-space car parking facility (together known as the "Mall Project"). The Mall Project is expected to be an integral part of the Aladdin entertainment complex. The carryover basis of the land was allocated to the Mall Project based on an appraisal of the entire land parcel. The Company expects to transfer the land before the end of 1999. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS Certain members of the Company's executive management have purchased unvested restricted membership interests, in the aggregate, of 4.75% of the Company. Except for Mr. Goeglein, these membership interests will vest 25% on the opening of the Aladdin and 25% upon the expiration of the term of the executive's employment agreement. If Gaming continues to employ the executive after the expiration of the employment agreement, 25% of the interest will continue to vest on each anniversary of the Aladdin opening date until such interests are fully vested. After the term of the employment agreement, if Gaming does not continue to employ the executive, other than for Cause (as defined), or if the officer no longer continues his employment for Good Reason (as defined), only an additional 25% of the interest vests. Mr. Goeglein's membership interests become fully vested at the earlier of July 1, 2002 or the date on which such interests become publicly traded, conditioned upon Mr. Goeglein's continued relationship with Gaming. As of December 31, 1998, none of these membership interests had vested. EMPLOYMENT AGREEMENTS The Company has entered into employment contracts with five members of its senior management. The terms of these agreements provide for an aggregate annual amount of approximately $1.5 million, plus any bonuses granted by the Board of Directors and based on relevant criteria and performance standards. The agreements have an initial duration of between four years and five years and six months. All agreements were entered into during 1997. One agreement additionally provides for the individual to be retained as a consultant for $100,000 per year for 5 years after the initial term. GAI, LLC CONSULTING AGREEMENT Gaming has entered into a consulting agreement with GAI, LLC, a Nevada limited liability company, 100 percent beneficially owned by Gaming's Chief Executive Officer. This agreement requires Gaming to pay to GAI, LLC a retainer of $12,500 per month until June 30, 2002 for remaining on call to provide services and expertise for such month. THE LONDON CLUB MANAGEMENT AGREEMENT Gaming, London Clubs and LCNI are parties to a management agreement which relates to the operations to be managed by London Clubs ("The London Club"). Under this agreement, London Clubs 42 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED) has agreed to guaranty the obligations of LCNI. In consideration for the services to be furnished by LCNI under the management agreement, Gaming will pay to LCNI a performance-based incentive fee. This fee will be calculated based on a range of percentages applied to certain thresholds of The London Club EBITDA (defined as gross revenue attributable to The London Club, less all costs and expenses directly attributable to The London Club). COMPLETION GUARANTY AND KEEP-WELL AGREEMENT London Clubs, the Sommer Trust and Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the Sommer Trust, have entered into a completion guaranty for the benefit of the Lenders under the Bank Credit Facility, under which they have agreed to guarantee, among other things, the completion of the Aladdin. The guaranty is not subject to any maximum dollar limitations. In addition, AHL, London Clubs and Bazaar Holdings (collectively, "Sponsors") have entered into an agreement ("Keep-Well Agreement") in favor of the Lenders under the Bank Credit Facility. The Keep-Well Agreement requires the Sponsors to make certain quarterly cash equity contributions to Gaming beginning with the commencement of operations if Gaming fails to comply with the minimum fixed charge coverage ratio set forth in the Bank Credit Facility. Under the Keep-Well Agreement, the Sponsors are not required to contribute an aggregate of more than $150.0 million to Gaming ($30.0 million in any one fiscal year), and are not required to contribute any amounts to Gaming on or after the earlier of the date on which Gaming complies with all of the financial covenants set forth in the Credit Agreement for six consecutive quarterly periods or the date on which the aggregate outstanding principal amounts of the Credit Agreement are reduced below certain amounts. The Sommer Trust, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank of Nova Scotia, as administrative agent for the Lenders, have entered into the First Amendment to the Guaranty of Performance and Completion, dated as of March 10, 1999 ("First Amendment to the Bank Completion Guaranty"). The First Amendment to the Bank Completion Guaranty requires that the Sommer Trust, London Clubs and Aladdin Bazaar Holdings, LLC jointly and severally guarantee that Gaming maintains the minimum Net Worth required by the Second Amendment to the Credit Agreement. On March 30, 1999, the Sommer Trust and London Clubs agreed that if either party is required to contribute more than its proportionate share of any amounts necessary for Gaming to maintain the revised Net Worth as required in the Second Amendment to the Credit Agreement, then the party who contributes more than its proportionate share will be deemed to have made a recourse loan to the party who contributes less than its proportionate share in the amount not funded by such party. The recourse loan will bear interest at 20% per annum and will be payable by a transfer at par value of the corresponding amount of the Holdings Common Membership Interests held directly by the party who did not contribute its proportionate share. Until the recourse loan is paid, the party who contributed more than its proportionate share will have a security interest and continuing lien in said Holdings Common Membership Interests. During 1998, London Clubs received a fee of $2.65 million for its obligations under the Keep-Well Agreement and in addition is entitled to an annual fee of 1.5%, payable in arrears, of the Company's annual average indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported by the Keep-Well Agreement. Such fees accrue from the closing date of the Bank Credit Facility and are payable from available cash flow after the opening of the Aladdin. As of December 31, 1998, the Company had accrued approximately $3.4 million in Keep-Well fees to London Clubs, which is reported in 43 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED) the Balance Sheet as Related Party Payables. Additionally, the Company agreed to reimburse approximately $2.8 million to London Clubs for certain expenses incurred relating to the Aladdin; however, in November 1998, London Clubs agreed to defer the payment of approximately $189,000 of this reimbursement until the Main Project Budget under the Credit Agreement is In Balance (as defined in the Credit Agreement). As of December 31, 1998, London Clubs received approximately $2.4 million of this $2.8 million reimbursement obligation. In consideration for certain expenses incurred by the Sommer Trust prior to February 26, 1998, relating to the management and coordination of the development of the Aladdin, the Company reimbursed $3.0 million to the Sommer Trust on February 26, 1998. In addition, Gaming will reimburse certain ongoing out-of-pocket expenses of the Sommer Trust relating to the development of the Aladdin, not to exceed $0.9 million. In November 1998, the Sommer Trust agreed to defer such reimbursement until the Main Project Budget under the Credit Agreement is In Balance (as defined in the Credit Agreement). As of December 31, 1998, the Sommer Trust had received approximately $3.3 million of the total $3.9 million reimbursement. PAYMENT OF MUSIC INDEBTEDNESS During 1998, the Sommer Trust, the approximately 72% beneficial owner of the Company, paid approximately $260,000 to certain trade creditors on behalf of Aladdin Music and Mr. Sommer, the Company's Chairman of the Board, individually paid $500,000 to a trade creditor on behalf of Aladdin Music. Further, during the first quarter of 1999, the Sommer Trust paid approximately $747,000 to a trade creditor on behalf of Aladdin Music. To the extent permissible, Aladdin Music has agreed, if and when Aladdin Music secures a joint venture partner and financing for the Aladdin Music Project to reimburse the Sommer Trust and Mr. Sommer such advanced funds. 7. COMMITMENTS AND CONTINGENCIES ENERGY SERVICES AGREEMENT The Company entered into an energy services agreement for hot and cold water and electricity that will be purchased by the Company and the Mall Project (which would include the tenants of the mall) over initial terms of 20 years. The central utility plant is being constructed by Northwind Aladdin, LLC ("Northwind") on land owned by the Company and leased to Northwind. The central utility plant and equipment (collectively, "Costs") will be owned by Northwind, which will pay all costs in connection with the construction, purchase and installation. The current budget for the Costs is $40.0 million. The charges payable under the energy services agreement will include a fixed component applied to the Costs paid by Northwind and reimbursement of operational related costs. The Company's share of Costs under its energy services agreement is based on the total Costs (currently budgeted at $40 million) less the amounts payable by the Mall Project and Aladdin Music, if and when, Aladdin Music enters into an energy services agreement with Northwind. The Mall Project's share of Costs is approximately $2.9 million. If Aladdin Music: (i) does not enter into an energy services agreement with Northwind prior to the Company incurring Costs under its energy services agreement; and (ii) the share of Costs assumed by 44 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) Aladdin Music are not significant, then the Company intends to account for the total Costs incurred by Northwind as a capital lease. If however, items (i) and (ii) above are accomplished prior to the Company incurring any Costs under its energy services agreement, the Company will account for the energy services agreement as an executory contract and expense the Costs as incurred. MALL PROJECT COSTS In connection with the development of the Mall Project, Aladdin Bazaar, LLC will reimburse the Company approximately, $14.2 million for the construction of certain areas shared by the Aladdin and the Mall Project and the facade to the Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to spend no more than $36.0 million for the parking garage. Therefore, any cost overruns associated with these items will be borne by the Company. In addition, the Company is obligated to pay Aladdin Bazaar, LLC: (i) a $3.2 million fee per year for a term of 99 years, which is adjusted annually pursuant to a consumer price index-based formula, for usage of the parking garage; and (ii) the Company's proportionate share of the operating costs associated therewith. CONSTRUCTION COSTS Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the Aladdin. The Design/Builder has entered into a guaranteed maximum price design/build contract ("Design/Build Contract") (subject to scope changes) with the Company to design and construct the Aladdin. During the course of construction, a number of issues and items have arisen in connection with various change orders and delay claims submitted with the project and the scope of the Design/Build Contract. The Company has submitted three disputed Design/Builder equitable scope change requests ("Claims") to arbitration ("Arbitration") pursuant to the provisions of the Design/Build Contract. The Company believes that the Claims relate to design and work which is base work contemplated in the Design Build Contract and therefore should be included in the guaranteed maximum price of the Design/Builder. The Design/Builder has responded to the Company's argument in Arbitration, alleging, among other things, that the Claims relate to unforeseen conditions, and/or are due to the actions of the Company, and therefore, the Company is responsible for all costs and delays associated with the Claims. While the Company intends to aggressively and vigorously pursue the Claims, and believes that it will ultimately prevail in arbitration, the Claims are only in the preliminary stages of the Arbitration process, and therefore, no assurances can be given with respect to the ultimate outcome. The Design/Builder has presented Claims in the amount of approximately $4.7 million. 8. SUBSEQUENT EVENTS DEVELOPMENT AND CONSTRUCTION OF ALADDIN The development of the Aladdin commenced during the first quarter of 1998. In March 1999, the Company completed a review of the project budget and determined that it was appropriate to increase the project budget by approximately $18.5 million, which amount reflected an increase in construction costs of approximately $9.5 million and an increase in pre-opening costs of approximately $9.0 million (collectively, "March 1999 Out-of-Balance"). In addition to this amount, it will be necessary to increase the project budget by the amount of the Music Indebtedness as a means to cure that event of default. See discussion at Note 2 for Music Indebtedness event of default. 45 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SUBSEQUENT EVENTS (CONTINUED) The Company has informed the Sommer Trust and London Clubs of the March 1999 Out-of-Balance and requested that, pursuant to the Bank Completion Guaranty, the Sommer Trust and London Clubs fund the March 1999 Out-of-Balance. As of March 30, 1999, neither party has funded the March 1999 Out-of-Balance; however, London Clubs has advised the Company that it will fund the full March 1999 Out-of-Balance amount. The March 1999 funding under the Credit Agreement was to be made, assuming payment of the March 1999 Out-of-Balance, on or about March 18, 1999. As of March 30, 1999, such funding had not occurred, and the Company believes the funding will not occur without the payment by London Clubs of the March 1999 Out-of-Balance. Even if the March 1999 Out-of-Balance is paid, due to the existing events of default under the Credit Agreement, there can be no assurances that any funding will be made under the Credit Agreement or that the Credit Agreement will not be terminated. The monthly payment to Fluor Daniel, Inc., the design/builder ("Design/Builder") of the Aladdin was due from the Company on or about March 18, 1999. As the Company did not receive its March 1999 funding under the Credit Agreement, as of March 30, 1999, the Company has not paid the Design/Builder. Under the Design/Build Contract, ten days after payment is due, the Design/Builder can issue a written notice of non-payment and if payment is not made within ten days after such notice, Design/Builder can stop work on the Project. If the Design/Builder does stop work on the Project, it will cause delays and expenses to the Project which would have a material and adverse effect on the Company. After expiration of the applicable time periods, a default under the Design/Build Contract is an event of default under the Credit Agreement. OPINION OF THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANT Arthur Andersen LLP, the Company's independent public accountant, has issued an opinion in connection with its audit of the Company's financial statements which includes an explanatory fourth paragraph that calls attention to the existence of substantial doubt about the Company's ability to continue as a going concern. The Credit Agreement and the FF&E Financing documents requires that the Company's annual financial statements be audited without an Impermissible Qualification (as defined in the Credit Agreement) from the independent public accountants, which includes any qualification or exception to the accountant's opinion of a "going concern," or similar nature. If such qualified opinion is not cured within thirty days, it would constitute an event of default. 46 -----END PRIVACY-ENHANCED MESSAGE-----